How finance teams improve profit and cash flow

Finance teams can have a significant impact on company’s results and performance.

First, they can influence capital allocation based on market analysis, financial analysis, and business scenarios. See strategic finance.

Second, the typical finance agenda allows for better cash flows and profitability across the company;

Accounts payable

Key activities:

Processing invoices from suppliers.

Opportunities:

Negotiate better price and payments terms. Increase productivity by AP automation.

North star metric:

capital benefit for payables (calculated as cost of capital * payables balance * days payable outstanding)

Other metrics:

days payable outstanding, % payables of total expenses, expense per processed invoice

Key activities:

Issue invoices and collect outstanding amounts

Opportunities:

Price in better credit terms. Incentivize prepayments and early payments. Manage credit risk.

North star metric:

cost of capital for outstanding receivables

Other metrics:

Days sales outstanding. Bad debt as % of revenue.

Key activities:

Analyze and identify trends, cost & revenue drivers. Prepare forecasts and financial scenarios.

Opportunities:

Improve forecasting accuracy. Identify & address bottlenecks in company’s performance.

North star metric:

Forecast variance

Other metrics:

Actual / Budget variance

Key activities:

Tax compliance, planning, tax burden reduction.

Opportunities:

Find and execute tax optimization strategies

North star metric:

Effective tax rate

Key activities:

Secure cash flow by liquidity planning and pooling. Manage cost of capital. Secure necessary currency volumes and manage FX risk.

Opportunities:

Improve capital utilization by cash pooling automation and accurate forecasting of cash requirements.

North star metric:

Profit from money market activities