There is little doubt that the current state of the world economy is the result of a series of complex events.
However, the (lack of) management, and also visibility, of cash flow in the business has made a significant contribution to the wider financial woes that are currently looming large.
Why?
Cash flow management is central to the financial wellbeing of a company, but wider effects are also implicated when invoices are not paid on time. Nearly every business in the world has working capital ‘in limbo’ – tied up in receivables and the supply chain. This means that the importance of cash flow visibility, a company receiving what they are owed and paying what they are owed, is fundamental when access to resources is challenging.
Even during times of economic growth, for both businesses and the wider economy, managing your finances is an important discipline. Yet, when times are ‘bad’, the need for managing cash flow, and having invoices paid and up to date, is vital. When the wider financial system slips into a recession, organisations are challenged by the extra risk of their supply chain partners meeting their own financial difficulties, meaning they simply do not have the means to pay their invoices.
Basware has launched the findings of the 2011 Cost of Control Fuzzy Finance report. Concern about the visibility of cash flow was the prominent theme from this year’s report, largely a consequence of the increasing interdependence of finance systems currently within businesses and on a global scale. From the survey base, 71% of global CFOs and finance directors are concerned that greater levels of reliance between different finance systems presents cash flow visibility challenges.
When the reliance on invoices to be paid on time becomes business critical, this is when cash flow comes under the spotlight and companies become acutely aware of the interdependence on other organizations and their financial systems. Businesses therefore need to look how this can be managed internally and work alongside suppliers and buyers to ensure unpaid invoices doesn’t negatively impact upon interdependent financial networks as this ultimately impacts wider economic performance.
Additionally, by being more closely integrated with trading partners (customers, suppliers) through the adoption of e-invoicing and business-to-business networks, companies can add a further layer of defence against cash flow ‘myopia’. As such, you can expect to be associated with companies able to demonstrate more accurate forecasting of shorter-term cash flow – as demonstrated by the finding that investing in e-invoicing technology to increase productivity was ranked as the top activity that 52% of businesses are more likely to do now than 12 months ago in the Fuzzy Finance report.
Ultimately, unpaid invoices do have an impact on the global economy. In times of economic buoyancy, cash flow visibility is important. When times are tough, it is absolutely essential.
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