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Cash is the lifeblood of any organisation, but with CFOs grappling with liquidity and debt levels as businesses emerge from the effects of Covid-19, ensuring a healthy flow of cash has taken on another level of urgency.

With scenarios being modelled and remodelled, its essential that CFOs take into account not just their own operations, but that of their entire business model – from supply-chain to customers – to ensure visibility of cashflow and to optimise their cash position.

CFOs should consider these key steps:

1) Understand the financial risks of your customers - are any customers at risk of being unable to pay for goods and services? How do you know?  Should you pro-actively or reactively offer extended terms?

2) Establish if lines of credit are still open – are previously available financing options still available?  Determine local cash requirements, amount and time, and liaise with financing partners to ensure lines of credit remain available.

3) Manage payables, receivables and inventory:

- Payables – arbitrarily extending payment terms to suppliers may damage relationships or, worse, cause the supplier to fail.  Work with suppliers to agree a plan for the current situation and a schedule dialogue to plan for a return to business-as-usual.  You may decide to accelerate payments to key suppliers to avoid disruption to supply.

- Receivables – identify companies who may arbitrarily change their payment practices.  Analyse customers' previous payment practices and identify those who are starting to divert from the norm.  Consider factoring - although expensive, it can improve cash flow quickly. As with your suppliers, engage with key customers to agree a plan for early payments, maybe through dynamic discounting.  Where appropriate, extend your terms to support a customer in need – though this comes with the obvious associated risks.

- Inventory management is challenging and likely needs a longer-term focus.  Current supply disruptions, potential stockpiling of strategic items and the unknown territory of if/when/how sales will return, require effective scenario modelling and responsiveness.  Once through this time, lessons learned should lead to improvements in the end-to-end supply chain, particularly around visibility and the ability to react at relatively short notice.

4) Audit your payables and receivables transactions - errors are made in raising, checking and paying invoices, so vigilance is key:

- Payables – has the supplier charged in accordance with agreed terms?  Are discounts available and did you capture them?  Are there any aged credits sitting on the supplier accounts?

- Receivables – did customers take discounts erroneously?  Have you charged for all goods/services?  Are there any pass-through charges you have not made? Conversely, have you terminated pass-through services that are not being used?

5) Drive procurement savings – there are low-hanging fruit in every vendor master file and every £ saved now is cash into the business.  Review your current category strategies – are they cohesive, do  they generate sufficient savings, can they be accelerated?  Is the focus on the right areas, on the right category or supplier(s)?  Do you know what the right areas are?  Does your procurement team have the right spend analytics tools to identify and generate the savings quickly?

Finance is at the forefront of regenerating businesses and cashflow is a key element.  The risks you identify now, and the actions you take, will determine the success or failure of the plan – no pressure then!  Hopefully, these steps will help in some way.

Ian Yates – Director, Barcanet

To talk to us about any aspect of these steps, please contact hello@barcanet.com. We’d love to hear from you.

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