Following what has been for many a horrendous year, many of us are looking forward to the holiday season, with the hope of finally spending some time with family and friends. However, for many finance teams with year-end approaching, this time of year can be hectic and stressful, with pressure to ensure the business will deliver year-end financial targets driving an increased workload.
For those closing their books on 2020, this year-end is potentially more stressful than ever. With the Covid-19 pandemic causing months of lost revenues due to global lockdown, many businesses are at best struggling to meet their financial targets and at worst looking at ways to shore up their financial position and survive.
Whilst collecting your cash from your customers should always be of equal priority to securing sales (we are all aware that cash on the balance sheet is not of equal value to cash in the bank) with eyes so often focused on the hitting sales revenue targets, the reality of translating those deals into cash rarely makes it onto the corporate agenda until there is a crisis and maintaining cash flow becomes a priority. For many businesses 2020 has delivered just such a crisis – and it is without doubt that a detailed overview of the year-end cash position will be top of the corporate list for c-suite executives this year.
With only 29 days remaining until the new year, the question is – what, if anything, can realistically be done to change the financial position of the business and deliver year-end financial targets at this late stage? And surprisingly the answer in fact is, quite a lot.
In terms of sales revenue, it is generally understood that buyers behave differently in Q4 than during the rest of the year. It is not uncommon for companies to underspend in the first half of the year, to maintain a “buffer” of money in case of emergencies. Whilst for many businesses, Covid 19, will have proven to be just such an emergency, this will not be the case for all – some of which have thrived under the pandemic. For those that are cash rich, year-end can create urgency to make last-minute purchases, working on the premise if you don’t spend it you will often lose it. This “spend it or lose it” mentality can lead to 500% increase in expenditure in the final week of the fiscal year versus an average weekly expenditure. So, there is still all to play for in terms of potentially securing those end of year deals.
For businesses looking to deliver challenging working capital targets, there is equally still plenty of opportunity to fundamentally improve their cash position. A review of their current DSO position and past-due accounts receivables, will highlight any potential cash on the balance sheet. Once identified, strategies can be implemented to optimise cash collection, whether this is offering incentives for early payment or simply improving/reinvigorating credit and collections processes. As a rule of thumb, a commercial debt collection agency expects to collect 65% of a ledger within their first four weeks of activity – therefore with over 5 weeks remaining until the end of the year, there is plenty of opportunity to collect on outstanding invoices and fill in some of the gaps in current cash forecasts.
The 4D Contact team have over 30 years of experience in recovering commercial debts for global corporations. Balancing professionalism with a proactive approach to ensure our clients, and their valued customers, receive an outstanding service that delivers fast, effective results.
Text written by Mark Smith.
Director at 4D Contact Ltd & Square Marble Technology Ltd
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