Wirecard during Covid-19 means the time is now for businesses to acquire more capability and resilience in their cash management.
Managing uncertainty and reducing costs through data and digital is the goal for all Finance Directors, be they responsible for big companies or small. Covid-19 dislocation held up a mirror to conventional finance processes. Forward thinking Finance Directors have begun improving their processes that are laggy, expensive and lossy. For some of them, this has meant starting the move to real-time in collections and cash. For others it is about reducing manual work on reconciliations and data chasing. For yet others it is value-for-money on fees and spreads. All of them are rethinking their financial operations for more efficiency and resilience, and not merely “paving the cowpath” with technology. Products like Adjoint Treasury see the uplift from strengthening of this trend.
With the Wirecard case, the Finance Director community may be forgiven for feeling that the great Birnam Wood has come to high Dunsinane Hill. Bankruptcy at the payment processor and ensuing investigations are raising crucial questions about regulation and audit. But at commercial organisations - from the micro to SMEs to large MNCs - the question is: how do we get better cash management? For example:
- Have we been using Wirecard, its subsidiaries or its partners - directly or indirectly?
- What does that mean for our in-transit cash? And for our operations tomorrow, next week, or next month?
- Who are our acquiring banks anyway, even if not Wirecard? How do we best manage our exposure to them?
- Who are the issuing banks used by our payers? What is our exposure to them?
- How can we best use indemnification from associations, like Visa or Mastercard, to minimise risk of disruption and loss?
- How could our suppliers, dealers or employees be impacted, and what might that mean for our business continuity?
- What might be the future impact on our costs and timeliness?
- With new methods like Open Banking, Request To Pay and SEPA Instant, why do we need the likes of Wirecard, with all their cost and risks?
- We probably should not just carry on as before. How do we introduce more capability and resilience in our cash management?
Our clients see some principles as crucial. First is that data-driven decisions are better. Successful executives at resilient companies can analyse better cashflow data to determine business direction.
The financial services industry has spent decades in trying to hit the low bar of slightly longer payment references, and even that has had limited success. In reality, a financial service provider will never have access to the complete set of cashflow data a business has and needs to connect. Hence this business need is underserved.
The capability needed is to connect all data related to a cashflow: price quotes, purchase orders, invoices, payment plans, discount terms, netting of payments, fees, taxes, adjustments, advice back to the payers, internal approvals, and so on. This data needs to be timely, reliable, complete or accurate. Such methods have long been used in inventory, production management and logistics. They now need to be applied to gather, verify and present meaningful financial data, in real-time. This would mean saying no to data batches dumped into a spreadsheet once in a while. This would take the form of a real-time software application pulling data end-to-end from CRM, Open Banking and accounting domains. The need is shown in the diagram below.
The second principle is that fewer intermediaries, loosely connected, are better than many locked-in relationships. Companies often acquire a number of specific relationships over time. These lead to different methods for collecting cash: from cards, into wallets, in bank accounts, online, in-store, by emailed invoices, etc. Companies have unnecessary variations by country or business segment. They have too many different datasets and processes for collections, payments, borrowing and liquidity.
This usually entails a lot of “hard-coding”, which leads to less transparency, more risk, more costs - ultimately more rigidity, less resilience. This has become abundantly clear in the aftermath of Wirecard. But even prior to that, slow payment cycles were identified as a major business problem by the Confederation of British Industry who saw adoption of digital platforms as key to resolve this challenge.
And finally, resilience is best achieved through automation and digitisation. Most executives at large or medium companies have heard of Robotic Process Automation and Application Programming Interfaces. However very few are able to use them effectively to improve oversight to their transactions, workflows and agreements, especially when applied to multi-party processes, e.g. with suppliers, customers or partners. Data and documents are too often stored locally and shared on email or batch downloads, hobbling the path for capability and resilience.
To bounce back stronger from the Covid disruption, businesses need Better Cash Management. In the aftermath of Wirecard, the benefits case is even stronger.
Contact us at firstname.lastname@example.org to learn how Adjoint is helping businesses achieve capability and resilience in treasury and cash management.