5 Keys to Evaluating your Company’s Cash IQ

Cash is king is managing working capital. Using spreadsheets to track balances and transactions across multiple accounts creates blind spots that that fuel inefficiencies in working capital management and damage a company’s bottom line. Advances in financial management solutions are offering companies of all sizes 20/20 vision in terms of cash visibility including cash balances, cash inflows, and cash outflows.  An in-depth understanding of cash, a high “Cash IQ”, allows a company to take an enterprise approach to working capital optimization as opposed to a siloed approach that leaves accounts receivable, accounts payable and inventory optimized locally at best, not across all three, nor across currencies, nor across global operations.

The level of understanding a company has relative to following defines its Cash IQ:

1. Where cash is coming and going
2. Why it is coming and/or going there
3. How it is coming and/or getting there
4. How long cash takes to arrive and/or get there
5. Who controls cash movements & why

During my tenure as a treasury manger I was tasked with answering all of these questions in detail. At a high level, I accomplished this task by reviewing and mapping all existing internal processes for all movements of cash, and mapped the relationships within and across all processes in terms of people, process, and technology:

• Cash Out
  • Accounts Payable
    • Checks, Wires, ACH
    • Tax & Dividend Payments
    • Inter-Company Payments
  • Investments
    • Short Term
• Cash-In & In-Transit
  • Accounts Receivable
  • Checks, Wires, Inter-Company Payments

Good news, if you are a publically traded company you have all of those process flow diagrams at your fingertips as you put them together to comply with Sarbanes-Oxley requirements.

Can making initial assessment of your company’s cash IQ be labor intensive? Absolutely, but it can offer valuable revelations not only on terms of working capital inefficiencies, but a greater understanding of how your company really works, and can help your company more effectively communicate your cash story to key stakeholders and investors. 

If you want to learn more I invite you to check the Proformative course Working Capital Optimization: An Approach to Unlocking Enterprise Value in addition to the other great courses offered by Proformative.