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The big cash squeeze: will fortune favour the bold?

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With a new political landscape, rising inflation, a cost-of-living crisis and increasing pressure from HMRC for payments, many businesses are preparing for a big cash squeeze in 2023. This could push demand for credit management services to a new high, so how will the industry fare and could fortune favour the bold?

At a recent roundtable event in Cardiff, chaired by the Chartered Institute of Credit Management (CICM) and hosted by accountancy firm, Menzies LLP, experts from across the industry discussed the challenges and opportunities that lie ahead for businesses.

During times of economic hardship, credit managers have a particularly challenging, frontline role to play in helping businesses to protect cash flow, while mitigating financial risks. However, a strong focus on cash management and credit control can also generate opportunities to increase revenues and boost profitability.

Challenges lie ahead, not least skills shortages

Prime Minister, Rishi Sunak, has warned that the UK is facing a ‘profound economic crisis’ and while this isn’t a surprise, many businesses feel ill-prepared. The fall-out from Brexit remains a major issue for many industries, particularly those trading in Europe, driving up costs and administration and leaving a legacy of staff shortages that is impacting productivity. High take-up of Government-backed loans during the COVID-19 pandemic, has left many businesses struggling to meet their repayments with reduced revenues and depleted cash reserves, all at a time of record inflation and a war in Ukraine, which is driving up energy costs to exorbitant levels that are simply not sustainable for some businesses.

According to delegates at the roundtable, the biggest and most immediate challenge that businesses are facing is the staffing crisis. Sue Chapple, chief executive of the CICM, commented: “Members are reporting significant staff shortages right across industry sectors. In particular, businesses note a lack of graduates and skilled young people – some of whom are choosing to delay the start of their careers. In sectors such as construction, food manufacturing and hospitality, reduced access to non-UK workers is a major problem.”

While sharing examples of best practice, Nicola Johnson, head of credit and cash processing at PHS, explained that credit management professionals need to invest more time encouraging workers to develop their skills and progress their careers. She said: “We have six workers about to start  CICM qualifications at the moment, supported by the business, and we hope that this will encourage them to stay and further their careers.” Other firms reported that more apprenticeships are being taken on to grow the skills base.

For recruiters serving the industry, the lack of candidates for jobs in areas such as credit assurance and risk data analysis is inflating wage expectations, which makes it even more challenging for businesses to recruit the people they need. Jason Pallister, managing director at DCS Credit Management & Recruitment, said: “Some businesses are being priced out of the market by larger companies that are able to offer more attractive reward and remuneration packages. Things are getting increasingly competitive and unrealistic wage expectations are a growing problem.”

Referring to staff shortages in other sectors, Craig Evans, head of new business sales at credit ratings provider, Company Watch, added: “Staff shortages are so serious in some industries that businesses are unable to trade and some are choosing to wind up now, rather than wait for the situation to get worse. This is a growing area of credit risk that our customers are seeking information about – particularly regarding the number of winding up petition applications.”

While there is no silver bullet to the staffing crisis, employers are aware that they need to remain flexible and understand what workers want. Hans Meijer, EICC director at Coface, said: “We are recruiting in London and Watford at the moment and the demographic of the candidates for vacancies at each location is quite different. Understanding this and staying flexible to individual worker preferences when it comes to hybrid working is helping us to attract the right people. Greater focus on training and skills development is also helping.”

Rising tide of insolvencies

With inflation rising and ongoing uncertainty surrounding trading conditions, the challenges facing businesses are expected to continue through 2023. The hike in energy costs, due next April, could be a pivotal moment for some businesses. A survey conducted recently by the Office for National Statistics (ONS) found that one in 10 UK businesses reported being at a ‘moderate-to-severe’ risk of insolvency, with rising energy costs cited as a major factor. Smaller firms with fewer than 50 employees were among those most likely to report being at risk.

