September 28, 2022

Inflation, cash flow and disrupted fintech markets

Recent data from the US Department of Labor revealed that for the twelve months ending in February 2022, inflation increased by 7.9%, reaching a 40-year high. As a benchmark, for a healthy and stable economy, the Fed is targeting an annual inflation rate of 2%. This is the biggest increase in consumer prices we have seen since 1982.

While in the natural course of the economy, what goes up must come down, economists predict that inflation will remain high through 2022. Already, price increases that were thought to be temporary due to the pandemic recovery took longer than expected. And now, with the conflict in Ukraine causing oil and gas prices to spike, we may be looking at a longer-term inflation scenario.

To cushion the effects of inflation, companies will need to monitor their cash conversion cycles more closely than ever. And staying ahead of your competition means eliminating the inefficiencies that leave money on the table.

A fragmented supply chain

The current spike in inflation can be attributed to pandemic-related supply chain bottlenecks, coupled with an influx of customer demand as the economy reopens during 2021. The rise wages and labor shortages undoubtedly also played a role. The war between Russia and Ukraine has added fuel to the fire, prompting some experts to predict that inflation will hit double digits this summer.

This puts greater pressure on corporate financial services. Business leaders and shareholders rely on them to make quick decisions and control production costs.

I remember an insight that the CIO of one of our clients, a distribution company serving automotive retailers, shared during one of our recent webinars. Each increase in COVID-19 cases, he shared, caused production stoppages with downstream impacts on their supply chain. As a result, their finance team had to produce more analysis on how these changes would affect their margins and cash flow so the company could buy and hold inventory strategically.

But to meet this need for more frequent reporting, finance teams need more time to devote to high-level strategic work.

The pitfalls of manual accounting processes

Most basic accounting processes like Accounts Receivable (AR) are extremely manual. Finance teams are often so overwhelmed with making sure the business gets paid that they don’t have time to dive into more strategic work like projections and forecasts. This creates a drag on cash flow, as payments are chased very inefficiently. Under normal circumstances, this is boring. In today’s uncertain environment, this can be catastrophic.

While companies have embraced cloud-based technologies that streamline work and collaboration in other business areas like sales, in many cases these digital transformations have yet to reach the back office. Many medium-sized or even corporate businesses still issue paper invoices and collect payments by check.

These types of processes are very resource-intensive and, even worse, slow down your crucial cash flow. They also make it extremely difficult for finance managers to get a clear picture of the status of the company’s outstanding receivables, as information is found in a variety of channels both online and offline.

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

Increase Cash Flow and Reporting Capabilities with Collaborative Accounts Receivable

With budgets tightening, any way for a business to get to cash faster is a no-brainer. Implementing a collaborative accounts receivable solution is a key way to achieve this goal. This type of platform combines augmented reality automation capabilities with powerful collaboration tools that make it easier for finance teams to communicate with colleagues and customers.

By automating the processes of issuing invoices, pursuing collections, accepting payments and validating payments, finance 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 phone calls and email threads, finance teams are also quickly resolving the disputes that so often lead to disputes. payment delays.

Basically, a collaborative AR solution centralizes all of a company’s customer account activities in one place (extraction and reconciliation of data with their enterprise resource management platform). The ability to display real-time data in a central view can help finance teams meet the increased demand for forecasts and projections because they will spend less time pulling data from multiple sources.

When deciding how to raise prices to deal with inflation, making price changes on a customer-to-customer basis rather than unilaterally is the strategic route for businesses. Having clear visibility into customer payment histories through a collaborative AR solution can be essential in deciding which customers should benefit from a price increase and which should not.

It is difficult to know when inflation rates will return to normal. As we have seen, economists’ projections can turn out to be wrong. For this reason, businesses should think quickly about consolidating their cash flow now to better weather the challenges ahead.

About the Author: Craig O’Neill is the CEO of Veraspay. He joined the company in 2013 and led the company’s pivot to collaborative accounts receivable software, resulting in unprecedented revenue growth and an expanding workforce that added more than 250 new employees since the start of the COVID-19 pandemic. Craig’s more than 20 years of experience delivering enterprise 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 Computer Science and Mathematics.​​​​​​​