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Cash management: 3 ways to better efficiency

Businesses with successful cash management strategies could boost resilience in the long term.

What’s the outlook for 2024?

The Chancellor opened his Autumn Statement by saying the UK economy is back on track with inflation falling. The Office for Budget Responsibility predicted falling debt, inflation and borrowing, but cut the growth forecast for 2024-5.

Big questions loom – for investors, businesses, and policymakers – over the outlook for the year ahead. In a more optimistic but still challenging business environment, cash management remains top of the agenda for UK businesses.

Cash is not only needed for day-to-day business operations; it’s also essential for long-term strategy. Whether it’s preserving cash to fund future investments, or to address market volatility in a rapidly changing world, the importance of prudent cash and liquidity management remains key.

1. Ensure efficient oversight of cash management

Every period of change or crisis is different, and things can change very quickly. As 2024 approaches, businesses looking to optimise their cash management strategy could benefit from reviewing their financial strategy and forecast inflows and outgoings more closely.

Some businesses might be considering whether to keep more cash on reserve so they are in good shape for the next crisis or unforeseen event.

Could excess cash be treated differently, with deposits shifting to term for a greater potential yield? Or does the business need to stay on the shorter-tenor side of the spectrum and prioritise flexible access to liquidity over long-term yield?

Bear in mind there are different business savings accounts, depending on whether you want instant access to your cash or if you’re happy to lock your money away for a set period. Criteria apply.

2. Manage risk in your supply chain

Geopolitical risk has risen sharply over the past year – and in recent months concerns have intensified around the prospect for further escalation across a range of geographies and dimensions. Businesses must continuously build resilience into their supply chains, enabling them to adapt to ongoing external events and continue to operate smoothly. This includes everything from assessing customer viability to researching alternative suppliers.

Hedging commodities could be another important way of managing price risk through black swan events. This would be both from the point of view of the corporate’s own working capital, and from the perspective of buyers and suppliers – who could also be hit by rising prices.

3. Optimise your technology for maximum efficiency

Inefficient business processes could put a strain on a company’s liquidity as well as hinder its ability to meet customer demand and make it harder for employees to do their jobs. Does your business have a strategy to use digital technologies to boost competitive advantage, increase revenue, or use capital more effectively?

Your business could take advantage of technology to improve efficiencies and reduce waste across the organisation. The use of AI, automation and data science, for example, could be transformational by improving systems, processes, customer experiences and leading to more productive ways of working. Before choosing your technology though, understand your adoption costs and asses the risk.

For more practical insight on financial management and risk strategy, visit our finance hub.

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This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice.

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