The Weekly Ledger No. 71: Cash Flow Strategies

October 12, 2022 Theresa Rex

Directors analyzing cash flow strategies

Welcome to The Ledger where we sum up the latest finance and accounting news for you. This week, we've rounded up everything finance leaders need to know about managing cash flow even in uncertain times along with some tried and true strategies. Read on for fresh insights and best practices for generating and sustaining cash flow no matter what's on the horizon. We rounded up recent research that shows the impact of CX on I2C, a convincing argument for dynamic cash flow management and four things businesses can do now to safeguard cash flow in a stressed economy. Let's get right to it:

The Weekly Ledger cash flow strategies

Is Improved Accounts Receivable CX the Key to Increased Cash Flow?

There are certain circumstances and conditions in which finance leaders might want to speed cash flow and streamline the processes that make that happen — more than usual, at least. For instance, when inflation and interest rates rise and bring the cost of capital along for the ride, CFOs must keep a close eye on accounts receivable — and invoice-to-cash (I2C) in particular — where long processing times cause delays that threaten operational cash flow at a time when stakes are particularly high.

Recent research shows that those delays are often thanks in large part to a near-universal customer experience within I2C processes in AR that leave much to be desired:

  • Eighty-one percent of CEO respondents said that accounts receivable processes could be source of negative customer experiences

  • Eight-six percent said confusion and conflict in the I2C process resulted in a loss of revenue

  • Forty-four percent of CFOs said they had to regularly intervene to resolve disputes to preserve cash flow in the short term and the customer relationship in the long-term

Disputes in the invoice-to-cash processes can slow cash flow in the short term and pose an even bigger issue down the road in the form of customer churn and inevitable lost revenue — if you let it. Get the whole story over at cfodive.com.

Adopt Cash Flow Planning Strategies for Unpredictable Times

It seems as if we're all playing the hits, lately: the economy looks uncertain in a very familiar way and business leaders everywhere are reminding themselves that: "Revenue is vanity, profit is sanity but cash is king" and: "Expenses are predictable, income is estimable and mismatch is inevitable".

Looking for familiar anchor points with known solutions in uncertain market and economy conditions isn't just human nature — it's key to surviving the thing you're hoping to plan for. And because that's ultimately determined by whether you can keep the cash flowing or not, CFOs are turning their attention to cash flow planning to ensure the spigot stays on. Arthur Andersen alum Jim DeLoatch is a founding partner of Protiviti — a global business consulting firm — and he is urging them to embrace a dynamic approach when they do. After all, haven't we all seen for ourselves how quickly things can change? Answering volatility with dynamism is a cash flow strategy that acknowledges that traditional approaches to risk management — from supply chains to debt implications — no longer serve businesses effectively. Here's what he suggests:

  • Get analytical: Finance leaders and executives have more tools than ever that they can and should use to assess working capital and flag improvement opportunities.

  • Run the variables: Scenario-based cash flow planning can help optimize investments and prepare companies to be resilient in turbulent economic times.

  • Apply pressure: Stress-testing will help you see what your organization could withstand and where the threats to cash flow and continued operation lie, then act accordingly.

You can't prepare for everything, but you can prepare to take on the unpredictable if you keep a dynamic mindset as you map out cash flow strategies for whatever the economy has in store. Read DeLoatch's expert advice when you check out the full article over on forbes.com.

4 Things Finance Leaders Can Do Now to Protect Profitability Later

A lot of finance leaders are operating under the premise that slowed cash flow is a matter of "when" and not "if" it happens. The lessons of 2020 are still very fresh — ask anyone dealing with a surplus of inventory or trying to meet demand amidst a shortage of material goods. No one could have foreseen the true extent of supply chain and cash flow headaches resulting from the Coronavirus pandemic. It was truly novel in every sense of the word, dropped into an already turbulent mix of scarcity in materials and trade snafus.

But we do have a good idea of what's likely to happen next with the economy, and what we can do to protect cash flow if it does:

  • Assess: First, take a look at cash on hand and existing income streams to determine cash flow health. This isn't a revenue or profit assessment; it's a deep dive into your cash conversion cycle, operating cash statement and cash ratio among other metrics so you can be clear-eyed about operational cash flow.

  • Protect: To extend your businesses' liquidity and protect the king (cash, of course) reconsider new credit facilities or major implementations that require taking on the same long-term debt obligations you would in healthier markets.

  • Analyze: Go over expenses with an eye for surgical refinement. Don't panic and hack-and-slash. Instead, tighten and fine-tune processes and reconsider fixed expenses (commercial rent and real estate, for example).

  • Expand: How can you generate more income streams in case cash flow slows in one or more of your existent ones? Changing your pricing structure or model or strategically selling some assets can all help keep cash flow stable in an uncertain economy.

To meet the challenges of next year — whatever they may be — businesses and leaders will need to anticipate them in this one. Read the full article on dmagazine.com for even more ideas on planning for liquidity and cash flow challenges so you're well-prepared.

At Personiv, we've seen a lot in the last four decades, and dedicated ourselves to helping our thrive in uncertain times like these. Learn how a virtual accounting solution from Personiv can be a key part of your cash flow strategy today.

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