Sidetrade S A : Key focus areas to boost your cash preservation efforts

With the global economy still reeling from aftermathof Covid-19, organizations are under more pressure than ever before to mitigate the effects of adverse economic conditions. Standard recession contingency plans are no longer going to cut it; finance departments should be looking for ways to go above and beyond in their cash flowefforts if they want to ride out the current climate and protect their company's margins.

In the latest whitepaper from The Hackett Group, we discover that the majorityof selling, general and administrative (SG&A) organizationsdo not expect the economy to recover by the end of 2021. So what can be done?

The first major area finance departments should look at is cash preservation.By first focusing onthecash currently within - or owed to - the business, finance teams can take steps to improve working capital, tighten cash management policies and minimize idle cash, all of which are cheaper and quicker measures to optimize cash flow than immediately looking at cutting costs.

If you're planning to take steps to preserve cash, there are four key areas which you should prioritize.

1. Enterprise-level decision support Take your magnifying glass all the way to the top! By surveying the monetary value of underutilized assets, revisiting pricing and revenue models,and evaluating the company's capital structure, you can start paving the way for top-down cash preservation.
2. Customer-to-cash
Intelligent customer segmentation is your friend here - by dividing your customer base into groups based on size, risk class, or strategic value of accounts, you can target each segment with a tailored cash collection plan. Other improvements you can make here could be to engage sales teams in cash collection, expedite the billing process, and optimize customer dispute resolution
3. Purchase-to-pay
Now's the time to chase up your suppliers for any inaccurate payments and unclaimed credit balances. Segmentation can also work here; by segmenting your suppliers by payment terms your team can prioritizescheduled payments according to urgency or length of payment cycle.

4. Treasury
Finally, you can look closely at your treasury to gain an understanding of sources of incoming cash and deposit frequency, evaluate your bank account structure, investigate sources where additional cash may be found, and aligning your cash management to your operational structure.

Cash preservation is the first step you should take when looking to optimize cash flow. In Part 2 of this blog series, we'll be looking at ways in which you can reduce cost. For a more in-depth checklist of action items, download the latest Hackett Group whitepaper '46 Ways to Preserve Cash and Reduce Cost'.

Key focus areas to boost your cost reductionefforts

Even if the Covid-19 crisis hadn't happened when it did, most financial organizations would also still be factoring in recession contingency plans into their budget strategy. In the current economic climate financial success can't be seen as a certainty, but that doesn't mean it has to feel completely out of reach.

In the latest whitepaper from The Hackett Group, the case is made for finance departments to remain vigilant and seek out ways to protect their company's margins even in times of economic uncertainty.

In our first blog post we covered how cash preservation should be the first port of call, as it's often a quicker and cheaper way of preserving working capital. Once this avenue has been exhausted, and there are still blockers to liquidity, it's time to look atcost reduction.

If cost reduction is an area of focus for you,there are sixkey areas which you should look into.

1. Enterprise-level decision support Take a step back and look at your entire organization. Are there any M&A opportunities on the horizon that could help in the long-term? Can you review and tighten travel and expenses budgets? Since the pandemic began working from home has become commonplace - is this something that could work as a permanent measure, to save money on commercial real estate?

2. Function-level decision support
Take a close look at and benchmark yourfinancial processes and identify where you could make cost savings, based on an understanding of process complexity.

3. Service delivery
With the right technology in place you could soon see an increase in costs saved - look for ways to maximize use of your existing technologiesfirst. Where you spot room for improvement, it might be worth looking to implement technological solutions with low upfront cost and high return on investment potential, as these can help you optimizeexisting processes.

4. Account-to-report
Again, another area where having the right technology can save you time and money - look at ways you can reduce non-value-adding work, such as manual ledger entries and consolidation. In addition to helping you expedite these tasks, financial software solutions will usually also be able to standardize and automate reports.

5. Customer-to-cash
If you audited your dispute management process you'd likely discover plenty of cash tied up in disputed invoices; with correct escalation, codification and workflows in place you can reduce manual interaction and free up the cash that's owed to you, faster. It can also be worth looking into ways customers can self-serve during their interactions with you, such as through a payment portal.

6. Purchase-to-pay
By running a tight ship and making sure that all supplier payment terms are adhered to, you can avoid late feesandloss of discounts, and reduce invoice discrepancies. You may also identify areas where you can move your spend from higher to lower channels.

Cost reductionis the secondstep you should take when looking to optimize cash flow. In Part 1of this blog series, we lookedat ways in which you can preservecash. For a more in-depth checklist of action items, download the latest Hackett Group whitepaper '46 Ways to Preserve Cash and Reduce Cost'.