A study of the headlines of business and finance journals at the New Year reveals wide usage of terms such as “Eurozone collapse”, “Uncertainty” and, “Avoiding Risk”.  Many finance directors are heading into the New Year with a focus on cutting costs and increasing cash flow to strengthen balance sheets and avoid risk.

As the global economic storms continue to rage in 2012, finance directors and their teams will be presented with a new level of challenge. However, those challenges could also be stimulating and allow finance professionals to bring all their skills to bear to help their businesses survive.

Undoubtedly, finance teams will need to move away from just “keeping score” and offer the business better insight into how to cut costs and stay competitive. Here are three ways to help you survive in 2012:

1)     Accurately analyse your spend and revenue – Even finance directors of long standing businesses now need to unearth their entreprenurial spirit and look at new, creative ways to cut costs and offer ideas for revenue generation.  Every stone should be turned to look at new ways to improve the margins — and this means looking at your financial information from new angles.

• Maintain a holistic view of the organisation’s financial performance so ideas for new growth as well as cost reduction can quickly be spotted and offered to the management team.
• Compare departments side by side to get new insights into spend and revenue.
• Be prepared to advise management on the most profitable and saleable products so marketing and sales can be directed accordingly.
• Examine recent acquisitions for hidden costs or cost saving practices, which could be rolled out across the company.
• Keep a close eye on departments that have less control over their budgets. This is not the year for surprises.

2)     Monitor your Payables activity – Are you getting the most value from your providers?  An early spring clean of the payables function will allow you to review payment terms, discounts, and controls.

• Make sure you know which suppliers have favourable payment terms and make sure they are justified by better prices or contract terms.
• Identify any areas where available discounts are not taken. Again, if your procurement team have taken the trouble to negotiate these they should have a significant value to the business and every discount lost will require more sales to compensate.
• Make sure your payables controls are working effectively. Payables can be a high-risk area in terms of fraud, but overbearing controls can slow the process and impact cash flow by imposing too much manual intervention and placing too many invoices on hold.   Run regular checks to see how many invoices are on hold, how long invoices are taking to process and to monitor the efficiency of your payment runs.
• De-clutter your supplier files. Those unassuming supplier records set up over time for specific purchases can result in all sorts of temptations for contract leakage and additional purchase costs. Keep your supplier records to a minimum to avoid unnecessary costs.

3)     Improve cash management – Often, 80% of your biggest potential cash improvements are available from your top 20% of customers.

• Make sure you can easily identify your best and worst customers in terms of spend and payment compliance.
• Monitor Days Sales Outstanding (DSO), adherence to credit terms, and late pays.  Improving overall DSO by even two to three days can deliver dramatic cash flow improvements.
• Check your Receivables processes regularly to identify bottlenecks which can affect cash flow. For example, disputed invoice resolution, too much use of credit memos, etc.

Here is some interesting research on this topic:

• IBM Global CFO Study: The New Value Integrator
• The quarter close: A look at this quarter’s financial reporting issues – Fourth quarter 2011
• Deloitte CFO Study: Capital Becoming Competitive Differentiator for Large Companies as Refinancing Bubble Looms

Author: tracy.bishop

Ever optimistic and always looking for ways to make the day to day life of finance staff easier. My career as a practising public sector accountant followed by 12 years as an Oracle ERP consultant has led me nicely to my perfect job! I am the EBS Product Manager at Insightsoftware.com where I get to define our reporting solutions for Oracle Financials users. When I'm not doing that you can find me running our cattery at home, www.kandaharcattery.co.uk, acting as groom to my daughter and her pony or dancing madly as a groupie to one of my husband's bands, e.g http://www.honeyryder.com/.

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