Cash is King, Long Live Consumer Use Tax Automation

The phrase “cash is king” often comes up amid economic uncertainty as cash flow pressures intensify. When customers delay payments, suppliers request faster settlements, and credit tightens, CFOs and other finance leaders seek ways to improve working capital management (WCM) and cash flow management.

Working capital management centers on the efficiency with which the business converts cash tied up in inventory, payables, and receivables into usable liquidity. Cash flow management relates to the timing and sufficiency of cash entering and leaving the business. Since indirect tax groups can contribute to improvements in both areas by strengthening compliance activities, it makes sense for tax leaders to stay current on WCM practices and priorities.

Cash Flow Granularity is Growing 

Grant Thornton’s Mike Hennessey points out that cash flow bolsters organizational resilience in today’s disruption-prone environment. Some finance groups are now deploying advanced analytics solutions to give them more detailed profitability visibility and enforce governance of capital allocations. The article, which is based on Hennessey’s insights, emphasizes that revenue-level visibility no longer suffices. Instead, finance groups need to sustain granular views of deal, product, and customer-level profitability to better manage inventory, receivables, and the broader cash conversion cycle.

That said, WCM improvements are needed, especially regarding supporting automation. The article reports that many finance teams still rely on spreadsheets rather than investing in more advanced technology solutions. New technology, including AI-driven solutions, “can not only enhance analysis, they also offer more robust learning models that improve over time,” according to the article. “Plus, they can examine internal data in the context of external information like commodity price analysis, distribution price, exchange rates and other factors.”

How Tax Can Help

As finance groups take deeper looks at larger collections of cash flow data, indirect tax teams should be prepared to contribute tax-focused data insights, including determination accuracy, exemption certificate coverage, accrual-vs.-actual variance data, when finance managers come knocking. Those tax indicators connect directly to working capital outcomes that finance leaders are scrutinizing.

Use tax compliance represents another opportunity for indirect tax groups to contribute to WCM improvements. In some organizations, use tax is one of the most over-reserved lines, typically because manual determination processes force tax groups to pad accruals against uncertainty and audit exposure.

“Managing use tax compliance is no small feat,” notes my colleague, Joseph Geiger, Jr., who is responsible for tax categorization for software implementations, tax research, and various tax compliance tasks at Vertex. “…For many organizations, the process is riddled with complexity, manual effort, and risk.” In his post, Joseph runs through several other use tax compliance challenges, including high volumes of invoices, limited transaction details, and the lack of use tax compliance expertise on accounts payable teams (which can lead to misclassified purchases, neglected exemptions, and inaccurate accruals).

Use tax automation addresses these challenges, while streamlining compliance and reducing manual workloads that are prone to missteps. The accuracy improvements use tax solutions deliver also yield WCM improvements, which should appease CFOs when cash flow pressures intensify.