“While cash is king, information is queen,” Bart Parren, senior vice president for solution transformation at Serrala, said via email. “In many cases, working capital KPIs are analysed infrequently, using data from annual reports, monthly financial reports or balance sheets.
“This, however, only provides a spotlight view for certain dates. What you really need if you want to optimise working capital is a continuous monitoring of information.”
Given the current climate, that information has never been more critical for finance leaders looking to keep their scenario planning up-to-date and ahead of their competition. Unfortunately, liquidity remains a challenge for 64 percent of organisations, despite its essential nature.
“After many years in which cash was readily available from the external sources, the economic downturn has caught many companies off guard who actually realised that they didn’t have 100 percent cash visibility,” Parren said, adding that Serrala has seen an increase in businesses looking to increase visibility and liquidity.
“In fact, in a survey we did in the first phase of the pandemic, 42 percent of companies indicated that their current cash processes don’t meet their needs.”
To help counter this, Parren advised using automation to both stay on top of data, assist in reforecasting, and direct the cash management process. However, transforming that data into tangible change depends on the business-savvy reactions of finance leaders.
When looking forward to post-pandemic recovery, leaders should place a particular focus on key value drivers, such as tracking net trade assets and days sales outstanding (DSO). Parren stressed that recovery depends on accessing reliable, up-to-date visibility into volatility, cashflow, counterparty risk and interest rate risks.
However, when sourcing data from different locations, capturing this visibility in spreadsheets is an inefficient system that slows down the overall decision-making process.
“That’s why it’s so important to have integrated technology that automatically pulls all the data from the different sources – treasury, AP, AR, bank statements, local systems, market data providers etc. – and automatically updates your cash position worksheet and your forecasting,” Parren explained.
He continued that alongside these data points, it is important for businesses to consider their long-term resiliency and evaluate areas where they can boost efficiency.
Financial and treasury technology has advanced in recent years, with intelligent automation routines available to support finance leaders strengthening their businesses.
A McKinsey study found that companies who invest in their resiliency often outperform their peers following a crisis, so savvy finance leaders should use this time to evaluate their processes and ensure they have liquidity for the months ahead.
“Connecting the information from collections hugely increases the accuracy of cash forecasts,” Parren added. “Understanding what payables come our way gives us that much more time to do something about it.”
As part of that forward-thinking, businesses may also want to weigh their liquidity levels against new and existing investments.
Depending on the company’s financial forecasts and overall direction, this could be an opportune time to weigh interest rates and market forces against the company’s coming investments.
“It is always a good time to invest if prices are low and the return’s promising,” Parren said. “The companies that can convince banks or shareholders to invest now with razor-sharp business plans, or those that don’t need leverage in order to invest, are in a better position during such a crisis.
“While the individual challenges for organisations vary, it is certainly worthwhile to think and to invest longer-term. Because essentially, after the crisis is before the crisis.”