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A CFO’s Guide To Business During The Pandemic

A CFO’s Guide To Business During The Pandemic

The global pandemic has forced nationwide lockdowns and has brought the global economy under distress. Countries were forced to take unprecedented measures to slow down the spread of the contagion. Likewise, organizations had to resort to quick action to protect their customers, finances, suppliers, and employees.

McKinsey, the US-based management consulting firm, surveyed 1592 respondents across a range of companies and industries globally. The survey was conducted between 2 – 6 March 2020. 84% of those surveyed viewed the pandemic as a threat to the global economy. Several companies lost 75% of their annual profits in the first quarter of this year. Others had no other choice but to reduce costs by laying off staff and encouraging the remaining ones to work from home.

In such chaotic situations, the role of the CFO (Chief Financial Officer) is of critical importance. In the last few years, the role of the CFO has expanded a great deal. They are now looking beyond finance, accounting, and compliance, and are taking on bigger responsibilities such as strategic planning, business transformation, and company investments. CFOs are vital to the financial health of the organization and can help it tide over the current economic crisis caused by the unprecedented challenges we face in a world disrupted by the effects of the pandemic.

As per McKinsey, CFOs should take action on three fronts – immediate survival, stabilizing the business during the crisis, and guiding the recovery of the company once the situation has stabilised.

Here’s how a CFO could help their organization recover from the financial crisis caused by the pandemic:

Immediate survival of the business

The global pandemic has forced many companies to shut down, some temporarily and some permanently. The restricted cash flow has taken away the freedom from most customers to make discretionary purchases, and supply chains have been disrupted. The entire world has been in the grips of the pandemic and it is difficult to fathom the magnitude of the current crisis. It is thus necessary to optimize the cash reserve of the company for surviving these trying times. 

A CFO would ideally take the following short term steps to ensure the immediate survival of their business during these difficult times:

  • Assess the current financial situation

Successful leaders do three things effectively – have their priorities right, work with the right people, and maintain the right relationships to get results. Taking stock of the current financial situation may help CFOs prioritize and further plan their strategies.  To keep the business afloat, they would need to pay special heed to the cash flow as well as get their hands on any capital they can access. The current situation is stressful for many, which could likely increase the number of defaulters. Collecting payment from defaulting customers should be a priority as that could help improve the financial situation of the company. CFOs may consider other options too, like a line of credit or raising capital through joint ventures or divestments when the working capital is insufficient. They may also want to seek relief on debt covenants to consolidate the balance sheet. The current situation demands the real-time tracking of liquidity.

  • Plan for different scenarios

The global pandemic has forced many innovation plans to go on the backburner and CFOs have had to take on more strategic roles. The impact of the pandemic has been different for different locations in different geographies. CFOs now have to keep track of the impact in different locations and strategize accordingly. They could form a small task force within the business that could monitor the current conditions so that business decisions can be made accordingly. The pandemic could give rise to a range of scenarios and a CFO may need to take financial decisions accordingly. Every financial decision taken in real-time could have a profound effect on the future of the company.

  • Set up a communication plan

The company’s primary focus during the pandemic is to preserve cash and use it carefully. It is, thus, important to keep the board of directors and investors abreast of the situations. Proactive communication on the part of the CFO can keep important stakeholders aware of the current situation and its effect on the company. Setting up a robust and detailed communication plan may also be necessary to keep the stakeholders aware of the liquidity situation and the steps taken to protect the business. A strong communication plan helps maintain the confidence of investors and other stakeholders regarding fast and resolute action taken as per the situation.

Stabilize the business

In the current situation, robust and effective planning is necessary to stabilize the company and ensure it continues to operate effectively. Making operational improvements, strengthening productivity, and reassessing the investment portfolio may be essential to stabilize and keep the company running optimally.

The CFO can help stabilize the business by:

  • Supporting productivity

To tackle the current situation, robust planning is necessary to support and improve productivity once the situation is back to normal. Along with the finance department, operational measures need to be put in place to support performance improvement. The CFO may encourage the development of newer products or services that help customers in need to bolster their loyalty and, in turn, increase revenue and the lifetime value of their customers. For instance, many companies are now utilizing alternative sales and delivery channels, including fast tracking their eCommerce plays and leveraging digital and technology channels.

