Finally, we are hearing that Cash is King and Trade Receivables is the Castle where he resides.
As with all kings, he expects his palace be kept spotlessly tidy and every detail and requirement rigorously attended to. Alas, this is not always the case. Overdues and invoice disputes more than 2.5% are early indicators that Trade Receivables are less than world class and opportunities for investment and improvement abound.
The very foundations of the castle will shake under attack from 3 enemies that may all arrive at the same time:
Recession – already well documented and will impact for a long time yet.
Brexit – those of us working in the 80’s and 90’s and connected with import duties and taxes can recall the incredible complexity and predict what will befall those that are unprepared. Customer Master Files, Invoicing, Purchase Orders, Cash Application, Working Capital etc. etc. etc. will all be impacted.
Costs – All the government financial support in the last few months will have a cost impact. At some point it must be paid back and it will be through a broad range of tax increases that will all add up.
Courage and Vision to the 2.5%
One is difficult enough – to withstand all 3 requires brave and forward-thinking leadership to seize the opportunity for talent and technology.
Reducing costs and headcount and meeting quarterly EBITDA targets will not resolve the challenges ahead.
Investment in Shared Services has been historically low and is now being revealed as failed strategy. What is needed is the opposite approach – a courageous, visionary mindset to implement a strategy that will withstand any future events of this scale.
Most of what CFO’s are looking for can be found by implementing a company-wide culture that supports King Cash. This means placing Credit as the focal point of business and investing in its quality control as much as the products and services offered – the 2.5%
Black Swans in the moat
History shows that unforeseen events (black swans) impacting everyday life and the economy are never far away – politics, recessions, riots, terrorism, wars, tsunamis, nuclear malfunctions, interest rate rises, VAT increases, fuel price increases, exchange rate fluctuations, currency devaluations, strikes, 3 day weeks, power cuts and freak weather conditions.
The Corona virus was not predicted by anyone in finance, but the warning signs of global recession were becoming ever clearer.
Attendees at Credit Matters VIII last year in Brno will recall the presentation from @Vladimir Vano.
The Association has delivered training, coaching and consultancy to more than 2000 people working in Credit – also known as O2C, I2C, C2C or P2C
Our message has been consistent – achieving as close to zero overdues as possible (2.5% or less) is not a nice to have but what should always be the gold standard in all companies.
The reality is that most corporates have a comfortable bank balance and focus on sales rather than completing the transaction with payment.
Talk of WFH and new normal is distracting many from the exciting opportunities that await to defeat the multi-faceted challenges shaking the very foundation of the Cash King’s Castle – potentially impacting business like never.
This is the time to use the word UNPRECEDENTED.
Trade Receivables is the biggest, most complex, and vital asset – not just another line on the balance sheet.
Solutions and Actions:
• Invest in the highest-grade technology – this is not the time to shut down on investment. Manual processes and outdated Invoicing, Risk, Collections and Cash application tools can be quickly and easily upgraded. Some of the most exciting recent technology is designed especially for O2C.
• Engage with 3rd party debt collection agencies– it is far better to collect >80% of something than 100% of nothing. DCA are not a sign of failure, they are an essential part of the cash collections process.
• Resolve disputes urgently, it is not cost effective or practical to investigate every dispute, especially those of low credit note value.
• Talent – most important of all. As with DCA and technology, employers must recognize that historic lack of investment is now rebounding with very few engaged in Credit / O2C able to react to business needs. The immediate training needs for Managers and Team Leaders can be delivered online, quickly and cost effectively by ACCEE but the longer- term essentials for empowerment need to be planned as an urgent priority.
The 2.5% is not a nice to have ….