A survey of Chief Financial Officers (CFOs) carried out by American Express India showed greater awareness and understanding on the need for digitisation in response to the myriad disruptions that are emerging in working capital. Almost every 2 out of 3 CFOs would like to focus on digitising the receivables and payables management and 1 out of every 2 CFOs would focus on adopting better use of analytics for collection management.
Consulting major EY was the knowledge partner of the survey.
The survey revealed that while the pandemic disrupted supply chains across various industries, testing their resilience and agility, CFOs worked towards mitigating the risks and putting response measures in place. Among the key strategies CFOs would like to explore, 54 percent considered widening the vendor base by accessing more local vendors, while 52 percent aimed to adopt technology for end-to-end supply chain visibility.
Nearly 60 percent respondents in the survey said that higher DSOs have been a challenge in managing working capital during the pandemic that has upset supply chain management, amid plummeting demand for goods and services.
Days of sales outstanding (DSO) is a measure of the average number of days that it takes a company to collect payment after a sale has been made. DSO represents the average number of days it takes credit sales to be converted into cash, or how long it takes a company to collect payments.
The survey’s findings also shares that about 47 percent respondents felt that there was a need for policy reforms on credit management, while 46 percent felt that there's a rising need to adopt better use of analytics in collection management.
Supply chain management has also been a prominent issue in meeting payable commitments, and CFOs stated that they were grappling with delays in receivables during the pandemic. Mid-cap companies also cited that stringent vendor payment conditions were worsening the situation.
In a bid to contain the disruption, companies are assigning renewed focus on exploring financial levers for meeting payable commitments. While 67 percent intend to explore liquidity and cash flow enrichment opportunities, 19 percent plan to explore financing options for meeting early payment requirements of suppliers.
Maintaining liquidity and cash flows are the biggest challenges that the pandemic has thrown towards businesses. The survey’s findings reinforced the arguments that Megha Chopra, Country Head, Global Services India, American Express had told Moneycontrol in an exclusive interview.
“No one knows when this is going to end. It could take six months, it could take 12 (months) or it could take 24 months. So, how do you ensure availability of alternate sources of funding and optimise the best available resources and also build in the contingency plan for any unprecedented developments? That’s a big concern area, an area that businesses are prepping up to ride through this crisis as long as it exists,” Chopra said.
The COVID-19 pandemic and the resultant disruptions have triggered major innovations, bringing about rapid digitalisation among businesses that are looking for ways to manage cash flows and optimise costs. Experts have pointed out that the pandemic has forced businesses to fast track their digitisation plans. This has come on both sides of the businesses—the critical and manageable part or the controllables.
“Now, we are seeing small and medium enterprises creating their digital presence and trying to reach out to customers. When 75 percent of your customers are spending online, why would you not give that flexibility to your customers? So, you will see a lot of businesses coming online, you will see a lot of businesses embedding payment gateways and giving the flexibility of cards, wallets, UPI etc. This is rapidly bridging the digital divide and accelerating customer access,” Chopra said.
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