By Curt Anderson, CFO, Icertis
As countries continue to ease lockdown restrictions and the business world starts to return to a new normality, financial health and resilience are becoming ever-more critical imperatives for CFOs. Maintaining a company’s financial strength, however, requires one to focus on more than balance sheets and profit and loss statements. Today’s CFO must optimize cash flow, minimise business risk and focus on customer health in a more demanding and higher stakes environment.
The impact of external events on the bottom line – from supply chain failures to shifts in demand – is weighing especially heavily on CFOs’ minds. Many are preparing for the worst, with more than half (53%) of CFOs worldwide, anticipating a significant impact on their bottom line as a result of the crisis according to a recent PwC survey.
As such, CFOs are proactively engaging with other areas of their organisations to meet the changing demands on their role. In this time of crisis, CFOs work even more closely with peers from across their organizations to make critical strategic decisions with speed and confidence – this requires access to key operational and business relationship information.
This movement for collaboration is especially evident on the sales side of a business. While sales cycles have always been a concern for the CFO, the global pandemic has made close-knit collaboration with sales teams a top priority for finance leaders looking to improve cash flow and project their company’s financial and risk positions.
In a similar way, CFOs are also increasingly focused on supply management – especially since global supply chains have been significantly disrupted. At the beginning of the current crisis, for example, we saw global trade stall and capacity in key trade lanes reduced as border controls tightened and factory workers around the world were sent home. Organisations in automotive, distribution, engineering, energy production, healthcare, manufacturing, pharmaceuticals, retail, and telecom were all left short of key goods and materials. Supply chain disruption drives up revenue and cost and can severely damage customer relationships and increase business risk. To regain lost revenue, quickly developing alternative sourcing options or adjusting contractual terms can be the difference between survival or failure. Spotting these opportunities and finding value in the supply chain, however, requires real-time visibility.
Technology is key these efforts, and CFOs are taking a vested interest in digital solutions that can give them business oversight of income and spending. The PwC survey reveals that 48% of CFOs are looking at accelerating automation and other new ways of working. With a real-time view of data across key departments and processes, CFOs will be better positioned to juggle the act of having to be operational, strategic, compliant and innovative all at the same time.
One area that has emerged as needing critical focus in the enterprise is contract management. Within contracting, having visibility of contractual terms is a key part of being able to see the big picture when it comes to the ability to understand contractual commitments and make intelligent decisions based on that data.
In a complex and rapidly evolving environment, like with the current pandemic, it’s essential that the CFO can quickly understand their company’s contractual rights and obligations. In such an environment, both new opportunities and new needs will inevitably emerge. Being able to introduce new suppliers quickly and sign expanded agreements with existing suppliers is essential for business continuity. A company may, for example, need to shift the supply source for critical materials to new vendors and geographies to mitigate inventory and revenue risk or may require a large volume of PPE to enable staff to return to work. Similarly, a CFO may wish to understand contract rights in situations where customers are cancelling deliveries or where the business wants to cancel its own orders from suppliers.
Contract negotiations are critical too. At a time when every pound or dollar counts, driving intelligence into the contract negotiation process is critical. CFOs who can spot trends in negotiation terms and identify key contract levers that enable teams to win deals more quickly and give the company an edge in a challenging environment. This improved visibility can also help to identify contract terms that negatively impact short-term cash flow and ensure those terms are not used in contracts moving forward.
With full contract visibility, the CFO can use any insights into the rights, obligations and risks in its contracts and suppliers to better manage is profits and cash flows. Visibility is also critical to being able to communicate performance and risks with leadership teams, boards and investors. This information enables the company to act more confidently as it reacts to shifting market conditions.
Organisations and CFOs that invested early in enterprise contract management systems have been able to more quickly adapt and mitigate business risk during this pandemic and are enjoying a competitive advantage as a result. The ability to access and evaluate large amounts of critical performance and risk information across thousands of contacts and relationships and use that information to drive business automation is becoming a key initiative for CFOs in every industry.