CFOs Shore Up Cash and Liquidity Beneath Economic Clouds

A new survey from PYMNTS shows that a majority of CFOs expect the economy will slide into recession in the near future, a prediction that not only complicates their financial and competitive realities down the road, but also affects their organizational planning and preparations today.

Among the items appearing on CFO’s 2023 priority lists include faster access to working capital, better ability to manage their cash cycles, and more actionable insights into their organizations’ finances.

All of these factors center around convenient access to, and knowledge of, available cash, which, it goes without saying, is what keeps the lights on for most businesses — especially during a downturn.

It’s a shift reflected in a Wall Street Journal (WSJ) report Wednesday (Nov. 16) depicting how all manner of businesses — ranging from restaurant chain franchise Dine Brands to utility company Xcel Energy to aircraft maker Bomardier — are currently boosting their credit lines to provide additional liquidity and more cash options for their balance sheets in the event of a period of economic shock or distress.

Adding borrowing capacity and tapping credit lines not only gives businesses an attractive cushion in the event of “rainy days,” but is also reminiscent of a strategy that was popular in the early days of the pandemic.

Companies generally use revolving credit facilities to fund daily cash and working capital needs, both of which have been affected by inflationary pressure on business inventory costs as well as other macroeconomic factors.

But as interest rates continue to rise, credit is only going to become less accessible. And as further future economic uncertainty looms, this creates a further need for businesses to have robust risk management models.

Challenge vs Creativity

In order to help prepare their businesses for any potential slowdowns, CFOs are turning their strategic focus to accounts receivable and working capital requirements, keeping an eye on business cash needs and liquidity.

Innovations from cross-channel shopping to payment methods are inspiring a review of business metrics to be more relevant, including updating and digitizing billing and fulfillment flows to meet emergent cross-channel requirements and exceed customer expectations.

In payments, change is typically slow, and then it happens quickly. The current environment of high inflation, rising interest rates and volatile capital markets is increasing the urgency for CFOs to invest in new tools that streamline digital payments and other finance solutions.

To that point, a PYMNTS study found that 94% of companies are investing in digital technologies in at least one area of payments and finance, with 87% planning to invest in the future. Companies have prioritized fraud prevention and risk management since the pandemic began, and 85% of CFOs are either currently investing in these technologies, or plan to do so.

At the same time, the pandemic and its aftereffects also ushered in a receivables revolution, as disruption forced an “innovate or perish” urgency in cash management, money movement, payout options and related fraud risk.

There remains an ongoing transformation of accounts payable from more of a processing function to a customer service and analytical function, and many companies have been refocusing their efforts to bring business payables more fully into the 21st century. In fact, 84% of CFOs surveyed by PYMNTS said they are investing in automation for invoice processing and related payments. A lot of this investment is driven by cash needs.

Faster access to capital through automation can affect real business results on a granular level. It allows retail companies, for example, to put more products on the shelves, which in turn brings more customers into the store and enables the store to better meet customer demands.

Companies of all sizes need to be able to seamlessly drive their services, goods or inventory into a revenue stream, and the ability to better manage accounts payable and accounts receivable payment flows is especially important in today’s inflationary environment.

It’s not hard to see how the best CFOs are rapidly adapting their thinking and getting the results they want.

While not all of the investments in digital technologies that companies made have been sustained for the long term, 83% of CFOs surveyed by PYMNTS said their digitization investments improved their fraud prevention and risk management functions, while 77% said the investments led to improvements in their management of working capital and credit. Most CFOs also said the digitization investments led to improvements in their management of accounts payable, accounts receivable, and procurement.

By streamlining and modernizing their payment experience through digital tools and future-fit investments across areas like receivables, companies are able to better serve their customers while simultaneously helping insulate themselves from the shockwaves of any economic downturn through confidence in their access to capital.