  • Reassessing investments

In times of financial crisis, it becomes imperative to delve deep into the company balance sheet. Inventory reduction, refinancing of outstanding credit, accounts receivables and payables are aspects that demand special attention. A balance sheet cleanup can make the company more financially flexible while being focused on key metrics. CFOs play a vital role in optimizing the company’s investment portfolio by reviewing R&D and IT allocations. In some situations, it may be necessary to revisit the initial projected return on investments as it is most likely to change in the current situation. Higher-yielding projects or projects with shorter road maps to deployment may be given more attention, and more financial and human resources may be diverted to them.

  • Financial planning & analysis

The current economic situation requires the finance team to quicken its pace of forecasting and budgeting. The pandemic has not just affected the health and well-being of people globally but also the financial well-being of many companies. It is vital that the CFO receives updated business information so that he and the finance team can incorporate it into an integrated forecast. Collaborative tools may be used to manage and monitor key performance indicators. A real-time dashboard is also a good idea as it can help business leaders focus on the key metrics that can guide the organization’s operations in the coming months.

Post-pandemic business recovery

As the pandemic situation subsides, CFO are shifting their focus to helping the company recover. While the pre-recovery situation is a fight for survival, the post-pandemic scenario requires a plan for growth. Investment plans to diversify the company’s portfolio and implementing significant productivity measures can help the company grow after the pandemic is over.

To help the company recover, the CFO needs to take the following steps:

  • Be prepared for transformation

A crisis could often be an appropriate time to rethink or redesign parts of the business. Transformation may be the keyword here, as that’s what businesses would need to do in the post-pandemic world – transform. Business transformation may need adjustment of productivity targets and re-evaluation of performance metrics. CFOs are vital for business transformation and should review the entire company portfolio with a focus on helping each business unit reach its full potential. Transformational plans could significantly boost revenues or cut down costs helping the business recover and thrive.

  • Consider ways to improve company portfolio

During an economic crisis, uncertainty and decreasing valuations of companies could give rise to an optimal environment for mergers and acquisitions. The CFO may want to assess if mergers and acquisitions, or other avenues like strategic partnerships or SBU divestments that may provide a pathway to improve the company’s portfolio. History shows that resilient companies divested 1.5 times more than their non-resilient peers.  Product, geography, or supply-chain acquisitions could hold a lot of promise during these troubling times. A strategic approach to mergers and acquisitions could improve a company’s portfolio.

  • Embrace digitization

During this pandemic, a huge chunk of the global workforce is working remotely to contain the spread of the pandemic. Working from home has never been so popular as it is now. More and more companies are looking for ways and means to improve the productivity of their staff working from home. CFOs may want to continue to support digitization as it can positively impact the finances of the company even after this crisis is over. Digital initiatives, like automation of various processes, and real-time forecasts, are critical for running the business smoothly. Embracing digitization will ensure informed decision-making, accurate reporting, and business continuity in the event of any future crisis.

The global pandemic has disrupted the global supply chain and has significantly impacted the return on investment almost overnight. The focus has shifted from efficiency to accounting for stability and resilience. CFOs need to shift their attention on digitizing and automating core business processes to minimize their exposure to external shocks and create resilience.

Preparing for business re-opening after the closures

Many countries have now slowly begun to relax their lockdown directives and are supporting the re-opening of businesses. The CFO plays a significant role in the re-opening and needs to take steps to resume operations while keeping the trust and confidence among the customers intact.

As economies begin to reopen and return to a semblance of the pre-covid normalcy the need to plan for tactical and strategic initiatives that are responsive to customers’ needs and behaviours is critical. The CFO plays a significant role in the re-opening and needs to take steps to resume operations while keeping the trust and confidence among the customers intact. He can be instrumental in taking steps and precautions in making the workplace safe for both employees and customers.

Some of the necessary steps could be:

  • Transitioning the workplace according to social distancing guidelines. It may involve simple steps like changing the layout of the office or installing barriers between desks.
  • The CFO, along with the concerned teams, may allocate funds to create a wellness plan to monitor employee health.
  • To limit the spread of the virus and safeguard the health of the employees, the CFO may instruct the concerned departments to resort to cashless methods. Special emphasis is needed in the handling and storage of physical items.
  • The CFO may also need to clearly communicate the details of the wellness plan and the precautionary measures taken by the company to the employees. It is important for the staff to understand their role in mitigating health risks.

