Cash Management: 3 Questions to Ask When Planning for Today and Tomorrow

Managing liquidity is a key function of finance, but in times of change it becomes even more important.

Whether you’re strapped for cash, waiting for your cash cow or looking to cash in your chips, cash is a preoccupation for most of us, in good times and bad. For finance teams, though, managing cash flow is a critical part of the job—one that gets more urgent when planning quickly through times of change.

When your business needs to suddenly shift gears—whether it’s because you’re in a position of rapid growth or entering into survival mode—your team’s day-to-day decision making changes dramatically too. Monthly cash forecasts can instead become a daily practice. And a focus on leveraging cash for growth may turn into one of maximizing cash management to stay afloat. 

While this may be the new reality facing finance leaders, there are some proven cash management methods for planning through uncertain times.  

What to Ask About Your Cash

Detailed cash management, as part of the larger function of treasury management, is often focused on the nearer term, and is pivotal in survival days with expenses like payroll on the line. Agile cash management comes down to being able to answer three essential, daily questions: 

1. How do I maximize my available cash?

This includes cash in the bank and access to credit and other sources of short-term capital. As Deloitte advises, the first step to figuring out what’s best for you is cataloguing all of the sources of cash available to your company, including the following and beyond: 

  • Equity funding 
  • Unused committed and uncommitted lines of credit
  • Proceeds from the sale of excess inventory, PP&E or other assets 
  • Accelerated receivables and deferred payables 

From there you can assess your qualifications for each and what information, processes and transparency you’ll need to share in order to access them. You may need to make some tough strategic and operational decisions as you do. 

2. How can I accelerate receivables and defer payables?

According to 2020 research from The Hackett Group, the largest 1,000 US companies have $1.3 trillion tied up in excess working capital, of which $368 billion is tied into accounts receivables. So how do you free up that capital and increase your liquidity? Some of the most common, customer-facing ways to accelerate your receivables include:

  • Incentivizing customers with discounts for early payments or penalties for late ones
  • Moving as many of your customers to online payments as possible, using financial lockboxes and automated clearing house (ACH) services for those who can’t
  • Identifying at-risk customers and sending friendly, early reminders, flagging accounts in arrears and prompting additional actions as required

Don’t forget to look at your own team and how you can embed a cash culture throughout your organization. Collecting receivables can be a team sport, so consider how changes in compensation plans can incentivize everyone involved—not just your collections lead, but also the sales rep and customer success and account managers involved in any given account.

Account payables can be approached in a similar—but inverted—fashion, by reducing the amount of cash going out. The most effective approach, though, isn’t going to defer existing payables at all. Instead, it will minimize expenses incurred in the first place by identifying those expenses you need to retain and by introducing new policies that slow down those that aren’t so crucial. 

3. How do I know I’m right with the tough calls I’m making?

Strategic finance teams need to help business leaders pull the right levers and make the tough calls to keep the company running. Making sure those tough calls are the right ones is a function of having the best data at your fingertips, then analyzing that data to shape your recommendations—and ultimately your final decisions—around three basic cash indicators:

  • Inflow: Examine your cash inflow, net of any costs incurred to make the product that you sell. This might mean looking at aging receivables, product usage data and churn potential from your CRM, GL and AR sub-ledgers to flag high-risk customers. It could also mean tapping into your CRM and marketing automation systems to measure the health of your sales pipeline. Tough calls range from minimizing customer support levels to determining which marketing campaigns to embrace and even which sales reps to let go. 
  • Operations: Look at your expenses and outflow and the decisions you can make to limit the cash you’re spending. Operational expenses are where you’ll make your most difficult decisions—even at the expense of long-term gain—and how you’ll demonstrate your agility and understanding of which levers to pull in survival mode. 
    • Engage business managers early to identify critical expenses, such as CRM and accounting software, that keep the business connected and running.
    • Implement new policies and guardrails to slow or stop incurring expenses above a certain dollar amount, as well as new approval requirements for more control over discretionary spending.
    • Require department heads to re-evaluate all planned spending to identify what can be deferred to the next quarter or fiscal year.

Using data from your CRM and compensation sub-ledgers, you’ll need to make tough calls about headcount, sales and marketing spend, liquidating PP&E and freezing technology investments. 

  • Time: To inform the decisions that you make, consider your inflow and operations over different outlooks of time—the next six weeks, six months, 12 months and two years, for example. This will help you understand how the decisions you’re making now will affect your business in the future.

The decisions you need to make may seem difficult, but ultimately tough times require tough calls—as long as those calls are informed by frequent modeling and reforecasting, and are based on the best data you have. 

Learn more about how you can quickly get started with agile planning best practices for cash management, or talk to a Vena FP&A expert 1:1 with no obligation to help you plan for today and tomorrow.

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