How can CFOs protect their finances in an economic downturn?

The possibility of an economic recession is again in the spotlight. According to the most recent PWCs Pulse Survey 2022 report, more than a third of CFOs consider economic recession a severe risk to their company.

CFOs are particularly worried about input price rise and cash flow challenges. They need to focus on margin-improving or cash optimization projects and take various proactive cash management measures in the wake of this economic downturn.

What problems do CFOs face in managing cash flow during an economic downturn?

The following are the difficulties that today’s CFO are facing while managing cash flow:

Four cash management strategies CFOs should adopt to protect finances during an economic recession

The following are the cash management strategies that CFOs should adopt to protect finances during an economic recession:

1. Review the cash flow metrics and KPIs regularly: KPIs provide more context and meaning to the metrics. For instance, while viewing a net income metric is helpful, it becomes significantly more meaningful when other information, such as performance over time or how assets relate to obligations, is factored in.
   KPIs are financial measurements that influence management and stakeholder decision-making. CFOs and treasury managers must keep a close tab on the key performance indicators (KPIs) and metrics for managing cash flows and increasing profits.
2. Shift focus from the P&L to the balance sheet: Knowing how the economy is changing and making plans before a recession might be challenging. However, the most critical aspect CFOs need to take is to shift focus and stay flexible. That means the corporation needs to change its financial and operational focus from a P&L perspective to a balance sheet one.
3. Keep a solid cash reserve: Insufficient cash reserves frequently cause the bankruptcy of start-ups and SMEs. Establishing a solid reserve fund gives the company the protection it needs to survive economic downturns. Companies can keep cash reserves to identify idle cash shortages during recessions.
   If you already have a sufficient emergency reserve, use it to handle it during uncertainties. However, keeping an emergency fund and storing money can come in handy during unexpected occasions.
4. Review expenses regularly: Organizations must maintain financial control by conducting regular audits to determine how much money is spent and how much revenue is required to pay the bills.

How HighRadius Cash Management Solution helps CFOs when a recession strikes

CFOs should implement cash management automation to help them adapt to the growing requirement for boosting cash management in the face of market volatility. The following are ways HighRadius Cash Management Solution allows CFOs during an economic recession:

1. Real-time cash positioning: HighRadius Cash Management Solution provides real-time and global visibility into the cash flows automatically gathered from your bank accounts and other financial portals across multiple regions and entities. It also provides dashboards for CFOs to drill down to cash positions and make sensible business decisions on funding and investments.
2. Error-free bank reconciliations: The cash management software provides automatic reconciliation that helps CFOs detect errors or fraud in transactions or payments to mitigate treasury risks. Intercompany netting also neutralizes pending accounts, payables, and receivables between two parties and combines them into a single payment. Furthermore, it reduces settlement and financial risks between two or more parties.
3. Streamline signatory tracking and bank administration: A good cash management solution manages multiple bank accounts, including downloading bank statements, analyzing bank fees, etc. CFOs can track and manage accounts and other types of signatories through:
   • Manual entry or bulk import
   • Bulk edit and delete ability to update many signatories at once
   • Track approval limits and different signatory groups and types
4. Track intercompany lending: The cash management solution automates the collection of intercompany interactions, balance tracking, and interest recording across all reflective and notional bank accounts. It enables CFOs to manage both notional and actual cash pools to achieve:
   • Real-time intercompany balances
   • Intercompany loan records
   • Interest computations

Talk to an expert today to learn more on how HighRadius can help your company to minimize the effects of recession on your finances.