The CFO has to deal with a complex financial landscape

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CFOs have to navigate an increasingly complex financial landscape. The past five years have been nothing short of tumultuous, particularly due to external geopolitical factors. How can you, as a CFO, address the financial risks associated with this?

In addition to your traditional financial responsibilities concerning liquidity, cash flow, and accounts receivable, you need to respond to a range of developments: from technological innovation and cybersecurity to stricter regulations and ESG considerations. Not to mention geopolitical conditions. All of these are themes that bring with them financial risks.

A successful CFO is capable of developing a management strategy that identifies, assesses, and mitigates all these risks. This requires not only financial expertise and strategic insight but also strong communication skills, as various departments are involved.

Colleagues from the finance department provide analyses and reports. Thanks to increasingly sophisticated tools, it is possible to respond proactively rather than reactively to current developments. The Compliance department ensures that the organization adheres to all relevant laws, regulations, and internal policies. Increasingly important are IT and Cybersecurity colleagues. They not only implement new technologies like AI but also require growing attention to data security and digital infrastructure.

4 macro developments that you as a cfo cannot ignore

Thanks to the collaboration with various departments, you can manage the financial stability and growth of your organization. In addition to monitoring your own financial developments and the situation with clients, it is important to also keep a good view of external (macro) developments. What direction is inflation heading? What can be expected regarding interest rate changes? What is happening in geopolitical terms? The COVID-19 pandemic and the war in Ukraine have shown how impactful the consequences of external geopolitical developments can be. Suddenly, we faced hyperinflation, record energy prices, and entire supply chains coming to a halt, which, to this day, have not yet fully recovered. Could you have predicted this? Certainly not. However, important lessons have been learned that are crucial for the future. We describe the most important ones below.

1. Nearshoring

Companies have experienced their vulnerability due to their reliance on a single supplier or region as a result of COVID-19 and the Ukraine conflict. Nearshoring has emerged as a predictable response. While it might not be cheaper, it provides greater control. Many Western European companies are relocating their production from Asia to Eastern European countries like Poland, the Czech Republic, and Hungary. American companies are opting for Mexico or other Latin American countries. Besides reducing dependency on a distant region, this trend offers various additional benefits, such as lower transportation costs and sustainability advantages. It also allows production to be closer to the end market, enabling companies to respond more quickly to changes in demand and market conditions.

Partly due to the geopolitical instability of recent years, several developments have accelerated. This is certainly true for digitalization (with cybersecurity following closely behind), hybrid work models such as remote working, and the advancement of e-commerce and online services. The need for resilience and flexibility as an organization has become more evident. In response, companies have become more cautious, building up extra financial reserves to absorb shocks and implementing stricter cost controls to enhance financial stability.

2. Surge in Bankruptcies

A surge in bankruptcies was inevitable (Western Europe, 2022: +23%, 2023: +15%; USA: 2023: +40%). No other country saw such a rapid increase in the number of companies going under as in the Netherlands: +52% in 2023 and +31% in 2024. Sectors such as hospitality, transportation, wholesale/retail, and construction are particularly vulnerable. The same trend is observed elsewhere in Europe, although the percentages are lower. Many economists view this surge as a healthy adjustment.

Strikingly many large companies are going bankrupt

The recently published Global Insolvency Report by Allianz Trade reveals that the number of bankruptcies this year in most advanced economies is exceeding pre-pandemic levels. Notably, there is an increase in the number of bankruptcies among large corporations. This is a dangerous trend because a major bankruptcy can trigger a chain reaction, dragging down a series of smaller suppliers. Entire ecosystems are being affected.

Economically, it's a challenging time. Banks are cautious about granting loans, and companies are complaining about the supply of raw materials and semi-finished products. Allianz Trade expects a cautious global recovery for 2024. World trade is projected to grow by +2.8% (in value), still significantly lower than the long-term average of 5%. Our research department is particularly concerned about the disruption of global shipping and rising protectionism. The current, faltering economy is once again testing the resilience of companies, especially those that were already vulnerable in previous years.

3. Working capital under pressure

Research shows that exporting companies are having to wait increasingly longer for invoice payments (70% experience delays of 30 to 70 days, and 7% face delays of more than 90 days). Globally, companies are postponing invoice payments, primarily due to pressure on working capital. Deteriorating payment behavior is causing concern among entrepreneurs, and rightly so. The risk of non-payment has increased significantly in recent years. Global geopolitical instability plays a significant role in this, adding extra uncertainty on top of the faltering economy.

4. Europe is falling behind

This current context is a major challenge for every CFO. You need to not only assess your own situation but also evaluate the stability of your customers and suppliers. In the Eurozone, the "locomotive" Germany shows barely any growth. European trade policy is increasingly lagging behind major powers like the US and China, which are becoming more protectionist. European companies are constantly faced with additional (sustainability) regulations. These require costly efforts on top of existing obligations.

Financing costs are also rising. More and more companies are struggling to manage these credit costs. All these developments erode margins and put profitability under pressure. At the same time, limited financing options put the most vulnerable sectors and companies at risk. Countries with a high number of vulnerable companies include the UK (15%), France (14%), Italy (9%), and Germany (7%).

Increased attention needed for accounts receivable risk

With all these developments, having a clear view of accounts receivable risk is essential for maintaining healthy cash flow, managing credit risks, controlling costs, maintaining good customer relationships, and making strategic decisions. Customers who pay late put liquidity under pressure and undermine financial planning and budgeting. If they do not pay at all, especially in large amounts, it immediately jeopardizes the financial health of the company. By effectively managing accounts receivable risk, timely measures can be taken to minimize losses. The creditworthiness of customers must be continuously evaluated.

Helping hand in proactively managing credit risks

Are you, as a CFO, completely alone in facing these challenges? Not at all! Our mission is to protect companies worldwide and help them achieve success. When you have insights into your sectors, customers, and countries where you do business, you can make informed decisions with less risk. We offer efficient solutions for this, even in a sometimes challenging economic context. Our primary focus is to protect your company and safeguard its financial health.

Here’s how we stand by your side:

We assess the financial health and creditworthiness of a customer
This requires a combination of sources and methods. It is an intensive process for which we provide CFOs with powerful tools. In addition to customer-specific information on payment behavior and creditworthiness, we have extensive knowledge and expertise of companies and industries in more than 50 countries where we operate. We understand the local market conditions, regulations, and customs, and closely follow economic developments.
You collaborate with specialized teams
These teams focus on specific industries and regions. They consist of experts with in-depth knowledge of economic dynamics, competitive landscapes, and risk factors within their areas of focus. By continuously conducting market research and monitoring trends, these teams can provide valuable insights and forecasts that support your decision-making.
You utilize advanced technologies and analytical tools
Our real-time monitoring and reporting offer visibility into the credit risk of companies, industries, and regions. This enables you to respond quickly to market changes.
You can rely on a range of services for effective financial risk management
In addition to our trade credit insurance, we help companies identify and analyze potential financial risks such as market risk, credit risk, liquidity risk, operational risk, and currency risk. We also provide access to extensive resources, including country and sector reports, economic outlooks, and trade risk insights.

With our guarantees and surety bonds, your business partners know that you can meet your contractual obligations. Our fraud insurance also covers you against losses from both internal and external fraud. Together, we work towards your success and future confidence!

Want to learn more?

Schedule a no-obligation meeting with one of our business managers using the button below. They will be happy to discuss your challenges and how we can support you. You can also call us at: 02 790 24 15.

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