See more, do more – cash management through visibility
tirsdag, 8 dec 2015
Businesses typically have quite a low percentage of spend that is under management. It’s a tricky area to master as it relies on everyone in the business committing to some sort of process. Travel and expenses are the prime examples - often they’re done on short notice, and a purchase order process is impractical, if not impossible.
Vice President, Global Product Marketing
We have talked about the ‘networked’ CFO being the true master of the financial supply chain in modern business. She is constantly pondering the issue of working capital optimization in the purchase to pay process that governs so much of the cash moving through the business. Only the CFO has the broad overview and insight across finance, procurement, Accounts Payable and Treasury. One of the greatest opportunities is better cash management, which can only be achieved through visibility across all of these areas.
However, very often the first finance knows of an invoice is when it lands on their desk. This is a big reason why 22% of companies can only forecast mid-term cashflow with 5% accuracy. The inability to plan for large amounts of spending can have ripple effects throughout the business.
Every CFO has, at some point, felt the frustration of not having an accurate picture of their cash position. It severely restricts their ability to make decisions. How do they negotiate contracts or green light cash to leave the business without knowing the real effect on cash flow?
Understanding the breakdown of spend and raising visibility of what’s pending flips that problem around. It empowers the CFO to make cash flow decisions more quickly and easily, with a positive ripple effect.
Making it happen
Spend analytics is the best way to understand spend across the entire company. Stricter spending processes have finite limitations and travel bans are impractical; whereas analytics can identify your ‘spend offenders’ in terms of last-minute, large-ticket items. You can then work directly with them to try and reduce that spend.
Analytics also help determine when it’s best for cash to leave the company. You can, in one view, see the Days Sales Outstanding (DSO) and cash position side-by-side, factoring in possible discounts, to decide when to release cash.
But spend analytics is more than a cash decision making tool. Improved spend visibility provides a baseline for procurement and finance to share KPIs (key performance indicators) and to define a holistic procurement strategy for the entire business. Once you fully understand your business, you can optimize all future relationships to complement your own corporate requirements. But you can only negotiate favorable payment terms if you understand your own payment cycles.
If you haven’t integrated invoicing, purchase to pay, financing and treasury, then you can’t get an accurate picture of how cash is flowing through the business. Do this and all of these benefits are on the table – that’s how many networked CFOs have achieved up to 90% spend under management. We have also produced several helpful guides to support the networked CFO work her way through this change.