Conclusion:

In these uncertain times, communication is vital. As much as it is important to have clear and frequent communications with key stakeholders, it is also crucial to have a line of communication open with employees. Business leaders must demonstrate empathy in these times as employees struggle with anxiety about their health and future. 

CFOs can play a fundamental role in keeping the morale high of employees. Regular communication is essential wherein the CFO apprises the employees of the company regarding actions and plans to tackle the crisis. Effective communication dispels rumors, reduces distractions among employees, and keeps them motivated. CFOs need to consider the best case as well as the worst-case scenarios in mind when formulating strategies. No one knows how this global crisis will pan out; hence, they need to consider all situations keeping their stakeholders, suppliers, customers, and employees in mind.

How top food industry CFOs save time and money on accounts receivable management

How top food industry CFOs save time and money on accounts receivable management

The food processing industry is Australia’s largest manufacturer (austrade.gov.au). From paddock to port, the food industry contributes billions of dollars in employment and revenue. What’s more, the world-class reputation of the Australian food industry has seen both domestic and export markets grow at a healthy rate over the last decade.

Right now, the food industry is weathering many storms: climate change, fast-moving consumer trends, rising costs of raw materials and labour…the list goes on. Now more than ever, food industry chief financial officers (CFOs) must mitigate surging costs, cashflow risks and business inefficiencies. The bottom line depends on it. And top CFOs know it.

The challenge to stay afloat persists: the food industry routinely registers in the top three industries for insolvency each year in Australia (ASIC Annual Insolvency Statistics).


The not-so hidden costs in accounts receivable management

Accounts receivable has an impact on cashflow, but that’s not all. Financial controllers in the food and beverage industry routinely lament a productivity cost, with hours of staff time lost to chasing unpaid invoices every day. The injustice irks them, too. After all, the sales team earned the sale, the buyer received their goods — they’ve even had time to sell them — and yet, the bank account is bare.

The costs of accounts receivable management are often hiding in plain sight. Here are the major ones:

  • Labour: Midsized businesses often have a small team of credit controllers chasing unpaid invoices every month. At ezyCollect, we meet a lot of larger businesses that have been losing up to 40 hours a week as busy staff spend time trying to collect overdue invoices.

  • Customer churn: Buyer-supplier relationships can disintegrate because of invoice disputes and late payments if they’re not handled with care.

  • Bad debt: As invoices age, they become harder to recover. Stubborn debts can end up as bad debt write-offs. Retailers, typically the buyer for the food and beverage industry, are consistently in the top two slowest paying industries (illion, September 2019 Late Payments Analysis.)

  • Lost working capital: Food and beverage companies that commence using ezyCollect’s technology for accounts receivable management start with tens of thousands of dollars owing. Creeping overdue debt can quickly cripple an otherwise thriving business.

  • Loans: Short-term loans and debt and invoice financing options help cover cashflow shortfalls but not without facility fees.

  • Personal hardship: Many companies in the food and beverage industry are family-run businesses. The Australian Small Business and Family Enterprise Ombudsman found that late payments have significant negative ramifications on mental health (Review of Payment Terms, Times and Practices, March 2019).

Tech solutions can alleviate the pain

Traditionally, accounts receivable management has been a labour-intensive task, with financial controllers adding headcount as the go-to solution to chase overdue customers.

However, the top CFO is thinking differently. Cloud accounting software has changed how accounts teams work. Financial controllers now deeply understand how technology can streamline cash management functions by taking care of the daily grind.

Here’s what top CFOs in the food industry do to curb the costs of accounts receivable:

Follow a credit risk management plan

Protect the business from the cashflow risk of late paying customers by running a credit check before issuing credit to new and existing customers. Fail to do a credit check with a reputable bureau and you run the risk of being blindsided by a customer who never pays or constantly pays late.

Depending on the business credit check you order*, you’ll get your customer’s risk rating for late payment and even business failure. (Contact us to trial our soon-to-be released credit risk service with ezyCollect.)

CFOs then offer cash on delivery only, or shorten payment terms for medium-to-high risk payers and monitor their payment behaviour.

