A survey of more than 200 corporate financial executives, most working in Europe or North America, emphasized the importance of the accounts receivable function on corporate cash management. The survey was conducted in May and June of last year by gtnews.com and SEB, a European financial firm more properly known as Skandinaviska Enskilda Banken AB.
When asked which process had the greatest potential to improve the management of an organization’s cash, participants mentioned the receivables function most frequently mentioned; nearly one-third of respondents said that it could help them. About 13 percent of respondents said that the AP process had the most potential.
What stands in the way of more effective cash flow forecasting? Inaccurate sales projections are a significant hindrance, according to more than half (53 percent) of respondents. Another obstacle: internal systems that aren’t integrated, which was mentioned by 50 percent. Finally, a lack of inter-departmental communication also is a problem, 40 percent of respondents said. Perhaps as a result of these constraints, a majority of respondents indicated that their purchase-to-pay and order-to-cash processes were either average or good, rather than best practice.
The survey summary also notes the conundrum facing many AP and AR departments, given the ongoing tightness in the economy: many customers are delaying their payments, even as suppliers are asking to be paid more quickly. It’s a tricky balancing act, to be sure. While there may not be a quick fix, a couple of steps can help. One is reviewing customer contracts, to see whether customers are adhering to the terms they agreed to. Another is to consider a tool like factoring, or selling accounts receivable to a third party at a discount, in order to accelerate cash flow. Trying to work more closely with the business units, so that they have a clearer understanding of the impact of their sales forecasts and customer payment terms on the company’s cash flow, also is worth a try.