Bethan Evans, business recovery partner at Menzies LLP, said: “Corporate insolvencies in England and Wales rose to a record level in Q2 and some businesses are seeking advice about entering an insolvency process now, because they know that cost and staffing pressures, as well as market uncertainty, are not going away. They are already on the brink and the rise in the energy price cap next April could push them over the edge.”

For in-house credit management teams, reading customer behaviour and spotting red flags is increasingly important. Some businesses are still working through customer issues caused by the pandemic restrictions. In some cases, contracts have been successfully re-negotiated or ‘Covid credits’ issued. However, in other instances, demands for payment and legal action for breach of contract have proved unavoidable. Overall, there is a willingness to be flexible but, with more customers favouring short-term contracts and seeking greater control over when and how they make their payments, credit managers are feeling the strain.

Sue Chapple commented: “It has never been more important for businesses to know their customers and understand the pressures and risks they are facing. Through effective communication, credit management professionals can help to build a more complete picture.”

More focus on supply-side risks

Customer risk isn’t the only source of financial risk requiring senior-level attention. Companies understand the importance of underwriting customer credit risk, but a growing number are now seeking advice about how to mitigate supply-side risks too. “Communication is vital, as businesses need to understand where external risks lie and how to identify them. They also need accurate data about where risks might arise in the future, so they are better informed,” commented Craig Evans.

Simon Philpin, head of trade credit at credit assurance provider, Markel, added: “We have seen increased demand for credit assurance linked to suppliers. Unfortunately, businesses in some sectors have been experiencing defaults or delays, which can be highly disruptive and financially damaging.

“Fraud is another major risk factor for businesses across industry sectors. Sometimes it is linked to the activities of financiers, such as invoice discounters, and we are advising businesses to be particularly cautious when auditing their suppliers and customers. Fraud linked to the misuse of Government-backed loans is also widespread.”

Fortune favours the agile

Despite the many challenges that businesses and their credit management teams are facing on a day-to-day basis, there will also be commercial opportunities in the year ahead. As some businesses demonstrated during the pandemic, those that are quick to diversify to meet new or growing areas of demand could reap rewards. According to Bethan Cooke, senior lawyer at Admiral Money: “While risk understanding is important, businesses should also be thinking about how they might expand products or service lines in the year ahead. In particular, digitisation can deliver better quality data about customer journeys to support cross-selling or other revenue-generating initiatives.”

Even in the midst of a ‘profound economic crisis’, some businesses will succeed in growing their market share or expanding into new markets. Craig Evans added: “In the 2008/09 recession, we worked with a construction business that took on more risk and increased its market share as a result. Now they are back and looking to do the same thing again. As long as they can quantify the risk they are taking on and don’t over-stretch, it could be another case of ‘fortune favours the bold’.”

 

This report is based on a roundtable event for employers and credit management professionals, chaired by the CICM and hosted by accountancy firm, Menzies LLP.

 

First published at Credit Management magazine.

Business

Accounting Automation in the Future

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Accounting automation is the process of streamlining repetitive tasks in financial processes. For example, some processes like invoicing are time-consuming and repetitive. Automation can reduce manual labor and save businesses both time and money. Also, it helps improve accuracy, reduces errors, and provides more accurate financial reporting.

Accounting automation in the future will be increasingly important for businesses to stay competitive. But every new change comes with both advantages and challenges. Let’s dive in to get ready for this future trend.

 

Potential Future Benefits of Accounting Automation

Increased Efficiency and Cost Savings

Accounting automation is a great way to increase efficiency and cost savings. For example, AI bookkeeping uses advanced algorithms to automate many accounting tasks. So, companies can track expenses, prepare financial reports, and more using AI.

It reduces the time needed for manual entry. So, businesses can spend fewer labor hours on tedious processes. They can increase efficiency by freeing up resources for more strategic work. It also helps reduce errors and inconsistencies associated with manual processes. So, the cost of compliance is lower because of greater accuracy.

 

Improved Accuracy and Reliability

Accounting automation can improve accuracy and reliability in accounting processes. For example, Automating bank reconciliation is less prone to errors from human mistakes or miscalculations. You can automate the process to identify discrepancies between the bank statement and accounting records. It helps to ensure that financial reports remain accurate and reliable. So businesses can take corrective action faster than processing data manually.