An ongoing credit risk monitoring service rounds out the protection and is a good investment in long-term piece of mind. You’ll receive email or sms alerts to any significant credit activity your customers register in the market. This way, you’re the first to know — not the last to know — when your customer is at risk of defaulting.

*Users of ezyCollect can order a business credit check report from within the application.

Maintain an up-to-date debtor database

The debtor database can easily become out-of-date if you lose track of your debtor’s contact details. Top CFOs know that the debtor database is the foundation of essential follow-up payment reminders. How does your credit controller communicate with overdue customers if he or she can’t contact them?

In addition to contact details, credit controllers need to know what communications the debtor has received, opened and responded to. They want to know how much is owing and how overdue it is. They want know what the next course of action is, based on previous activity. Financial controllers understand that their teams need one central source of truth to track invoices to payment. Without it, they’re flying blind, and that’s a waste of time and resources.

Convert invoices into cashiers

In the digital era, invoices should no longer be just another passive document that arrives in the post or inbox. Your invoice is the primary calling card for payment and should actively collect money for you.

Top CFOs in the food industry understand the time-poor nature of their buyers, so they make sure the invoice is fully optimised to create a seamless payments experience for the customer.

  1. Systematically prepare and send invoices without delay.
  2. Clearly state payment terms and due date at the top of the invoice.
  3. Add a Pay Now button to digital invoices so customers click to enter their payment portal and pay.
  4. List all the payment methods you accept on your invoice.
  5. Issue invoices without errors or omissions.

Automate routine reminders

Human labour in the food industry is a major cost to running a business…so why waste it on routine tasks? Especially when many tasks in accounts receivable are ideal for automation, simply because they follow a set of rules. For example, send a reminder if an invoice is overdue by one day, send a second email after seven days, make a collection call on Day 13. While an employee can certainly follow these rules, consistently completing the tasks becomes impossible as the business grows. On the other hand, automation software is designed to do these routine tasks in bulk.

Best of all? Your staff are no longer locked down with tedious tasks and have more time for processing credit applications or making necessary collection calls.

Collect money online

Using an online payment systems means that your staff won’t need to spend time manually accepting payments over the phone or banking cheques. That’s because your customers will self-serve to complete their payments through the online checkout you provide.

What’s more, an online customer payment portal also serves as a depository for all of your customer’s open invoices. Food industry buyers typically replenish their stock regularly and carry many open invoices from the same supplier. With one place to view, click and pay, your buyers have the convenience of paying multiple invoices at once. And you can collect bulk payments easily. ezyCollect’s online payments solution instantly upgrades your payment options – check it out!

Offer buy now pay later

In the B2C space, buy now pay later is almost an essential, says Power Retail in its retail industry report BNPL 2019: More Shoppers, More Players and More Options. Buy now pay later has been found to stimulate sales, give consumers more choice and increase the average order value.

It follows that suppliers in the B2B space can reap those rewards, too. Certainly at ezyCollect, we’ve seen an increasing uptake in suppliers who offer our buy now pay later option to their debtors. What debtors love is the opportunity to repay a finance provider over time, while maintaining an on-time payment relationship with their supplier.

Outsource stubborn debts to a debt collection agency

In the words of Kenny Rogers, top CFOs ‘know when to hold ’em, know when to fold ’em, know when to walk away, and know when to run.’

Referring your stubborn debts to the professional debt collectors allows the trained professionals to take over your collection efforts. Debt collectors who are trained in positive collection techniques not only have a better recovery rate than your untrained staff, they also relieve them of chasing activity that isn’t generating results.

Ditch the paper trail

One CFO in the health food industry told us: “We were printing off ledgers and by the time we got to making follow-up calls, we needed to reprint them.”

Instead of a paper trail that quickly becomes outdated, rely on a digital database that updates as often as you need it and allows you to track invoices and keep a comprehensive audit trail of debtor management activities. Ditch the paper trail and also the frustration and wasted time.

Key points:

  • The CFO in the food and beverage industry has a key strategic role to steer the business towards profitability and away from cashflow risks.
  • Purpose-built technology supports staff productivity and collection success.
  • Digital solutions such as automated reminders and online payments save labour costs.
  • Customers seek a better payments experience and diverse payment options.

Thinking about streamlining your collections process to cut accounts receivable costs? Book in for a 1:1 product tour with an ezyCollect specialist today.