APIs Plus AI Reset Working Capital Management as Faster Payments Gain Ground

A lot changes in just a few months.

Through the past few weeks, several banks have failed. Businesses have been roiled by concerns about their cash, about being able to access funds when needed.

Inflation, of course, has been running rampant, lending an extra sense of urgency to better managing cash flow and realizing the maximum return on investments held in corporate coffers.

As Matt Marcus, CPO and co-founder of Modern Treasury, told PYMNTS, “You’d be hard pressed to find a company that isn’t talking about how they’re interacting with banks or thinking about their cash positioning.” That examination is taking place not just amid finance executives and back-office teams — it extends to the boardrooms.

Generally speaking, he said, corporate executives and treasurers are looking to have more redundancy and safety in the mix. They may be considering how to move their cash management operations so that these activities are spread more widely across a range of banks and making sure that funds are safeguarded.

Complexity in the Mix

But there’s a conundrum here — having a slew of banking relationships across several different providers means that it’s harder, and more complex, to track all the accounts being managed. No easy task, when depending on the sector, executives are tasked with doing more with less, perhaps with fewer people on staff, and with remote workforces. There may be only a few people within the firm, said Marcus, whose jobs are dedicated to reconciling inbound and outbound payments.

“Reconciliation becomes more pressing,” he said, “when you need to be able to close your books and understand your cash positions in order to be able to invest your money.”

Grappling With Slippage

As it’s been done traditionally, Marcus noted to PYMNTS — with manual, labor intensive tasks — reconciliation can lead to slippage. A company that receives checks in a lockbox at the bank may also be reconciling inbound ACH payments or wires. Many firms, said Marcus, may be resigned to “losing” several dollars off every invoice — because the time requires to find that money, or have a perfect reconciliation process in place requires time and resources the firm just does not have.

The negative ripple effect, said Marcus, winds up hitting visibility for those companies contending with inefficiencies and with slippage. If there’s no real knowledge of what’s in the bank, there’s less ability to forecast how to use that money strategically. If funds are lost through slippage, the opportunity to earn interest income on those funds is lost too.

Those pain points are especially acute in business models such as payroll companies and with online marketplaces, as funds are collected from one “side” of the marketplace and disbursed to the other side. Many of those payments, said Marcus, have a “time component,” between payouts, so the money that’s held through the provider could conceivably be used to earn interest and thus build cash reserves.

“It’s important to have all of these processes streamlined,” said Marcus. The need to improve those back-end processes will become ever more acute as faster payments, particularly real-time payments, gain ground as FedNow debuts in just a few months. From Modern Treasury’s viewpoint, said Marcus, having worked with TCH and real-time networks already in place, requests for pay and other instant payment use cases are going to see greater adoption in the months and years ahead. As many as 80% of bank accounts can receive RTP transactions today.

“But when you change the payment method,” said Marcus, “you change the way that everything works … and even what you see in your bank statement.” The movement to messaging standards and a framework to handle exceptions, said Marcus, will help transform business processes, including reconciliation. That leaves room for providers, Modern Treasury among them, to help make sure that data flows between banks, corporates, ERP systems — and via APIs — that all transactions information is routed and reconciled smoothly. Stakeholders, he said, get the functionality they need without having to reinvent their technology and ERP stacks.

AI Has a Place

Artificial intelligence (AI) has a role to play here, too: “Large language models,” he said, “can be used to aid some of these workflows.” AI can “intuit” what some of the non-standardized information might be when they’re detailed in bank statements, or invoices — eliminating the need for manual intervention or examination. The more data that’s out there, he said, the more adroit these large language models become in automating reconciliation processes.

Looking ahead, said Marcus, we’re getting to the point where a business can produce their financials as well as a summary of their business on a repeated basis, rather than that being a quarterly or monthly event.

“In order to get there, you need to get to a place where you’re actually able to reconcile everything instantly and also able to understand the drivers of your business without having a lot of … human input into it,” said Marcus, “and a utopian state is everything reconciling automatically — and that’s definitely possible.”