Forecast for 2023: Cash Visibility Rules

Published  4 MIN READ

As storm clouds gather and economic predictions worsen, treasury professionals should take precautions. Key here will be understanding their forecasting pain points and priorities, to ensure their businesses can survive – and even thrive, despite the tough operating conditions.

According to a recent BlackLine survey Eye of The Storm: F&A’s Role in Responding to Instability & Volatility, organisations globally are anticipating increasing pressure and scrutiny over company financials as a result of ongoing economic uncertainty.

In fact, the majority of C-suite respondents believe it will take between seven and 12 months before they start to feel confident about the economy again. As a result, optimising working capital and AR processes are high on the agenda, as companies look to bolster their financial resiliency to combat market instability.

BlackLine’s research also revealed that four in 10 (43%) professionals are concerned that rising interest rates will result in more late payments from customers – with this figure rising to 55% among CEOs. Furthermore, 42% of respondents are worried that prospects and customers will have less income to spend, potentially impacting sales and revenue. A significant 41% are concerned that their organisations will also face higher costs.

Improved visibility required

As a result of these challenges, maintaining visibility over cash flow will be essential for businesses. But how much visibility do treasury professionals currently have?

According to the survey, 62% of respondents agree that understanding cash flow in real-time is going to become increasingly important for their companies. However, what is most concerning is that 98% stated that they could be more confident in the visibility they currently have over cash flow. Almost none (2%) of the professionals surveyed stated that they felt completely confident in cash flow visibility.

Crucially, this suggests that the majority of global organisations could be at a severe disadvantage when it comes to making strategic decisions under pressure. In fact, 49% of those who believe visibility could be improved are worried that their businesses are making decisions based on inaccurate or out-of-date information. Added to this, 44% say their lack of visibility over cash flow makes them less confident that their organisation will remain competitive over the next 12 months.

Squaring up to challenges

Beyond economic factors, treasury professionals face several other significant challenges. In the wake of the Covid-19 pandemic, expectations from employees and both internal and external stakeholders have significantly changed. Furthermore, digital transformation in the profession is central to meeting these demands.

When we asked finance and accounting (F&A) and C-suite professionals what their three biggest challenges will be in 2023, the most popular responses were:

  • Increasing regulation and scrutiny
  • Being able to provide accurate data quickly enough to help their businesses respond to market changes
  • Attracting and retaining talent

Stating their current biggest challenges, more than a third of respondents (36%) indicated that identifying manual errors during the month-end close process was problematic. More than a quarter (30%) also said they do not have enough automated controls in place to support the volume of data that they need to process.

This is compounded by greater pressure on CFOs and those who report into them. The majority of C-suite and F&A professionals surveyed (62%) predict that their companies’ financial reporting will come under increased scrutiny. A similar number (63%) believe that financing will be harder to secure and that the ability to view their companies’ financial data in real-time will be a “must-have” for business survival over the next 12 months (62%).

Where does the responsibility lie in this highly challenging environment? According to the survey, two in five CFOs (41%) feel responsible for ensuring their company’s wellbeing during an economic downturn. Just 30% stated that it is the responsibility of the CEO. This suggests that, as company finances bear the increased scrutiny of senior leadership, pressure to deliver business-critical insights in real-time could fall primarily on CFOs, treasurers, and the finance function.

Hope on the horizon

Company leaders globally will need to carefully consider how their organisations respond and remain competitive, agile, and resilient in the difficult months ahead. Weathering the storm will rely on internal processes creating as much visibility as possible for finance professionals. A good example would be having a solid intercompany billing system that provides proper visibility and control. Improving intercompany processes and systems offers a systematic way to become more precise about how cash is managed and where it sits across and throughout the enterprise. This is particularly important in the current climate, as inaccurate and late information about the company’s cash positions will impact treasury’s ability to create meaningful forecasts, manage FX risk, make informed investment decisions, and manage borrowing costs.

Of those surveyed, 40% of professionals believe they now need to find ways to optimise working capital without looking externally to borrow funds, whereas 56% want to implement or scale automation solutions to help optimise and increase working capital within the year. A good place to start would be looking for opportunities to streamline cash flow and payment processes. In 2019, PwC calculated that $1.5tr. was held hostage on global balance sheets. Releasing this cash would be enough for global companies to boost their capital investment by 55%, without the need to look externally for funding or put their cash flow under unnecessary pressure.

At the moment, cash remains king, and yet working capital remains effectively locked in a business’s biggest asset – their debtors. On average, organisations are paid on day 50-55. For a medium-sized business with $500m revenue, each day is worth $1.5m. By automating and optimising payment processes, businesses can potentially release a significant amount of cash into the bottom line, with certainty that can then be put to work in the business.

The ability to do this will be the key differentiator between those organisations that thrive and those that flounder in 2023.