Mitigating inflation, rising debt, and cashflow: finance transformation strategies for the economic downturn

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What will be the main challenge in supply chain management for the next few years?

Supplier volatility is likely to be an ongoing challenge over the next few years. Sudden issues with availability or dramatic price increases have the potential to put a business under serious pressure. After the supply chain issues that many businesses faced during the global pandemic, some companies overshot on production to prevent low inventory occuring again. Alongside this, significant increases in inflation and interest rates have made manufacturing products significantly more expensive, so it’s no surprise that companies are reviewing their entire supply chain to find cost savings and efficiencies wherever they can.

But the current geopolitical landscape makes this a very challenging exercise. Relying solely on one country for manufacturing may have been the cheapest option previously, but now presents risk and volatility to the supply chain. Businesses will need to find a happy medium between the best option for the balance sheet and the option that presents less risk overall.

How can businesses improve receivables from customers?

For new customers, offering finance from an external provider is a much more reliable way to protect your receivables instead of more traditional methods of financing like through your own balance sheets. This also makes it easier to apply interest rates to the financing and protect your company from inflation. An exception to this may be if you want to incentivise shorter payment terms. Financing over 12 months with a lower interest rate applied can prove to be attractive for a potential customer.

Within existing customers, one way to improve your cash receivables is to analyse the financial statements of your customers or obtain as much market intel about them as possible. This will allow you to see how much cash they are collecting from their customers and in what timeframe too. If you find that your customers are collecting cash faster than you are collecting cash from them, this insight can then help you to negotiate more preferable receivable terms. Alongside this, understanding when cash flows into your customer’s accounts means you can time your payment requests accordingly - reducing the opportunity for them to spend money elsewhere before paying you!

What do new digital technologies mean for finance teams?

Automation and AI are changing the way that every business operates, whether they know it or not. AI can spot patterns far quicker than humans can, creating valuable insights at a much earlier stage than before. Within finance, these tools and insights will help accounts departments to become more proactive, rather than reactive.

Better analytics and visualisations allow businesses to understand the cash flow cycle of their customers, allowing them to have more meaningful conversations at the right time and ultimately reduce the amount of late or missed payments.

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