Coupa Software has held a series of events for its customers that I was fortunate to attend; their CFO event series included some thoughts on Cash Management – with plenty of insights. Cash Management is becoming an area of focus as the likelihood of a recession emerges due to record inflation, rising capital costs, financial market instability, labour constraints and geopolitical realignment. The inflationary pressure is being felt in three ways – margin pressure, cash flow risks and topline growth risks. What are organisations doing?
BREAKING DOWN SILOS between procurement, accounts payable, and treasury. Their needs are balanced, and cash management strategies are being deployed, including early purchasing or delayed procurement.
CENTRES OF EXCELLENCE are being established to determine how capital will be consumed. A whole of business view considers; Is the spending in the right areas? Should it be elsewhere? Could we save it?
GLOBAL VISIBILITY OF CASH, location of cash, and country restrictions are challenges. The preferred working currency for many global businesses is the USD as diversified cash holdings are presenting risks. The Euro and British Pound devaluing has impacted balance sheets. Devaluations affect what organisations can do.
CASH MANAGEMENT will create greater liquidity, and organisations that have this will be nimble and flexible. They can consider M&A and R&D activities. Further, investors and leaders are focused on Balance Sheet Capital, looking at better cash management. Everyone expects this to be undertaken centrally.
BALANCE SHEET REVIEWS are being undertaken, resulting in increased working capital. This is a critical activity as the focus shifts from P&L to the Balance Sheet. “Cash is King” and will drive longer-term sustainability for any business.
COMPANIES ARE SEEKING GREATER VISIBILITY into the spending of their money. As visibility is obtained, greater scrutiny will be applied; to optimise spend with vendors, out of cycle negotiations are occurring as companies explore hidden costs within vendors. Companies are educating employees on working capital and payment terms. Longer payment terms are not available, but if you pay faster, you can negotiate a discount.
ORCHESTRATION AT THE GLOBAL LEVEL OF SPENDING with suppliers for cost clarity and optimisation. If your organisation is competing with others to work with a limited number of suppliers, you will need to plan carefully to meet customer expectations. Done poorly, this will have impacts on the top and bottom lines. Companies need to have visibility of these costs, and these costs need to be passed on to the customer in some situations.
INCENTIVISING SALES TEAMS by not paying commission until the customer pays. Net 30 is becoming the default DSO metric. DSO is Daily Sales Outstanding, and a high DSO impacts cash flow.
INVENTORY MANAGEMENT AND FINANCE WORKING TOGETHER. DIO is Days Inventory Outstanding, and well managed inventory will generate more cash to invest back into the business.
LARGE TRANSFORMATION PROJECTS need to free up cash and give opportunities to grow without taking on debt.
In conclusion, Cash Management is a key capability required by organisations. Many organisations continue to use excel spreadsheets which is “static management” of cash. Using the appropriate technology solutions will enable your business to benefit from “dynamic management” of cash.