Why Keeping Track of Cash Is Key to Economic Survival

By Joshua May, Consulting Manager EMEA, BlackLine

Finance and Accounting (F&A) has always had a reputation for its calm and pragmatic approach when faced with a crisis. Although most F&A professionals have worked through at least one recession in their lifetime, very few could say they have experienced bigger economic, business and geo-political challenges we are currently experiencing today.

With fears that rising prices and a possible recession could tip many companies into bankruptcy, there is growing pressure on F&A departments to provide the visibility businesses need to survive.

The ‘R-word’ is at the front of people’s minds

It comes as no surprise that for many the economic outlook for the year ahead is significantly pessimistic. With inflation at a 40-year high combined with geopolitical challenges such as the War in Ukraine, both governments and businesses are under pressure to limit the impact the dreaded ‘R word’ could have on society and business.

A recent survey of C-suite executives and F&A professionals conducted by BlackLine highlighted that almost two thirds (63%) of overall respondents expect a worldwide recession within a year.

The outlook is significantly bleak for those working within the F&A sector. 61% of the C-suite executives surveyed say it will take them up to a year before they will be able to regain their previous confidence in the economy, with four in ten (38%) slightly more optimistic in thinking it will take at least 6 months for their confidence to return.

As recessionary fears show no signs of slowing down, the majority (62%) of C-suite and F&A professionals predict their companies’ financial reporting will come under enhanced scrutiny in the next 12 months. Six in ten (63%) said that financing will be harder to secure and a similar number (62%) agreed that the ability to view their companies’ financial data in real time will be a “must-have” for business survival over the next 12 months. Responses suggest company finances will be under the microscope in 2023, and that F&A will be under greater pressure to deliver insights to leadership in near real time.

Cash is very much still king

With interest rates around the world continuing to rise, the importance of cash flow and working capital in business is once again a hot topic for F&A.

The survey found that nearly all (95%) respondents expect rising interest rates to have an impact on the way their business operates but that is not all:

• Four in ten (43%) of those surveyed are concerned that rising interest rates will result in more of their customers paying late (rising to 55% among CEOs)
• A similar percentage (42%) are worried that prospects or customers will have less income to spend, which could impact sales/revenue
• 41% are worried that the organization will face higher costs

In response to increasing financial pressure, two in five (40%) respondents said they were trying to find ways to optimize working capital, without looking externally to borrow funds.

The increasing importance of cash flow

Continuing on the trend of cash flow, having visibility over the flow of cash in and out of a company has always been a key indicator to a company’s financial health, but with a significant chunk of professionals remaining concerned about the immediate future, F&A must act soon to recapture this confidence. However, the research reveals nearly all of those surveyed (98%) highlighted they aren’t confident in the visibility they currently have over their cash flow.

Of this 98% that highlighted they could have more confidence in the visibility their company has over its cash flow, 49% indicated that this lack of visibility leads them to think their company is making crucial decisions by leveraging out of date or inaccurate information. As society grapples with these ongoing turbulent economic conditions and F&A set to go under the microscope, companies must ensure the data they are using is on the mark to prevent any wrongdoing.

Add to this the 44% of all respondents who agree that a lack of visibility makes them less confident that their company can stay competitive over the coming months and there is a clear indication that cash confidence will be a driving force to surviving the next 12 months.

Light at the end of the tunnel

The coming months will be crucial in ensuring companies have the right tools to remain resilient in 2023 and beyond.

Companies are now very much in an uphill battle in ensuring they remain competitive in 2023. The role of financial automation has never been more prevalent in helping them manage and track their financial data aiding them to make more informed business decisions.

With 76% of survey respondents highlighting they have improved their financial planning, analysis, budgeting and forecasting through financial automation, it really highlights this as a priority for C-suite executives and F&A professionals. With financial data set to come under increasing scrutiny in the near future, implementing or scaling automation solutions will help companies increase both the accuracy and reliability of financial data as well as improving the visibility and accuracy they have over intercompany transactions and balances.

It comes as no surprise that during these tough economic times, companies are still willing to spend on technologies to automate financial controls and processes with a mere one in five (12%) of respondents saying their company would pause all investment as a result of the economic downturn.

By automating the right financial processes, companies can have true visibility over their cash to help them stay resilient in the eye of this financial storm we currently find ourselves in. We won’t see wholesale changes overnight but if companies stick to their guns and put their trust in financial automation, the looming recession with be much easier to tackle.