CFOs play a central role in disseminating a cash flow management culture within businesses and making cash flow management a priority. Besides being a performance driver for finance departments, it radically changes the situation in terms of the CFO’s positioning in his or her environment. CFOs have to demonstrate a genuine ability to transform themselves into business partners with other operational departments so that their companies commit to this new dynamic. Focusing on sound trading partners, both locally and internationally, are essential to a company’s financial performance and business agility.

According to the 2017 Insolvency Service official statistics, an estimated total of 17,243 companies entered insolvency in 2017 in the UK, a rise of 4.2% on the year before. This was driven by an increase in creditors’ voluntary liquidations of 8.2%. This total was inflated by two “bulk insolvency” events: large numbers of connected companies entering insolvency following changes to claimable expense rules. In 2017, these bulk insolvencies accounted for an estimated 2,131 of the total.

Small enterprises are usually the first victims of this difficult climate. To avoid tipping over the edge, companies therefore need to optimise their working capital requirement (WCR) more than ever.

Factors that can affect the WCR adversely:

  1. Siloing of operational departments
  2. Compartmentalised information
  3. Unsuitable information systems
  4. Lack of understanding of growth drivers

From the prospecting phase, the expertise and knowledge of the finance department in identifying risks and evaluating markets make a crucial contribution to sales teams’ decision-making. The CFO has a well-trained eye and can inform sales representativesat the earliest possible stage about acquisition costs. The CFO should therefore examine several aspects prior to any order:

  • Identify risks
  • Evaluate the market
  • Secure contracts
  • Define customers’ credit limits
  • Improve reliability of the order logging process

The CFO needs to widen the cash flow management culture from the finance department to other areas, to encourage the company’s growth without undermining stability. The CFO, along with the credit manager, occupies a key role in customer risk management, helping to put effective procedures in place involving all the company’s relevant resources.

Maintaining a healthy level of business is not the exclusive province of sales staff. The CFO needs to play a dominant role so as to optimise profitability, and holding a cross-functional position within the company makes the CFO well-placed to set performance targets. These targets must take cash flow into account, a factor that is usually a secondary concern for the sales department, which is more focused on profit and loss. For example, some companies have adopted incentive policies not based on turnover but gross margin to make their sales teams more aware of the profitability of their activities.

“Sustainable sales” are a top priority in any sales strategy intended to limit risks. The fact that maintaining a long-term business relationship costs much less than acquiring new customers must not be overlooked. The exchange of information between financial and commercial departments improves sales negotiations, and indeed dispute management. These two factors work in favour of a bespoke approach to customers, maximising the chances of retaining them.

The invoicing process has a direct effect on cash flow. The CFO should therefore take charge of optimising invoicing, to reduce disputes. The knowledge that business failures can be caused by late or nonpayments should make this task a priority. In the same way that procedures prior to orders must be secure, the CFO must not neglect the subsequent invoicing for which it has become essential to collect as much customer information as possible, to find out their payment history for example. The CFO can consequently adapt reminders to customers, in particular depending on the outstanding balance owed. Invoicing optimisation can also include moving to automation and digitisation of documents as payments are received.

The CFO may manage the collection of late payments, putting faster procedures in place from the time an invoice becomes overdue to improve collection efficiency. Knowledge of customers should dictate the best approach to take, be it reminders, formal notice to pay, nonlegal negotiations, or legal proceedings, the priority being to recover what is owed while preserving the future business relationship.

If the sales cycle were a vehicle, then information would be its fuel. Whether the source is internal (administrative, legal or commercial departments) or external (financial CRM), information must be shared between a company’s various departments, to improve the effectiveness of each of its components. The CFO will ensure that information reaches each operational department optimally, making it available in real time and adapting it in an appropriate manner. The objective is to facilitate the understanding of the company’s financial strategy so it becomes a useful building block serving to widen a cash flow culture to all employees.

In conclusion, the CFO has two key factors to weigh up: the unhindered management of the company’s activities and the communication with all departments. That’s why in addition to possessing a wide range of skills (accountancy, tax, legal, organisational, etc.), the CFO also needs tact and teaching skills. Far removed from the columns of figures in forecast budgets and balance sheets, the perfect CFO will also:

  • Lead generation: improve customer risk management
  • Sales: set sales targets that include a profit margin component
  • Invoicing: encourage automation and responsiveness
  • Information: create the conditions for departments to work together
  • Communication: raise employees’ awareness of cash flow issues
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