As the global economy continues to come to terms with lockdowns designed to mitigate the spread of COVID-19, there is unprecedented pressure on individual companies and entire supply chains to adapt. For the Chief Financial Officer and other senior finance leaders, there is a pressing burden to balance potential revenue decline, earnings and cashflow shortfalls while shoring up the balance sheet.
Conduent and Finance Director Magazine recently convened a virtual roundtable that brought together a dozen senior finance leaders from a range of industry sectors. The roundtable, conducted under Chatham House rules, discussed two main topics: 1) the impact of the pandemic on organisations and 2) the ways that finance directors have responded. Here’s a summary of what our leaders had to say.
The Impact of COVID-19
If there was any doubt about the breadth and depth of the pandemic impact, it was sobering to hear those working across a range of industry sectors. Following are just a few examples of the challenges our leaders discussed as the pandemic swept the globe.
It’s no surprise that travel companies went into a tailspin — bookings were canceled, borders closed, planes grounded, and finance leaders (and their organizations) continue to feel the effects. “Banks are reluctant to lend to us because we have a lot of unpaid debt on our balance sheet,” said one roundtable attendee.
Reduced air traffic has been a challenge for more than one business. One travel expert noted: “Flights are 80 percent down and the load is much lower, so our consumer business is suffering.” Already a low-margin business, the car rental industry also came to a halt last March with fleets of cars and vans stuck where they were last used.
In the food and beverage sector, restaurants and bars closed except for takeout — and with other businesses closed, catering opportunities took a steep decline.
For those in the marketing and advertising business, the short term proved difficult. Clients looking to cut costs during lockdown saw marketing as a soft target and one of the first line items to go.
For the charity sector, in contrast, funding has held up remarkably well. However, operations have suffered, especially where education and healthcare are central to delivery initiatives.
How Finance Directors have responded
Taken straight from our lively conversation, here’s a summary of 7 creative ways that finance leaders have responded when facing one of the greatest challenges of their careers.
1. Introduced dynamic, more frequent forecasting. Perhaps the most significant change to working habits among finance leaders, many firms went from quarterly to weekly forecasting — and we expect that trend to continue post-pandemic. More frequent forecasting has several benefits:
- Allows firms to pull additional economic levers that will have an immediate impact on financial viability
- Provides assurance and reduces anxiety across the organisation
- Helps shore up liquidity through open dialogue with credit rating agencies, banks and shareholders
- Sparks greater employee output through increased awareness, focus and sense of accountability
2. Renegotiated supplier (and client) terms. Increasing payment terms is a double-edged sword: requests to delay payments going out are likely to be matched by requests for delayed payments on the receiving end. On the margins, however, renegotiation makes sense and provides a degree of breathing space. During the pandemic, one firm looked to push payment terms out from 30 to 45 days. “We also went to our clients and said we would be happy to extend their payment terms,” said one finance leader who came up with a related client retention strategy. “We offered to reduce their monthly fees if they agreed to extend their contracts. This boosted our cash flow as fewer would be asking for their money back.”
3. Renegotiated provider terms. For a firm dealing with a high volume of low value transactions, it is essential to manage the relationship with payment providers. The number of payment providers can run into the hundreds — and the number of different currencies into the dozens. “We sought to minimise our settlement period with them so we’d get our cash quicker. We were also careful with our currency trades on a daily basis,” said another finance leader in attendance.
4. Imposed greater discipline. The economic impact of lockdown has shone a light on sub-par business processes. For some finance leaders, the pandemic has provided the impetus to impose better controls on working practices. “Agency businesses tend to lack discipline,” said the finance head of one marketing communications firm. “What we brought was greater financial discipline and rigour.” As a result, he said, they were able to “reset the business, reset the covenants and manage the cashflow”. The result? “We quadrupled our cash flow — and that allowed us to breathe.”
5. Reviewed fixed costs. More than one firm has been rethinking its approach to property at a time when most employees are working from home. The working week is likely to be hybrid in future — a mixture of home and office work. That means, at the very least, that expensive real estate can be downsized.
6. Helped the business to pivot. Adaptation of the business model is easier for some organisations than it is for others. For a data-driven marketing agency, it is a case of persuading clients to accelerate their move to digital. “The pandemic has completely changed consumer behaviour,” said one attendee. “Those who pivoted early to ecommerce did much better during lockdown than those retailers who stayed as they were.” The pivot need not always be to digital. For the roundtable's charity finance head, moving educational programmes from inside the classroom to the outside — “under a tree with a few desks and chairs” — proved equally effective.
7. Supported a new way of working. One of the positives of operating within the constraints of lockdown is how it has brought organisations together in different ways. “Sometimes we take things for granted,” said one attendee. “This forced us to come together and find solutions we might not otherwise have looked at.” Another leader noted how the pandemic prompted an end to institutional inertia. “During the first lockdown, I’ve never seen the company move so fast. The inertia and bureaucracy just fell away.”
Panel predictions for the future: brighter, but still challenging
Despite current volatility, finance leaders from a range of sectors remain bullish about the future.
They’re confident that, post-COVID-19, demand and commerce will quicky recover to pre-pandemic levels. Organisations that are preserving cash, creating robust working capital arrangements and using the pandemic lockdown to further lower their operating costs, will be the winners in the new normal. Given where we have been over the last 12 months, it will be a nice problem to have.
The Conduent / Finance Director Magazine Finance, Accounting and Procurement virtual roundtable took place 21 January, 2021.
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