Why & How AI will Change the Finance Department: Ways to Improve Cash Management

In the next few years, AI is poised to revolutionise how finance departments operate and share information with the rest of their organisations.

Regarding cash management, it has the potential to boost efficiency by reducing human error and reliance on time-consuming manual tasks. This could free up time for finance departments to focus on more creative and strategic work that adds value to the organisation and supports its long-term growth goals.

In this article, we will explain the common cash management challenges finance departments face today and how they can be resolved with the help of AI.

But first, it’s important to be aware that AI is still a relatively new tool for many finance teams

Surprisingly most finance teams that currently use AI only started using it within the last two years. Furthermore, almost half of employees around the world are not confident that their organisations will implement AI responsibly, which is a challenge for CFOs looking to invest in AI.

So why should finance teams embrace AI in 2024?

Here are three compelling reasons:

1 - 72% of senior leadership professionals report high organisational productivity when using AI.

2 - AI doesn't need to take holidays or sick leave. While humans will always be indispensable for decision-making, AI can help plug the gaps to improve your operating capacity and productivity.

3 - AI can save your department thousands of hours a year by performing many of your time-consuming, arduous tasks, such as expense management, tax compliance and invoice processing.

But how does this relate to cash management and cash flow forecasting?

Firstly, let’s look at the problems with manual cash flow forecasting

Despite the rise of AI tools and software in recent years, many financial departments are still relying on manual processes for their cash flow forecasting. This increases the risk of errors and inaccurate cash projections, which can make it harder to manage and maintain a healthy cash flow.

The wider impact of this problem

Even with accurate data, cash flow forecasts are still based on estimates and projections that are only as accurate as that data that underpins them.

If you don’t have access to accurate, up-to-date information to produce these forecasts, managing and optimising cash flow becomes a bigger challenge.

Did you know over 80% of businesses fail because they either don’t have enough cash or don’t have an effective cash flow strategy?

The three main causes of poor cash flow are:

• Receiving late payments
• A lack of financial planning
• A lack of emergency funds.

The solution - Enhanced cash forecasting thanks to AI

AI can analyse vast data sets to produce accurate cash flow forecasts that help you plan your cash flow more precisely. For example:

• AI-powered tools can automate your cash flow forecasting using historical data and machine learning algorithms to predict future cash flows.
• This information can be produced in a fraction of the time it would take a human
• CFOs can drastically reduce the risk of manual errors and simultaneously save their teams valuable time.

As you scale your business, AI can also help you navigate the financial complexities

Agicap’s AI-driven cash flow management platform includes real-time forecasting that enables you to:

• Achieve maximum financial visibility
• Identify risks and opportunities as early as possible
• Make quicker decisions

From manual to real-time financial analysis

The problem

Many finance departments still rely on traditional, manual data analysis, which is time consuming and subject to human error. Manually generated financial reports are surprisingly prone to errors and can be hard to interpret and analyse - even for the most experienced data analysts.

The longer it takes you to analyse your financial data, the slower you can react to changes in the market, such as the launch of another competitor. This compromises your company’s ability to stay competitive and agile.

The solution

The evidence shows that most workers recognise the time savings afforded by automation. Research from SmartSheet has found that almost 70% of workers believe the biggest opportunity of automation is the time saved from repetitive work, particularly data collection.

• With real-time financial analysis, finance departments can quickly identify trends, make proactive decisions, and respond swiftly to market changes.
• Agicap’s new AI Assistant can crunch any financial data you need and organise it into instant reports when time is of the essence.

Predictive analytics

The problem

Finance departments are reliant on historical data, which may not accurately predict future trends and risk, as past performance is not necessarily a good indicator of future performance. Using this historical data exclusively can lead to inaccurate forecasts and prevent you from optimising your cash flow and excess cash.

The solution

Predictive analytics combines historical data analysis and machine learning to enable finance teams to quickly anticipate future trends, identify potential risks, and discover new opportunities. This helps you CFOs strategically and manage cash flow risks proactively - not reactively - in challenging macroeconomic environments.

