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Unlocking Liquidity from the Financial Value Chain

Impact of the Economic Downturn

Tumultuous economic times have forced companies to take a closer look at their liquidity management initiatives and identify areas of cost savings.  Having effective access to near-term liquidity to support critical operations has made its way to the top of the executive's agenda across many industries. Consequently, companies, particularly those in the finance sector, are taking strategic actions to improve their cash position visibility and cash forecasting accuracy.

Impact of the Economic Downturn
In the latest Aberdeen Business Review, over 1,400 companies were evaluated to uncover their top business goals and initiatives for 2011. In the aftermath of the credit crisis, resulting in the fall of major financial institutions, the focus on profitability and cost reduction has become more pronounced for the finance community than the rest.

Such initiatives on improving profitability and lowering cost lead to favourable cash positions, allowing companies to leverage the additional liquidity towards enhancing operational performance. This trend has resulted in notable changes in revenue, operating profits, headcount, overall budget, and technology budget in the past couple of years. Sourcing and managing liquidity, however, has continued to be a challenge.

To address these impacts, companies are looking into effective cash management strategies to help them improve areas around cash flow forecasting and cash conversion cycles. In Aberdeen's November 2010 report, "Operational Cash Management: Streamlining Processes to Unlock Liquidity," Aberdeen identified the top business capabilities leveraged by Best-in-Class companies.

These initiatives, coupled with process and technology improvements enabled these organizations to successfully unlock liquidity from their financial value chain.

Improving Availability and Access to Liquidity.
The focus remains on the optimization of working capital through effective demand planning. Additionally, by reducing costly errors that are often attributed to paper-based and / or manual transactions, and by adjusting the cash payment and cash receipt window to enhance cash position,  top companies are methodically increasing their available liquidity.

Finally, improved demand planning benefits all parties: The company, its suppliers, and its customers. For those moving physical goods,suppliers that have better visibility to the company's requirements are better able to meet its demand, reducing the potential for excess inventory. The same principle applies to the purchase and sale of services, as well. Essentially, better demand planning gives the company the valuable leverage in negotiating lower prices and higher discounts. All factors, combined, lead to greater accuracy of cash forecasting, allowing a broader range of options for investing excess cash and making it work for the company.

By Will Jan Senior Research Analyst at Aberdeen Group

More Stories By John Funnell

John Funnell has worked in online media for over ten years, after achieving his First Class BSC Hons Degree (BBC Sponsored), John won Bos 18-21 Princess Trust Entrepeneur of the year at 21, setting up Clean Living Records Ltd (including www.BeatReview.com) with great success having many acts that charted in Europe and Canada. After selling the business John looked for a new challenge and joined GDS International, having a successful career in sales and Delegate acquisition, he worked up to Event Director EMEA, forging contacts with some of the biggest technology names in the world, this lead to John having a lead role in the creation of MeettheBoss.com and MeettheBoss.tv – the worlds largest business IPTV channel. John then took over as Marketing and Communications Director and ran a multifaceted global Marketing team for GDS International in New York, Sydney, Kuala Lumper and the UK.. John joined Global in 2011 with the challenge of supporting its growth by developing a solid Marketing foundation through various Digital, PR and brand initiatives.

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