 

Streamlined Business Processes

Streamlined business processes involve eliminating unnecessary steps, reducing paperwork, and automating repetitive tasks. This allows businesses to focus on higher-value activities, such as developing new products, improving customer service, and developing strategic plans for the future.

 

Making a Better Decision

Accounting automation can enhance decision-making in 3 ways.

1. It enables businesses to access real-time information from multiple systems. So they can identify trends for better decision-making.
2. Automated accounting also helps with forecasting, budgeting, and auditing tasks. It enables businesses to be more proactive in their decision-making processes.
3. Also, automated accounting tools can integrate with enterprise resource planning (ERP) systems. They can manage data across the enterprise and make concise decisions that are favorable to the company as a whole.

 

Increase Customer Satisfaction

Accounting automation can help businesses increase customer satisfaction by streamlining their processes and providing a more efficient customer experience. For example:
4. Automated accounting systems can automate tedious manual tasks such as invoicing, data entry, and payroll processing. This allows businesses to focus on other aspects of their operations that are more important for customer service.
5. Automated accounting systems can also provide customers with more accurate and timely financial information. The information can help them make better decisions about their finances.
6. Also, accounting automation enables businesses to respond quickly to customer inquiries. It helps reduce wait times and improve the overall customer experience. So, you can build better relationships with their customers.

 

Improved Accessibility

Accounting automation takes place online or comes with cloud-based solutions. So, you can access your information and do your job from anywhere instead of being confined to one spot.

 

Challenges to Implementing Accounting Automation in the Future

Cost of Technology Infrastructure Upgrades

Automating an accounting system often requires businesses to invest in new hardware and software, such as servers and other associated equipment. These upgrades come with a hefty price tag that may be difficult for small businesses to afford.

There are also extra costs, such as installation fees, setup charges, software licensing fees, cloud storage costs, and maintenance fees.

 

Training Requirements for Staff Members

Accounting automation involves using advanced technology to automate certain processes. So, it creates a need for trained staff members who can handle the new technology. Training requirements vary depending on the type of software used.

Some common training includes record-keeping procedures, software applications, and troubleshooting skills.

 

Regulatory Compliance Issues

Accounting automation can be a time-saver, but it also requires firms to be aware of the applicable rules and regulations. Companies must ensure that their automated systems are compliant with relevant laws and regulations such as Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), and other applicable accounting standards.

Besides, they must also comply with legal requirements related to taxes, financial statements, and other reporting obligations.

So, businesses must consider the complexities of regulatory compliance when automating accounting.

 

Security and Data Protection Concerns

As businesses move their accounting processes to the cloud, they are exposed to a wide range of potential security risks. Data breaches can cause significant damage to the business’s financial and reputational integrity. Besides, the complexity of automated accounting systems can make it difficult to identify and detect suspicious activities or errors in the system.

To ensure data is kept secure, businesses must have strong measures in place to protect against unauthorized access, encryption, and regular backups of data.

Furthermore, companies must train their staff on the proper use of the system. It helps staff to know how to protect confidential information from being accessed or misused by unauthorized personnel.

Businesses may also need an experienced IT team to monitor and maintain the system to keep up with any changes or updates for optimal performance.

 

Final thoughts

Accounting automation has come a long way in the past few decades. It is likely to continue to advance in the future. As technology continues to evolve, more businesses will likely begin taking advantage of automation in their accounting processes. So, businesses should be aware of the potential challenges and prepare to stay competitive.

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Banking

How banks can help customers during the cost of living crisis

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 Lavanya Kaul Head of BFSI, UK & Ireland, LTI Mindtree

 

Surging energy and food prices are significantly driving up household expenditure, which means living standards in the UK will fall to 2.2% this year, according to the Office for Budget Responsibility. This is the biggest drop in any single financial year since the records began in 1956-57.