Dynamic pricing

The problem

With static pricing, your prices stay the same, regardless of any changes in supply and demand. This is an inflexible, ‘one size fits all’ approach that can reduce your cash flow for two main reasons:

• When demand for your products rises, your customers might be willing to pay more for them. This is when your prices may be too low, as they are not optimised to the market’s demand.
• When demand falls, your prices may need to be reduced, or you may need to offer more discounts or other incentives, to achieve your revenue targets.

With dynamic pricing, you adjust your pricing based on demand in order to optimise your revenue.

• Hotels are a good example of businesses that use dynamic pricing.
• During peak periods, such as weekends, they often charge more because demand is much higher.
• However, during quieter periods, like weekdays and the low season, they may reduce their prices significantly.

Dynamic pricing can help you maximise your cash flow

Research has already indicated that employing dynamic pricing can boost a company's revenue from 1% to 8% per year, compared to standardised pricing.

But doing it manually can be tricky. That’s because this usually involves a lot of data analysis and competitor research to determine the optimal price for different market conditions.

This is where AI can help

• Because AI can dig into the historical data for you, it can produce dynamic prices that are optimised to market conditions to help you maximise your returns.
• AI-driven dynamic pricing tools can also analyse market trends and demand in real-time to ensure your prices accurately reflect the current demand for your products.

Optimise your investment strategy

The problem

Without the right data and tools, you may find it difficult to optimise your investment strategy and maximise your returns. This can prevent you from taking advantage of favourable market conditions or excess cash.

The solution

Optimising your investment strategy can help you achieve better returns and make your business more resilient to economic volatility. For example, Agicap can help you learn how to use your excess cash efficiently with short-term investing.

Automate your reconcilitation

The problem

Manual reconciliation processes are time-consuming, error-prone, and inefficient, leading to discrepancies and delays. If your business manages payments in different currencies with different banks, it can be difficult to maintain visibility over your cash flow and monitor your inflows and outflows. Inefficient reconciliation can result in financial discrepancies, delayed financial reporting, and increase the risk of errors and fraud.

The solution

Automated reconciliation can drastically reduce the risk of errors while improving your overall financial efficiency and transparency.

• Agicap’s automated reconciliation process enables you to do your bank reconciliation in just a few clicks.

Enhanced fraud detection

The problem

Traditional fraud detection methods rely on manual processes and tend to be reactive rather than proactive This makes organisations vulnerable to cyber breaches, identity theft and other common types of fraud. Over time, inadequate fraud detection can lead to significant financial losses, legal issues, and reputational damage.

The solution

Enhanced and proactive fraud detection with AI can help you quickly and efficiently identify any evidence of fraudulent activities before they become a threat to your organisation.

AI-driven fraud detection tools can analyse transaction patterns and behaviours in real-time to identify and prevent fraudulent activities. For example, in the insurance sector, AI can be used to detect claims that have been overlooked by traditional fraud detection systems.

Agicap's system prevents fraudulent payments thanks to its quick reconciliation, which ensures payments are always matched to their corresponding invoices.

• With Agicap’s detailed reports and analytics, it is also easier to monitor your vendor relationships and payment history to maintain a transparent overview of your cash flow.

Risk management and compliance

The problem

Without effective cash flow management and accurate forecasting, you may find it harder to meet your risk management and compliance obligations, especially if your company operates in a highly regulated sector, such as financial services or healthcare.

• Relying on too many manual processes for your tax and accounting could increase the risk of errors and fines.

The solution

AI-driven risk management and compliance tools automate the monitoring and reporting of regulatory requirements to minimise the risk of costly errors.

• Agicap’s platform provides comprehensive risk management and compliance tools to help CFOs to stay compliant and manage risks effectively.

Conclusion

From this article, we have discussed how CFOs and finance departments can leverage the power of AI to improve their cash management. AI is a powerful tool that cannot replace finance teams but can liberate their employees from the most boring, time-consuming and repetitive tasks - many of which are subject to a high degree of human error anyway.

The outcome of this technological transformation is more time and resources to focus on other activities. For example, the CFO can empower their employees to spend more time on the work that humans do best: the creative and strategic tasks. Over time, finance teams that fail to harness this technology will find themselves struggling to compete with those that do.

If you want to learn more about how AI and automation can improve your cash flow, contact Agicap today.