One silver lining to the Covid-19 crisis is that organisations across the globe have prudently shifted their focus to secure cash. More than ever, the pressure is on to mitigate the effects of adverse economic conditions because contingency plans that were
in place were simply not cutting it.
For businesses to ride out the current economic climate, protect company margins and ultimately survive, finance departments need to prioritise cash flow, implementing best practises which enable realistic cash and liquidity management. They can do this
by forming a set of best practices.
By focusing on the cash within - or owed to - the business, finance teams can make informed decisions on how to improve working capital, tighten cash management policies and minimise idle cash. All of which are more effective, cheaper and quicker measures
to optimise cash flow than looking at cutting costs.
For businesses looking to take steps to preserve cash, here are three ways I’d recommend you prioritise:
1. Intelligent customer segmentation
Never underestimate the value of data a business holds on its customers. Having access to and knowledge of customer characteristics such as company size, industry, location, payments history and so forth makes it possible for businesses to segment its portfolios
and gain greater insight into who they are dealing with.
It’s important to remember segmentation is more than just identifying patterns, it allows organisations to look ahead, plan and align with its overall enterprise mission. By dividing customer bases into groups based on risk, size and strategic value of accounts,
businesses will be able to target each individual segment with a tailored cash collection plan.
Implementing these collection strategies and adopting collection best practices, will help organisations improve the likelihood of being paid on time, or even in advance. Including the sales team is a great use of resources, and is known to positively impact
- in speed and optimising dispute resolutions - cash collection due to their familiarity with the customer.
2. Treasury’s visibility is key
Given the importance of cash flow in times like a global pandemic, the treasury, the interface between the business and its financial providers, is a key element in any financial strategy. Why? Because attaining strong cash visibility and forecasting cash
in both the near and long-term is its ambition which ultimately supports organisations in analysing overall business risk and continuity plans.
Investigating and bringing together data from bank accounts, investment portals, and so on, allows finance departments to have unprecedented levels of insight into the transactions and exposures impacting an organisation's cash flow.
3. Make supplier segmentation your friend
As with customers, segmentation can also work well for suppliers too. Allocate time to chase up suppliers for any inaccurate payments and unclaimed credit balances. By segmenting an organisation’s suppliers by payment terms, finance teams can then prioritise
scheduled payments according to urgent, relationship and length of payment cycle.
In order to alleviate any cash-flow issues later down the line, organisations with a healthier cash flow may wish to consider choosing to pay a number of suppliers earlier.
Don’t lose future vision
Securing cash is just the first in many steps businesses can take when looking at ways to positively optimise cash flow. Further opportunities include optimising net working capital across accounts receivable and preparing a revised business plan for stabilisation
after the crisis.
Whether or not this particular economic crisis is an organisation’s first rodeo, it is unlikely this will be the first time it has faced times of uncertainty. It is important to not lose vision for the future and as and when opportunity arises, apply new
practices. Cash flow management, if it hasn’t already, must become an integral part of any organisation's future planning and risk assessments.