Corporate Financial Planning Post Covid: A Guide for A/R Leaders

Introduction

Corporate financial planning is the activity of developing both short and long-term financial goals for a business and preparing strategies to achieve them. This process involves deciding the investments and activities that are feasible and effective for the business to thrive in the long run.

Order-to-cash leaders have been juggling multiple roles and responsibilities while pivoting in their departments amidst the remote working situation- to ensure enhanced team productivity and optimize working capital. Right from enabling remote workforce transition, to changing approval workflows and process KPIs while evaluating technology options- there has been a lot going on in the world of order-to-cash.

This blog will talk about the various adversities that businesses faced during the initial COVID strike and the counter-attack by the A/R leaders, while also sharing some recommended strategies for corporate financial planning for the leaders looking to return to their offices.

Looking back at the COVID crisis

Across interactions with our clients, HighRadius received some insights as to what challenges they faced due to the COVID crisis and the work-from-home situation and how they responded.

Here are some of the high-level insights:

• Hewlett Packard Enterprise encountered customers delaying payments and so they modified their collections strategies to offer them early-cash discount programs.
• Ferrero faced the issue of customers using the COVID crisis as an excuse to request for extending payment terms. As a response to that, they made targeted collections strategies for different segments after the portfolio research to understand the impact on the customer.
• The cash application team at Whirlpool, consisting of just 10 FTEs had to deal with more than 100,000 invoices per month. They leveraged digital transformation which enabled them to match 60% of the invoices automatically, hence improving productivity across global cash application teams while working-from-home.

As the curve subsides in several areas and lockdowns get lifted, the on-going economic concerns of safeguarding the cash flow and optimizing working capital are pushing businesses to consider their transition back to the offices.

According to a PwC survey, 78% CFOs are reconfiguring work sites to promote physical distancing.

Strategizing before the transition to the office

Before returning to the office workspace, as an A/R leader, it is imperative that you plan and think through if you’re indeed ready to return. Here is a four-step checklist for you to look into before transitioning back to the office.

1. Plan out the date for the transition
   Keep updated with the news and plan a specific time to return to the office. As per the latest reports, probably by Jan 2021, things might start to look normal. Let your teams know at least one month in advance.
2. Identify the mission-critical staff to stage the transition
   Think through the teams which definitely need to be back in the office and the ones which don’t and plan the transition for them accordingly.
3. Strategize for the remote working teams
   As per a recent Gartner survey, nearly three in four CFOs plan to Shift at least 5% of previously on-site employees to permanently work-from-home post-COVID 19. Identify the employees that you would want to work from home itself.
4. Evaluate your disaster recovery plan before returning
   Ensure to evaluate and look for gaps in your existing disaster recovery plan so that you modify and update a new one once you return to the office.

Once, you have it all planned out about how to transition back to the office, think through how your roles and responsibilities as an A/R leader would be redefined when you’re back and how you could modify the corporate finance plan for your business.

Four focus areas for A/R leaders once they’re back to the office

The pandemic has helped increase the awareness about the significance of the credit and accounts receivable function in the office of a CFO, simultaneously elevating the strategic importance of the work being done by credit and A/R professionals.

Here is a four-step guide to help you with the corporate financial planning for your business, when back at the office:

1. Rethink credit and collections strategies

• Having control over credit is critical to recovering from the impact of COVID. Ensure you leverage the advantage of being in an A/R team and perform intensive background research on every portfolio and double-check them before onboarding them.
• Perform frequent credit reviews over a particular portfolio and keep checking for risk alerts.
• Streamline the existing approval workflow process without having to run the same thing with multiple stakeholders.
• Research how your customers fared and learn how this crisis has impacted them. Use that to devise new payment terms for them accordingly and offer alternatives that suit the interests of both the parties. For example, if some of your customers had been paying you on time but are now delaying their payments, then offer an early-payment discount as an incentive for them to prioritize you in the payment cycle.

2. Improve the relationship between the A/R & the sales teams

Focus on an A/R + Sales ecosystem to make not just sales, but profitable sales to safeguard your cash flow:-

• Align the sales and A/R objectives
  • Attend sales meetings as and whenever needed
  • Understand each other’s strategies, workflows, and goals
• Work hand-in-hand with Sales
  • Through your credit research tools, collect insights about customer behavior and check if they have been growing. This would help you understand their profitability.
  • Share this sort of vital information with sales as a proactive way for your sales team to expand a selling opportunity to these kinds of customers. This turns the credit department into an invaluable partner for sales facilitation and expansion.

3. Invest in a more know-your-customers approach

• Keeping your customers close is the key to build a lasting partnership that is valuable to both you and your customer.
• To stay close, invest in a more know-your-customer approach by evaluating and estimating your customer’s potential before you resume or even begin a business.
• Do your research, study, and evaluate the impact of the crisis on your customers.
• Using this knowledge, make an estimate as to when your customers would be in a position to make accurate and timely payments.

Once you make an educated guess about their financial position, you can then estimate the timeframe to resume or begin working with the account.

4. Create a technology deployment action plan

We are caught up in the middle of a swell. It is difficult to say right from wrong just by looking at one or two factors. As per Gartner, 85% of AI-based digital transformation initiatives end up as a failure.

Order-to-cash leaders exploring technology right now cannot afford to make the wrong decision. With increased scrutiny on budgets and resources, leaders need to effectively evaluate every step, every action, and every decision when looking to implement a technology solution.

To help achieve this, Gartner provides us with comprehensive decision-making Cost Optimization Decision Framework that would allow A/R teams to make the right choice in this tough economy and hence help them- Sustain, Recover, Thrive.

Use this framework to evaluate how every decision you’d make would fare against what should be your top consideration right now. The parameters against which you need to evaluate any new decision are- the potential financial benefits of the decision, overall business impact, the time requirement, degree of technical and operational risk, and the investment requirement.

There are multiple levels in which a decision would impact each one of these criteria, but the most ideal and optimum choice would be the one making way for large potential benefits, positive overall impact, has minimum time requirement, low technical risk, and operational risk and minimum investment requirement.

A decision that checks off as many green boxes as possible is more likely to deliver long-term value to the business

To sum up, here’s how you should strategize your corporate financial planning

1. Rethink credit and collections strategies

• For Credit:-
  • Double-check a new customer before onboarding.
  • Increase the frequency of credit reviews
  • Streamline the approval workflow
• For Collections:-
  • Modify payment terms for different customers
  • Offer cash-discount programs to early payers

2. Improve the relationship with sales

• Focus on a more harmonious A/R + sales ecosystem
• Align sales and A/R objectives
• Act as a helping hand to the sales team to ensure profitable sales

3. Invest in a more know-your-customers approach

• Study the impact of the crisis on your customer
• Understand the financial position of your customers
• Know when to resume business with your customers

4. Create a technology deployment action plan

• Follow the Gartner framework to leverage digital transformation to help your A/R teams:
  • Improve productivity by saving up to 70% of an analyst’s time
  • Make faster and well-informed credit decisions
  • Achieve stakeholder satisfaction, both internal and external