Even if the Covid-19 crisis hadn’t happened when it did, most financial organizations would also still be factoring in recession contingency plans into their budget strategy. In the current economic climate financial success can’t be seen as a certainty, but that doesn’t mean it has to feel completely out of reach.
In the latest whitepaper from The Hackett Group, the case is made for finance departments to remain vigilant and seek out ways to protect their company’s margins even in times of economic uncertainty.
In our first blog post we covered how cash preservation should be the first port of call, as it’s often a quicker and cheaper way of preserving working capital. Once this avenue has been exhausted, and there are still blockers to liquidity, it’s time to look at cost reduction.
If cost reduction is an area of focus for you, there are six key areas which you should look into.
1. Enterprise-level decision support
Take a step back and look at your entire organization. Are there any M&A opportunities on the horizon that could help in the long-term? Can you review and tighten travel and expenses budgets? Since the pandemic began working from home has become commonplace – is this something that could work as a permanent measure, to save money on commercial real estate?
2. Function-level decision support
Take a close look at and benchmark your financial processes and identify where you could make cost savings, based on an understanding of process complexity.
3. Service delivery
With the right technology in place you could soon see an increase in costs saved – look for ways to maximize use of your existing technologies first. Where you spot room for improvement, it might be worth looking to implement technological solutions with low upfront cost and high return on investment potential, as these can help you optimize existing processes.
Again, another area where having the right technology can save you time and money – look at ways you can reduce non-value-adding work, such as manual ledger entries and consolidation. In addition to helping you expedite these tasks, financial software solutions will usually also be able to standardize and automate reports.
If you audited your dispute management process you’d likely discover plenty of cash tied up in disputed invoices; with correct escalation, codification and workflows in place you can reduce manual interaction and free up the cash that’s owed to you, faster. It can also be worth looking into ways customers can self-serve during their interactions with you, such as through a payment portal.
By running a tight ship and making sure that all supplier payment terms are adhered to, you can avoid late fees and loss of discounts, and reduce invoice discrepancies. You may also identify areas where you can move your spend from higher to lower channels.
Cost reduction is the second step you should take when looking to optimize cash flow. In Part 1 of this blog series, we looked at ways in which you can preserve cash. For a more in-depth checklist of action items, download the latest Hackett Group whitepaper “46 Ways to Preserve Cash and Reduce Cost”.