Inflation, cash flow, and disrupted fintech markets

By Craig O’Neill
Craig O’Neill, CEO, Versapay, on why back-office services like accounts receivable digitisation help businesses protect against rising inflation

Recent data from the US Labor Department found that for the twelve months ending in February 2022, inflation rose by an astonishing 7.9%, reaching a 40-year high. For reference, for a healthy and stable economy, the Fed targets an annual rate of inflation of 2%. This is the highest surge in consumer prices we’ve seen since 1982. 

While in the natural course of the economy what goes up must come down, economists are predicting that inflation will remain high throughout 2022. Already, price increases that were thought to be temporary due to pandemic recovery have lasted longer than predicted. And now with the conflict in Ukraine causing oil and gas prices to spike, we may be looking at an even longer-term inflation scenario.

To cushion the impacts of inflation, businesses will need to monitor their cash conversion cycles more closely than ever. And staying ahead of your competition means eliminating inefficiencies that leave money on the table. 

A fragmented supply chain

The current spike in inflation can be attributed to pandemic-related supply chain bottlenecks coupled with an influx in customer demand as the economy reopened over the course of 2021. Rising wages and labor shortages have no doubt also played a role. The war between Russia and Ukraine has added fuel to the fire, causing some experts to predict that inflation will reach double digits by this summer. 

This places greater pressure on companies’ finance departments. Business leaders and shareholders are looking to them to make swift decisions and manage production costs. 

I’m reminded of an insight the CIO of one of our customers, a distribution company servicing automotive retailers, shared on one of our recent webinars. Each uptick in COVID-19 cases, he shared, caused production shutdowns with downstream impacts on their supply chain. As a result, their finance team had to produce more analyses of how these changes would affect their margins and cash on hand so that the company could purchase and retain inventory strategically. 

But to meet this need for more frequent reporting, finance teams need more time to spend on higher-level strategic work. 

The pitfalls of manual accounting processes

Most core accounting processes like accounts receivable (AR) are extremely manual. Finance teams are often so overwhelmed with the work of making sure the company gets paid that they don’t have time to dig into more strategic work like projections and forecasting. This creates a drag on cash flow as payments are chased in highly inefficient ways. In normal circumstances, it’s annoying. In today’s uncertain environment, it can be catastrophic.

While companies have embraced cloud-based technologies that streamline work and collaboration in other business areas like sales, in many cases these digital transformations have yet to reach the back office. Many mid-size—and even enterprise-level—businesses still issue paper invoices and collect payment via check.

These kinds of processes are highly resource-intensive, and worse yet, slow down your crucial cash pipeline. They also make it incredibly difficult for finance leaders to get a clear picture of where the company’s outstanding receivables stand as the information lives in a variety of channels both online and offline. 

As businesses cope with higher production costs due to inflation, as well as delays in deliveries due to supply chain disruptions, their first order of business should be to optimize their back-office processes to free up cash flow as fast as possible.

Boosting cash flow and reporting capabilities with collaborative accounts receivable

With budgets tightening, any means a business can get cash in the door faster is a no-brainer. Implementing a collaborative accounts receivable solution is a key way to achieve this goal. This kind of platform combines AR automation capabilities with powerful collaboration tools that allow finance teams to communicate with colleagues and with customers more easily. 

By automating the processes of issuing invoices, pursuing collections, accepting payments, and posting payments, finance teams accelerate cash conversion and free up valuable time. By bridging the communication gap between AR teams and customers in a single, cloud-based portal instead of over phone calls and email threads, finance teams also quickly clear up disputes that so often lead to payment delays. 

Crucially, a collaborative AR solution centralizes all a business’ accounts receivable activities in one place (pulling and reconciling data with their enterprise resource management platform). Being able to view real-time data in one central view can help finance teams meet increased demand for forecasting and projections as they’ll spend less time pulling data from multiple sources. 

When deciding how to raise prices to cope with inflation, carrying out price changes on a customer-to-customer basis instead of unilaterally is the strategic way for businesses to go. Having clear visibility into customers’ payment histories via a collaborative AR solution can be indispensable for deciding which customers should get a price increase and which should not. 

It’s difficult to know when inflation rates will return to normal. As we’ve seen, economists’ projections can be proven wrong. For this reason, businesses should think fast to shore up cash flow now so they may better withstand whatever challenges come their way. 

About the author: Craig O’Neill is the CEO of Veraspay. He joined the company in 2013 and led the company's pivot to collaborative accounts receivable (AR) software, resulting in unprecedented revenue growth and an expanding workforce that has added more than 250 new employees since the beginning of the COVID-19 pandemic. Craig's 20-plus years of delivering enterprise software have taught him that success lies in developing a business strategy focused on optimising the customer, partner, and employee experience. Craig holds a B.Sc. from the University of Toronto in Computer Science and Mathematics.​​​​​​​


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