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Accounting

Forecasting & Scenario Managing Your Receivables During the Coronavirus Outbreak


by Sara Baxter Orr

Without strong data and advanced scenario planning capabilities, finance teams may lack the agility needed to adjust processes and forecasts quickly to adapt to changing business conditions.

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The global outbreak and rapid spread of the novel coronavirus has brought unprecedented levels of uncertainty to corporations and consumers. As a result, business leaders are under increasing pressure to make difficult decisions as they attempt to mitigate near-term risk and drive long-term continuity.

Amid this radical disruption, the beginning of a new month brings anxiety to millions of consumers and customers who are wondering how they will pay their bills and cover their purchases and expenses.

For organizations who are increasingly focused on limiting exposure and maintaining profitability, this new reality poses a complex set of questions: how can I adjust cash flow needs to better anticipate a high number of late payments, or even no payments, from customers? And, how do I protect long-term financial solvency while still serving my customers with the highest degree of quality and experience?

As the owner of the balance sheet, the CFO is likely responsible for addressing these questions. However, without strong data and advanced scenario planning capabilities, finance teams may lack the agility needed to adjust processes and forecasts quickly to adapt to changing business conditions.

Uncertainty calls for stronger data

Under normal circumstances, CFOs can make informed assumptions about accounts receivable and accounts payable balances. Organizations set collection period parameters and threshold requirements, review and analyze cycles, and average the number of days it takes to receive payments. The timely analysis of aging receivables enables finance teams to predict payment deferrals, manage collections, and more accurately assess their expectations for cash flow so they can increase liquidity, a process often referred to as Order to Cash.

Today’s circumstances are far from normal, and ever-changing variables have deemed existing financial assumptions highly inadequate. Instead, finance teams must act quickly to amend the playbook that underpins their cash flow forecasts and wade through live data, in real time, to better understand their current exposure.

Understanding and stabilizing cash flows during times of uncertainty requires nimbler finance operations. For CFOs, this stresses the need for technologies that leverage real-time data to deliver actionable insights. Instead of spending valuable time aggregating, validating and consolidating data, finance teams will need to react in the moment as change occurs to manage any cash shortfalls. With data aggregated in a single, unified environment, finance teams can spend more time on analysis in order to adjust forecasts and adapt financial assumptions based on unexpected variances.

Predicting the unpredictable

In this environment, the downstream impacts of incorrect cash flow projections can be especially disruptive. If finance teams aren’t prepared for a growing number of deferred or missed payments, the organization may be hampered in its ability to pay suppliers, employees and vendors. With all businesses under increasing pressure to maintain liquidity, delayed payments may lead to softened production and limited or delayed supply. Without an accurate or on-time supply of the organization’s essential offering, customers may turn to competitors to fill their orders on-time, which will ultimately hurt the organization’s cashflow projections for future quarters.

As CFOs look to mitigate this exposure, advanced scenario planning capabilities will prove critical to success. Does the CFO need to consider factoring or seek short-term funding or a credit extension? Quality analysis is critical to this decision making. Having the ability to model outcomes against a number of changing variables will help finance teams understand how specific actions may impact cash flows and working capital. With embedded artificial intelligence, advanced and intuitive scenario analysis will arm finance teams with a more predictive and accurate view of their accounts payable and accounts receivable balances and will enable CFOs to model the cash-in and cash-out consequences of impactful business decisions before they are made.

Modeling capabilities are especially important when it comes to forecasting debt, loans and collectability at a time when historical assumptions are no longer accurate predictors of financial performance and solvency. For instance, finance teams can quickly incorporate changing external data sets into their models, such as infection rates by region/country/state, shelter in place ordinances, and state and local government relief stipulations. Having the ability to efficiently produce a variety of ‘what-if’ scenarios and manipulate data in response to these evolving market conditions will enable finance teams to rectify existing assumptions and will help CFOs properly assess their exposure as market volatility continues.

In turn, stronger, more fluid cash flow forecasts will help organizations better understand the steps they can take to strategically manage their business as we emerge into the next phase.  

Navigating the new normal

The outbreak of the novel coronavirus has upended financial processes, deeming historical assumptions and existing cash flow forecasts obsolete. As a result, CFOs are under increasing pressure to analyze risk and develop a path forward for their organization. In the coming weeks, finance teams will be tested by their ability to analyze and manipulate constantly changing data and businesses will look to the office of the CFO to address complex questions about driving continuity for their customers and their portfolio.

Leveraging the right tools can help CFOs feel better prepared to make impactful business decisions to reduce exposure and steer business performance through increasingly uncertain markets. With stronger data and the ability to model and analyze cash flow scenarios based on changing variables, CFOs can feel confident making adjustments to financial processes and forecasts in real time as conditions evolve. This added intelligence and agility not only helps CFOs strategically navigate continued volatility but will empower their company to think through unique opportunities to support their employees and customers impacted by disruption.

Sara Baxter Orr is the Global Head of Anaplan’s CFO Practice.