Assess the impact of rising inflation on your business
The United States is experiencing its highest inflation rate in nearly 40 years due to the supply chain disruptions and the pandemic relief funding.
If input costs continue to rise at this rate, keeping a recession at bay will become difficult. Reduction in sales, lender investments, and delayed client payments come hand-in-hand with recessions, all of which contribute to a major cash crunch.
The discontinuation of research initiatives due to financial constraints limits the ability of industries, like pharmaceuticals, to innovate and grow. Similarly, a drop in consumer demand and a rise in import and export fee pushes supply chain industries to reduce staff, which in turn delays the delivery of goods.
Develop financial strategies to manage rising costs
Reduce OpEx by fixing invoicing errors
Discrepancies in invoices arise due to several reasons, such as:
- Incorrect pricing or unexpected charges
- Missing or incorrect customer information
- Incorrect due date on the invoice
- Doubts on the quality of the product(s)
- Bills delivered twice
Customers delay making payments when such errors occur, raising DSO and negatively affecting the company’s cash flow. In an ideal situation, disputes would be resolved in three days. However, the traditional dispute resolution process, which entails tedious, error-prone steps, might take weeks to complete.
Reducing invoice errors makes it easier for customers to make payments, thereby enhancing the cash flow. Below we discuss three strategies to minimize invoicing errors and the risk to cash flow:
- Centralized repository for all documents: A single source of truth with access to all documents (original contracts, purchases, and sales orders) can help the client and the supplier resolve pricing disputes faster.
- Access to invoice delivery and payment status: Custom dashboards help track real-time invoice delivery status, notifications on late payments, credit card expiry dates, etc. to avoid aging of the invoices.
- Automated invoicing: Manual invoicing methods are error-prone. Robotic process automation (RPA) technology automates redundant and repetitive tasks & frees-up analysts’ time to focus on high-value tasks.
Optimize cash flow with capital restructuring
When a recession strikes, less money flows in as a result of banks and lenders withdrawing funds. To keep up with payments, CFOs of companies with a large proportion of debts are forced to cut costs more aggressively, often through layoffs. These drastic reductions may have an impact on the business’s productivity and capacity to fund new investments.
However, another approach for businesses to avoid debt commitments is to issue equity. By investing in low-risk assets, companies can prioritize opportunistic investing. Thus, by rebalancing their financial portfolios and locking in today’s cost of capital in anticipation of interest rate volatility, companies can make the problem of defaulting less pronounced.
