Stanton House sits down with 11 of the UK’s top Chief Financial Officers to discuss how to improve cash flow in 2023.
The cost-of-living crisis is making life difficult for many businesses. With increasing energy bills, rising supplier costs and inflation at its highest rate in 40 years many businesses are facing a tough period ahead. Cash is becoming scarcer, costs are rising, and many businesses face prolonged periods of negative cash flow.
There’s no doubt that businesses face their biggest challenge yet; the pandemic left some sectors with little in the way of cash reserves upon which to draw in 2023.
To mitigate the impact of inflation and soaring interest rates, it’s time for finance leaders to turn their attention to cash flow. Fortunately, everyone is in the same boat - meaning that there are a few ways in which cash can be managed more efficiently as a collective.
To get a real insight into this topic we hosted a virtual roundtable where we invited a small group of top finance leaders, operating in different industry sectors, to share their lived experience.
Drawing from this discussion, let’s take a look at some of the ways in which finance leaders should seek to improve their cash flow this year.
1. Supplier Consolidation
Can you reduce the number of suppliers you use? As a company reduces its supplier base, purchasing power increases. A good, and often missed opportunity is to rationalise your supplier base by reducing the number of suppliers you work with. By allocating more resources to fewer suppliers, companies can receive better prices for products and can benefit from economies of scale. Overall freight, handling and other related shipping fees may reduce in cost as well.
But what was interesting to hear from our CFOs was that the upsides ran deeper than pure economics. The strength of the relationship between partners was able to grow and as a result, our CFOs are now seeing other benefits such as more predictability in the supply chain, thereby reducing the cost of uncertainty. They are optimistic that this means they and their suppliers will emerge stronger from these trying economic times.
One CFO discussed the balance between short-term cashflow funding of smaller key suppliers and how they are now seeing an increase in loyalty and increased certainty of supply. This is helping further along the supply chain with their end customers, building resilience into their contracts.
“Make sure that you do a thorough review of all your supplier contracts to understand if you have any RPI or CPI indexation causes that could prove tricky in the upcoming months. You may find yourself tied into cost price increases, but equally, you may find that there are no specific clauses in place. In either situation, it’s time to talk. Businesses success relies upon the whole supply chain functioning.” CFO, Media Company
It’s time to dust off those contracts and work out how you can negotiate and work with suppliers and customers to emerge strongly from this period. Any improvements CFOs can gain from negotiation, only serve to increase the funds available to invest. Most importantly, CFOs need to support their employees; responding to the need to enhance benefits, increase wages or invest in organisational values.
2. Longer-Term Supplier Contracts
Streamlining your supply chain and investing in long-term contracts with smaller suppliers may free up some of your cash. Negotiating better terms and cheaper prices is never easy with new, small suppliers - however, if you offer the guarantee of longer-term sustained business this does become a viable conversation. In addition, smaller customers can end up being more loyal as opposed to big ones and this is something which will pay off over the next few years. Several of the CFOs we spoke to use this tactic to mitigate long-term cost increases by setting pre-defined terms with suppliers.
3. Discounts For Early Payment
Another way to increase cash flow is to offer discounts for early payment from customers. It may seem basic, but at a time when cash is so sparse your business will benefit from the cash injection of early payments, and your suppliers will benefit from a nice discount, it’s a win-win!
4. Process Efficiency
This is also the time for a back-to-basics review of your processes. Inefficiencies and workarounds tend to creep in. Now’s a perfect opportunity to strip it back and work out what parts of your processes can be streamlined or eliminated. Our CFOs showed how in their business this was offering up the potential to cut costs as well as improve customer and employee experience.
5. Foreign Exchange Opportunities
And of course, the FX markets are reacting to everything that’s happened too. We’ve seen massive volatility over recent weeks. One of our CFOs offered great advice about forward contracts. Now is the time to consider shortening those contract periods.
6. What About Customer Pricing?
More fantastic advice from our CFOs. At some point price increases need to be discussed and raised. But a smart proposal is to marry that with loyalty discounts to mitigate some of that hit. Something to think about.
We'd love to hear your view, please contact us to share your insight or to let us know if you would like to join us for future roundtable discussions.
