Dealing with debtors: How CFOs can add value through uncertain times

How CFOs can add value through uncertain times | Part two: Dealing with debtors

In our previous article, Nick Fox and Jeff Marsden explored how a CFO and the wider finance team can add value in uncertain times through proactive management and review of the supply chain. In this article, we look at the other side of the cash cycle of your customers - your debtors.

In the working capital cycle, extending or delaying supplier payments is a standard practice to maintain cash within a business. We see this as a short-term solution because what if your debtors choose to do the same? It becomes a vicious cycle. However, why do most companies resort to this as a solution? Because it is easy. There are not many people who enjoy or are effective at chasing debtors.

Management of receivables is a critical role within an organisation, and CFOs can and should play a key role in the management and collection of receivables. Depending on the operating model adopted by the finance team, this management may take different forms, yet it will always start with the data.

The CFO will be well placed to understand how the business is generating revenue, and by having this understanding, the CFO is also able to understand the potential risks to revenue generation, which can include:

• Sole customer or concentrated customer risk
• Credit or financial risk of individual customers.

CFOs are best positioned to manage these risks as they have a line of sight over the entire customer base given their position in the company. Through the data that a CFO sees they will be able to determine the level of risk associated with individual customers, not only the concentration risk, but they will also be privy to leading indicators such as slipping payment times. CFOs also control the data which ensures they can see the credit risk of their customer base and provide governance around credit risk and regulatory risk. Given that CFOs are seeing this data first, there is a unique opportunity for them to identify and manage customer-based risks before they become a bigger problem.

As a CFO, some quick wins in terms of dealing with your customers and outstanding debtors are:

1. Continually monitor the aged receivables report and note any overdue or slipping debtors
2. Ensure that you are across the key customers of the business and what impact they could have on the business if they left. Monitor these customers and provide feedback to the sales team concerning any reduction in sales or other movements
3. Have a robust credit checking policy and utilise systems to monitor the creditworthiness of customers regularly, not just at onboarding
4. Talk to sales teams and customers if they are continually late in paying invoices. Customers may have a different payment policy, if that is the case, is the customer priced correctly?

Ultimately CFOs are in a position to have the data to manage their customers proactively, they have the data and the whole picture that others within the organisation do not have access to. Interpreting this customer data promptly is how a CFO can add value.

If you have any questions or would like to explore how you can add further value to your business, contact our team of Business Services advisers to learn more.