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To Sustain Recovery, Businesses Need to Shore Up Cash Flow Management

CFOs from various industries say they’re prioritizing business continuity and resiliency. As a result, nearly two-thirds say they’re working diligently on developing more effective cash flow management strategies to fuel analyses, better assess their cash position, and drive enterprise decisions. The problem, of course, is that cash flow management isn’t as simple as it sounds.

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Little by little, businesses are inching away from the significant economic disruptions brought on by the COVID-19 pandemic. Many have returned to growth mode, precipitated by advancements such as the digitalization of financial functions.

According to a CFO Dive survey, 56% of CFOs from various industries say they’re prioritizing business continuity and resiliency. As a result, nearly two-thirds say they’re working diligently on developing more effective cash flow management strategies to fuel analyses, better assess their cash position, and drive enterprise decisions.

The problem, of course, is that cash flow management isn’t as simple as it sounds. Finance professionals face several issues when it comes to monitoring their cash flow. Below are four of the biggest challenges they encounter and how to overcome them to sustain economic growth:

Challenge No. 1: Automating Cash Flow Forecasting and Reporting

Automation provides a wealth of advantages, and especially in the financial world. For instance, being able to process payments automatically can place cash into accounts faster. Nevertheless, it can be hard to know which automated cash flow systems and solutions are the right fit.

To build a healthy and robust finance-related tech stack, CFOs and other executives should look at all possibilities with a long-term view. Ideally, any automated cash flow management software or portal needs to align with the organization’s short-term and wide-ranging goals. It should offer the necessary amount of transparency and integrate well with a team’s other technological tools. That way, it can become a truly helpful resource as a financial management tool.

Challenge No. 2: Negotiating With Vendors and Suppliers

A poorly negotiated (or even merely outdated) third-party contract can become a roadblock for cash flow. Yet simply talking with vendors and suppliers to renegotiate terms might not be enough to improve a company’s fiscal situation from month to month. A more integrated and holistic approach may be a better choice, and that means bringing supply chain managers into the discussion early and often.

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Supply chain managers can help identify win-win solutions that will benefit all parties. Plus, they might have knowledge about or relationships with certain vendors. Additionally, bringing in colleagues who deal with the supply chain can move them from potential skeptics to champions.

Challenge No. 3: Understanding the Full Financial Effects of Internal Processes

Cost reduction is on most CFOs’ minds, and especially ones who went through the 2008 recession. They recognize that a proven way to boost cash flow is by reducing the money traveling out of the company. However, many aren’t sure how to reallocate resources without unintentionally affecting the business’s ability to pivot or scale.

Thorough scenario planning can be an answer. Scenario planning involves looking at as many alternatives as possible. For instance, what happens if the company has an opportunity to acquire a competitor? Or it opens a second branch? Or it develops a new product? Understanding how each of these paths could affect the financial situation of the company makes it less likely that taking that path could end in cash confusion.

Challenge No. 4: Having Enough Working Capital

It would be hard to find a finance professional who didn’t want to improve the organization’s working capital. After all, the higher the amount of working capital, the more doors that open for the business. Having access to real-time cash flow data is valuable for working capital because it provides a snapshot of the available money.

CFOs can change their organization’s working capital position by making sure assets are converted quickly. A prime example of this might be faster turnover of inventory, followed by faster payments. The quicker payments can be resolved, the more money is available for a variety of uses.

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At this stage, corporations everywhere need to get their cash flow management in check. Otherwise, they might find it tough to pull out of the economic nosedive exacerbated by COVID-19. And that could put them behind the competition going into the fourth quarter of 2021 and beyond.

(Featured image by pasja1000 via Pixabay)

DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.

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Chen Amit is the co-founder and CEO of Tipalti, a payment automation software that helps businesses manage their entire supplier payments operations by streamlining all phases of the AP and payment management workflow in one holistic cloud platform. Formerly the CEO of Atrica and Verix, Chen is a veteran high tech executive and repeat entrepreneur.