Recession Threat Puts Cash Flow Management on Front Burner
Originally appeared in PYMNTS.com
The pressure is on for companies to conserve cash, to manage money flows more adroitly.
Joe Payne, senior vice president of Source to Pay at Corcentric, told PYMNTS that not all that long ago, companies were contending with the great resignation.
“Firms were still struggling with access to talent,” said Payne, “and getting the people they needed to run their business effectively.” But there’s been a 180-degree turn in recent months.
Companies that had been jostling and jockeying for talent now have zeroed in on the dangers of spending too much money on those efforts. They’re navigating the challenges of inflation, stubbornly entrenched at multi-decade highs. Interest rates are still increasing; the pace may be moderating a bit into 2023, but the cost of capital (and input costs) remains on an upswing.
Many of Corcentric’s enterprise clients, he said, are fine tuning their internal staffing, moving from fixed to variable cost models, and moving to outsourced models, too. Along with that shift, he said, executives are scrutinizing their cash flow management protocols.
“Because of the expected recession,” he said, companies want to convert their days sales outstanding (DSO) to cash as quickly as possible — but their customers want to hang on to cash for as long as possible.
Capital Access Evaporates
Amid all this, it’s getting harder to tap traditional channels to get the working capital in hand to manage uneven cash flows. Those traditional conduits, he said, whether through bank loans, or private equity, have proven costly and scarce.
“The access to capital that a lot of firms have had over the last eight to 10 years has evaporated.”
Technology, he said, (and accounts payable software, as Corcentric offers) can help manage the overhead expense of cash flow operation and improve the ability to collect, he said, by eliminating manual processes and workflows. Along the way, he said, firms can rethink their billing processes and consolidate systems, clearing away bottlenecks.
“If you had a large team doing credit and collections,” he offered by way of example, “if you had a certain amount of bad debt expense that you were writing off on a consistent basis, if you had multiple billing systems,” technology can be enlisted to “shrink that down, make it as efficient as it possibly can be, and also guarantee an outcome … and make cash flow as predictable as possible.”
Firms such as Corcentric, he said, can help facilitate both the buy side and sell side of transactions, effectively creating models where companies know exactly what funds will settle — and when they’ll get those funds.
Looking ahead, he said, beyond the confines of DSO, Payne said that “savvier CFOs that we are talking to today are thinking about the other elements that impact cash flow — DIO (days inventory outstanding) and DPO (days payables outstanding). Instead of approaching suppliers and trying to push out payment terms to 90 or 120 days, digital solutions can help guarantee a payment term extension that keeps positive relationships in place with those trading partners.”
As he told PYMNTS, cash flow challenges “are going to be coming to a head, even more so, in the next year,” noting, too, that, “The expectation that we’re headed into a recession in 2023 is still there. We’re seeing a tightening of belts and a rethinking of 2023 budgets.”
At Corcentric, we stand ready to help. To learn how we can help, contact Corcentric today.