Are You Keeping Up with Other Finance Leaders in Effective Cash Management?
Part 1 – Executive Summary and Drivers for Change
There had been a number of recent studies on what finance executives have done to improve their cash management effectiveness. In a series of weekly articles, we will be providing insights into the key findings and lessons learned from these studies and from our own experience.
Executive Summary
To improve cash flow and deliver effective cash management, senior finance leaders are playing a large role in modernizing their organizations. Their top three functional drivers include improving visibility, reducing cost, and eliminating paper-based documents.
While 3 out of 5 are investing in solutions to standardize and automate their AP/AR and cash forecasting operation, only 1 in 4 are making significant progress. What the research data fell short is explaining the real reasons behind the slow progress, so you can act on the root-cause instead of observing the symptoms.
This is where our experience fills in the gaps – because a purposed-built, fully integrated solution was not available at the time. Rather than tackling the holistic problem, many were forced to break it down into a collection of distinct projects, each addressing a small aspect of the overall challenge. Due to the intricate interdependence amongst these parts, the envisioned result is unachievable in isolation, which explains why the success rate was so low.
This is not unlike comparing a NBA team with an intramural team. They all have the same number of players on the court, share the same goals, same rule, and court regulation. But the outcome is drastically different, the devils is always in the details.
Drivers for change
For this week, we will look at into those external and internal drivers that motivated these executives to act:
- In today’s connected enterprise, the AP/AR organizations can no longer operate as its own island:
- 81% are seeing greater collaboration with their suppliers and other enterprise functions.
- 79% are seeing greater enterprise demand of invoice information, such as integration into their ERP and procurement systems.
- 64% are seeing further increase in strategic importance for their AP/AR departments. New tasks include business analytics, dynamic cash forecasting, correlations of data and drivers, etc…
- Investors and analysts are increasingly focused on cashflow as a top financial metric.
- More accurate prediction of cash flow against current/future expenses.
- Lack of visibility into existing AP documents and operation for effective oversight and control.
- Difficulty in searching and managing paper-based documents.
- Increasing regulatory compliance requirements.
- High cost of invoice processing.
- Increasing payment-related fraud.
- High percentage of AR exceptions is increasing the Days Sales Outstanding (DSO).
- High DSO is negatively impacting cashflow, liquidity, and working capital.
- Lack of accuracy and timeliness in payment processing.
We hope this set of drivers resonate with you and help you to identify those latent requirements that have yet to be defined. We would love to learn from you those needs that are unique to your firm, or those that we have missed.
Next week, we will discuss the set of business and functional requirements derived from these drivers for change.
