Many businesses failing to focus on cash flow, survey finds
Only 14% of UK Finance departments report a primary focus on cash flow during the COVID-19 pandemic.
The majority of businesses focussed on cost-cutting exercises and the use of Government support. For example, 41% confirmed they had furloughed accounts payable staff over the past 12 months.
As of June 2021, approximately 11.6 million jobs had been placed on furlough in the United Kingdom as part of the government’s job retention scheme at a cost of around £100 billion.
Ian Smith, GM and Finance Director for document management provider Invu, the company that commissioned the research, argues that cash is the key metric in a crisis.
At the start of a crisis, working capital assets and liabilities unwind as the volume of business reduces. For most businesses, this releases cash tied up in working capital and together with cost-cutting may help a business survive to the bottom of the cycle. Emerging from the crisis will see both increasing expenditure and increasing working capital requirements, a nasty pincer movement on cash resources.
Surviving this cycle is dependent on having full visibility of working capital commitments which places a high reliance on timely and accurate management accounts and visibility of future financial commitments.
The survey showed 16% of UK businesses can take up to 20 days to publish their management accounts – a further 7% taking over 30 days.
Smith argues that this is far too long in a normal business environment, let alone a crisis, as the relevance of the information diminishes after each passing day, providing little value for decision making.
The survey showed that a minority of businesses, 32%, use budgetary controls at the point of making a purchase commitment, and 68% of those businesses believed their purchasing process was effective.
The majority of businesses appear to make financial commitments without fully understanding their financial business impact at the point of purchase. Combining this with slow management reporting means the impact on cash is often not known until it’s too late to do anything about it, narrowing the gap between making a commitment and understanding its impact on cash flow needs to be a priority. Businesses failing to address this are at risk.
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