Is your organisation bracing itself for a rocky ride in 2023? If you answered in the affirmative, you’re in good company.
Post Covid, the world has become significantly more volatile, with geo-political upheaval, soaring energy costs and supply chain disruption now the order of the day.
As inflation continues to rage – Australia’s official rate hit a 30-year high of 7.3 per cent in 2022 – and interest rates continue to rise, economic commentators have begun using the dreaded R word (recession) with increasing regularity.
Their gloom is contagious: 63 per cent of local C-suite executives are pessimistic about the year ahead and don’t expect to feel confident about the economy again until the tail end of 2023, according to BlackLine’s Eye of the Storm survey conducted in August 2022.
They believe a recession is imminent, with the only question being how deep and protracted it will be.
Slowing orders and slower payers
Tough times inevitably translate to a slowing pipeline of sales or work in almost every industry except insolvency services.
Consumers begin running a red pen through their household budgets, eliminating discretionary spending and seeking savings anywhere they’re to be had, while businesses look to freeze or reduce headcounts and hit pause on projects that call for significant capital investment.
Contending with fewer and lower value orders isn’t the only challenge businesses face when the economy enters negative growth mode.
Typically, they’ll end up waiting longer to be paid for those orders as payment cycles slow down by days, weeks, and sometimes even months.
Some businesses may be forced to hold off paying their suppliers until they receive remittances from their debtors, thereby generating an unwelcome ripple effect across the commercial ecosystems in which they operate.
Finance facilities can represent an interim solution for those that struggle with the juggle (and are in the position to obtain additional credit), but with interest rates on the up, it’s an increasingly expensive one.
Using yesterday’s data to solve today’s challenges
When conditions become challenging, optimising your financial position and cash flow is a pressing imperative. Cautionary tales of companies that have failed to do so and wound up in administration as a result are plentiful, with every economic downturn yielding a fresh crop of casualties.
Not becoming a statistic starts with understanding where you stand financially, right here, right now. Boiled down to the basics, that means knowing what’s currently outstanding when it’s likely to be received and what your obligations will comprise over the coming weeks and months.
Unfortunately, many local organisations don’t have that sort of up-to-date visibility into their finances. Ninety-six per cent of BlackLine survey respondents admitted to a lack of confidence in this area. That suggests the average Australian finance team is making decisions based on inaccurate and out-of-date information – last quarter’s or last year’s numbers, which can be very different from the current status quo.
Using yesterday’s data to solve today’s challenges is a big ask. In the absence of accurate, real time financial metrics, it can be difficult for leaders to respond decisively to market fluctuations and to identify and mitigate the risk of a cash flow crunch.
The automation advantage
Embracing financial and accounts receivable automation can enable businesses to obtain the up-to-the-minute visibility they need to navigate volatile and uncertain conditions.
The term financial automation is used to refer to the deployment of software which automates many repetitive tasks associated with the finance function, including the matching of invoices and credit cards with purchase orders, the reconciliation of accounts and the generation of end-of-month reports.
As well as reducing the number of hours needed to complete these tasks – a considerable efficiency gain for businesses that are currently operating in manual mode – it can provide leaders with the comprehensive, accurate financial intelligence they need to make smart strategic calls about overheads, working capital and cash flow.
Surviving the storm
There are testing times ahead for Australian businesses this year. In order to maintain liquidity, leaders may need to make tough, timely decisions. Having current, accurate financial data on which to base those decisions has never been more important and investing in technology that can put it at the fingertips of your executive team is likely to prove a very smart move.
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