It’s a tough situation for many consumers who are still struggling with financial hardship following redundancies and pay freezes from the pandemic. According to TSB’s Money Confidence Barometer, 82% of people have experienced an increase in the day-to-day cost of living. This resulted in almost a quarter of them using their savings, while one in five changed their usual spending habits and behaviours.

As the financial situation worsens, consumers are increasingly relying on their banks for help and support. But, while banks can’t control inflation, energy or food prices, they can play a more supportive role by adapting their services to offer stronger customer service, better tools for financial management and be more flexible with loan repayments.

 

Strengthen customer service with intuitive AI solutions

Since the pandemic, consumers have changed the way they bank, using more mobile apps for primary banking rather than going into physical branches. This provided an opportunity for banks to accelerate their investment in digital services including automation and offer customers more support during the cost of living crisis.

Lavanya Kaul

Effective tools include AI-powered chatbots which respond intelligently to customer enquiries to quickly help troubleshoot problems and provide useful advice. But to be successful, you need to ensure you strike the right balance between an efficient and convenient process and creating a personalised experience. Customers need to feel like you understand and care about their problems and are here to help, rather than just fobbing them off with a monosyllabic bot. To avoid this, banks need to embrace intuitive AI solutions to ensure that empathy comes across in all automated interactions with customers. While doing that, messaging is key. In times of stress, we don’t function as well and financial struggles are a huge stressor. The clearer the message and the simpler the instructions, the better.

Financial education, when combined with technology solutions such as open banking, can offer more long-term solutions for people to navigate their finances. This can help put more information into the hands of the consumer to help them grasp their financial situation better. Some banks have cracked this with innovative solutions like HSBC’s Financial fitness score tool that can analyse your money habits and signpost you towards ways to improve your financial health. This may include joining one of the financial education webinars run by the bank or having a ‘financial health check’ with a member of staff.

 

Launch money management features & apps

Introducing money management features and apps to increase the visibility of a customer’s financial situation, empowers them with the information they need to make smarter choices.

TSB offers Spend & Save and Spend & Save Plus current accounts which include a savings pot that enables customers to put extra money aside when they can and an auto-balancer feature that automatically transfers money from the savings pot into their current account if their balance falls below a certain level. This allows them to start building up savings and protects them from unnecessary overdraft charges.

Personal financial management (PFM) apps also help customers get a better understanding of their finances. These connect with a customer’s bank account and enable them to keep a close eye on their spending habits and track upcoming bill payments. An example is Prism, a PFM app which allows customers to manage bill payments by sending them reminders about due dates. It also provides a summary of their income, account balance and monthly expenses at a glance, therefore consolidating all their financial information in one place and saving time on bill payments.

Lloyd’s Banking Group and HSBC launched a subscription management tool for all customers on mobile, allowing them to see and cancel recurring card payments for things like TV subscription services. HSBC says that during the first quarter of the year, it led to customers dumping around 200,000 subscriptions.

 

Introduce payment holidays

While improved customer service and financial management tools are important support tactics, they might not be enough for more vulnerable customers. For example, those who are about to default on mortgage payments or loans due to redundancy or periods of ill health need banks to do more, like offering payment holidays. Banks relaxed the rules for payment holidays during the pandemic, so they should consider doing it again to help more vulnerable customers through the crisis. Customers need to understand that they are not alone when experiencing financial difficulties and that help is available

 

Ride out the crisis together

As inflation reaches a 30-year high, customers are now more reliant than ever on banks for guidance and support. But to provide the right level of service, they need to move away from their traditional ways and behave more like technology companies by embracing automated solutions to create the right products and services for customers. Then layer on top of that the need for more personalised and empathetic customer interactions, as well as consider additional support for more vulnerable customers.

While we don’t know how long the cost of living crisis will last, what we do know is that the pressure on household finances is likely to get worse before it gets better. Therefore, banks need to step up, be the supportive partner and do whatever they can to help customers. After all, the only way we can ride out the crisis is by supporting each other and working together.

 

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