CFOs play a key role in disseminating a cash flow management culture within businesses and making cash flow management a priority. Transforming themselves into business partners with other operational departments will ensure their companies commit to this new dynamic.
Strong trading partners both locally and internationally are also essential to a company’s financial performance and business agility.
Small enterprises are often the first victims of insolvency issues and liquidation in rapidly changing and difficult economic climates. To avoid tipping over the edge, companies need to optimise their working capital requirement (WCR) more than ever. Factors that can affect the WCR adversely include:
- Siloing of operational departments
- Compartmentalised information
- Unsuitable information systems
- Lack of understanding of growth drivers
We look at the four key roles that CFOs play in the sales cycle.
1. The role of the CFO in risk management of customers
From the very start of the prospecting phase, the sales team need the finance department’s help with knowledge and expertise in identifying risks and evaluating markets. A CFO will need a well-trained eye to inform sales representatives at the earliest possible stage about acquisition costs, in order to make the most of risk management.
The CFO should examine several aspects prior to any order:
- Identify risks.
- Evaluate the market.
- Secure contracts.
- Define customers’ credit limits.
- Improve reliability of the order logging process.
CFOs need to widen the cash management culture from the finance department to other business areas to encourage the company’s growth without undermining its stability, and employ careful risk management. Along with the credit manager, they play a key role in helping to put effective procedures in place involving all the company’s relevant resources.
2. The role of the CFO in boosting sales
Maintaining a healthy level of business is not the exclusive province of sales staff. CFOs play a prominent role in maintaining profitable business, and by holding a cross-functional position within the company are well-placed to set performance targets. These targets need to take cash flow into account, an often secondary concern for the sales department, who are more focused on profit and loss. Some companies have created incentive policies based on gross margin rather than turnover, to make the sales teams more aware of the profitability of their activities.
Sustainable sales are a top priority in order to limit risk, and maintaining a long-term business relationship costs less than acquiring new customers. The exchange of information between financial and commercial departments improves sales negotiations, and indeed dispute management. These factors help create a bespoke approach to customers, maximising the chances of retention.
3. The role of the CFO in invoicing
The invoicing process has a direct effect on cash flow. The CFO should take charge of optimising invoicing to reduce disputes. As business failure can be caused by late or non-payments, this should be a priority.
As well as making sure procedures prior to orders are secure, the CFO must not neglect the subsequent invoicing, where it is essential to collect as much customer information as possible.
The CFO can adapt reminders to customers depending on the outstanding balance owed, and optimise processes by automating where possible and digitising documents as payments are received.
CFOs can manage the collection of late payments, putting faster procedures in place from the time an invoice becomes overdue, to improve collection efficiency. Knowledge of customers should dictate the best approach to take for reminders, formal notice to pay, non-legal negotiations, or legal proceedings. The priority remains to recover what is owed while preserving the future business relationship.
4. The role of the CFO in internal communications
Whether the source is internal (administrative, legal or commercial departments) or external (financial CRM), information must be shared between a company’s various departments to improve the effectiveness of each of its components.
The CFO should ensure that information reaches each operational department, making it available in real time and adapting it in an appropriate manner. The objective is to facilitate the understanding of the company’s financial strategy, in order to help widen a cash flow culture to all employees.
Essentially, the perfect CFO will be able to work on:
- Lead generation to improve customer risk management
- Sales to set targets that include a profit margin component
- Invoicing to encourage automation and responsiveness
- Information to create the conditions for departments to work together
- Communication to raise employees’ awareness of cash flow issues
At the end of the day, the CFO has two key factors to weigh up: the unhindered management of the company’s activities, and communication with all departments. This means that along with possessing a wide range of accountancy, tax and legal skills, a successful CFO also needs to employ tact and teaching skills.
