Inflation, cash flow and disturbed fintech markets

Recent data from the US Department of Labor found that for the twelve months ending in February 2022, inflation rose by an astonishing 7.9%, reaching a 40-year high. For reference, for a healthy and stable economy, the Fed targets an annual inflation rate of 2%. This is the highest increase in consumer prices we have seen since 1982.

While what goes up in the natural course of the economy must go down, economists predict that inflation will remain high throughout 2022. Already, price increases that were assumed to be temporary due to pandemic recovery have been longer than predicted. And now with the conflict in Ukraine causing oil and gas prices to rise, we can look at an even longer-term inflation scenario.

To mitigate the effects of inflation, companies need to monitor their cash conversion cycles more closely than ever before. And being ahead of your competitors means eliminating inefficiencies that leave money on the table.

A fragmented supply chain

The current increase in inflation can be attributed to pandemic-related bottlenecks in the supply chain combined with an influx of customer demand as the economy reopened during 2021. Rising wages and labor shortages have undoubtedly also played a role. The war between Russia and Ukraine has put fuel on the fire, which has led some experts to predict that inflation will reach double digits by the summer.

This puts greater pressure on companies’ finance departments. Business leaders and shareholders look to them to make quick decisions and manage production costs.

I am reminded of an insight the CIO of one of our customers, a distribution company serving car dealers, shared at one of our recent webinars. Each increase in COVID-19 cases, he shared, caused downtime with downstream effects on their supply chain. As a result, their financial team had to produce several analyzes of how these changes would affect their margins and cash holdings, so that the company could strategically buy and keep inventories.

However, to meet this need for more frequent reporting, finance teams need more time to spend on higher-level strategic work.

The pitfalls of manual accounting processes

Most core accounting processes such as accounts receivable (AR) are extremely manual. Finance teams are often so overwhelmed by the work of making sure the company gets paid that they do not have time to dig into more strategic work such as estimates and forecasts. This creates a draw on the cash flow as payments are chased in very inefficient ways. Under normal circumstances, it is annoying. In today’s unsafe environment, it can be catastrophic.

While companies have embraced cloud-based technologies that streamline work and collaboration in other business areas such as sales, in many cases these digital transformations have not yet reached the back office. Many medium-sized companies – and even company-level – still issue paper invoices and collect payment by check.

These types of processes are very resource intensive, and even worse, slow down your crucial cash pipeline. They also make it incredibly difficult for financial managers to get a clear picture of where the company’s outstanding receivables stand as the information lives in a number of channels both online and offline.

As companies face higher production costs due to inflation, as well as delays in deliveries due to supply chain disruptions, their first order should be to optimize back office processes to free up cash flow as quickly as possible.

Increase cash flow and reporting opportunities with collaborative accounts receivable

With budgets being tightened, all the funds that a business can get money in the door are faster without any hassle. Implementing a collaborative accounts receivable solution is a key way to achieve this goal. This type of platform combines AR automation features with powerful collaboration tools that allow finance teams to communicate with colleagues and customers more easily.

By automating the processes of issuing invoices, pursuing debt collection, accepting payments and posting payments, financial teams accelerate cash conversion and free up valuable time. By bridging the communication gap between AR teams and customers in a single, cloud-based portal instead of over phone calls and email threads, finance teams also quickly resolve disputes that so often lead to payment delays.

It is crucial that a collaborative AR solution centralizes all the company’s accounts receivable in one place (pulls and reconciles data with the company’s resource management platform). Being able to see real-time data in one central view can help financial teams meet increased demand for forecasts and forecasts as they will spend less time retrieving data from multiple sources.

When deciding how to raise prices to cope with inflation, implementing price changes on a customer-to-customer basis is the one-sided strategic path for companies to take. Having clear insight into customers’ payment history via a collaborative AR solution can be indispensable for deciding which customers will receive a price increase and which will not.

It is difficult to know when inflation will return to normal. As we have seen, economists’ estimates can be proven wrong. For this reason, companies should think fast to strengthen the cash flow now, so that they can better withstand the challenges that may come.

About the author: Craig O’Neill is the CEO of Veraspay. He joined the company in 2013 and led the company’s hub for collaborative accounts receivable (AR) software, resulting in unparalleled revenue growth and a growing workforce that has added more than 250 new employees since the beginning of the COVID-19 pandemic. Craig’s more than 20 years of delivering business software has taught him that success lies in developing a business strategy focused on optimizing the customer, partner and employee experience. Craig holds a B.Sc. from the University of Toronto in Informatics and Mathematics.