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Where’s the money? | Accounting Today

admin by admin
January 22, 2023
in News



“Never spend your money before you have earned it,” Thomas Jefferson cautioned. It’s good advice for corporate America, but only if companies know where the cash is, when it’s arriving and how much to expect. 

Solving this cash flow conundrum is on the minds of finance and accounting executives and other business leaders seeking to cut back and spend wisely as the new year takes shape. For the past year, the possibility of a recession in 2023 was fodder in the news media. More economists weighed in that a recessionary economy was likely than those who predicted otherwise. A survey late last month of 38 economists by Bloomberg, for example, posited a 70% chance of a recession this year. 

In another survey the prior month of nearly 1,500 global business, finance and accounting professionals by Blackline, 73% of U.S.-based respondents offered a similar perspective. Assuming the projections are on target, the onus is on business leaders to ensure visibility into cash flow and other financial metrics to weather the coming economic storm. How else can a CFO know where to decrease expenses and strategically invest capital? 

Answering this question generally falls to the finance and accounting organization, which is responsible for interpreting and predicting the amount and timing of cash inflows as accurately as possible. Nearly two-thirds (62%) of the respondents to the BlackLine survey said that economic uncertainty increases the need to have an accurate understanding of money moving in and out of the business, with almost half (42%) stating that poor cash flow visibility makes them less confident over their organization’s competitive position.

If the country is indeed headed into a recession, revenue at many companies is likely to be impacted by how much income their customers have on hand to spend on products and services. The survey data indicates that 42% of respondents are worried that rising interest rates will cause customers and prospects to have less income to spend, and a similar percentage (43%) are concerned that more customers will pay late. Tellingly, nearly two-thirds (62%) said their ability to view financial data in real time is a “must-have” for business survival.

Cash management is crucial

Against this unsettling backdrop, finance and accounting professionals need to step up our game, clearing the pipeline by optimizing working capital and accounts receivable processes. While we cannot alter the trajectory of a recession, we can take actions that ease the chokepoints in the order-to-cash cycle.

The cycle spins the moment a customer orders a product or a service. It proceeds next to invoicing and inventory fulfillment, finally concluding with the customer’s payment, collection and cash reconciliation. By eliminating bottlenecks caused by manual OTC processes, the length of time in the OTC cycle decreases, meaning more cash in the till sooner. For example, a company with $12 billion in annual revenue that reduces the days sales outstanding by 30 days can pull forward $1 billion more in cash each month than would have otherwise been available. That’s an enticing prospect in an uncertain economy when diligent spend management and capital investments are in focus. 

OTC bottlenecks typically are caused by manual processes like the issuance of imprecise invoices, payments that are matched with the wrong invoices, and bungling a customer’s credit limit, among others. By automating the processes, nothing slips through the net. Outstanding accounts receivable become clearer in real time to determine which customers are not paying or paying late, arming finance and accounting staff so they can intervene, learn what’s going on, why this is the case and what can be done about it.

Before automating the OTC cycle, it is necessary to find the points of friction caused by different manual processes. If the choke point is persistently inaccurate invoices, for example, staff should determine the reasons, make the necessary adjustments and reevaluate the process down the line to discern if data hygiene has improved. The next step is to automate the process.

Automating the OTC cycle can provide clearer insight into cash flow, liberating more informed, intelligent and confident decisions across the business. In fact, nearly all (98%) of the BlackLine survey respondents said they would have more confidence in their company’s cash flow if they had greater visibility into it. Assuming this is the case, CFOs responsible for ensuring corporate wellbeing during an economic downturn can spend capital as they earn it, as per Jefferson’s wisdom.



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