Treasurers can protect cash flow during the crisis.

Author:D'Addario, Jim

With the global economy apparently headed toward a deep and protracted recession, treasurers in American companies must take extraordinary measures to ensure they have the appropriate resources to weather the crisis.

To complicate matters further, many banks are either curtailing their lending or raising loan spreads, forcing companies to depend on their commercial cash flows for liquidity.

Though the depth and length of the economic crisis is difficult to forecast, there are measures businesses can take to help them navigate the treacherous waters ahead. For example, modern financial systems can help financial executives manage cash and liquidity as well as provide them with better options for steering their companies.

Integrated financial applications can help firms navigate the crisis by tying together critical information such as current cash balances and the status of their commercial cash flows. These applications also provide greater transparency by reaching into operational systems and providing treasures with a more complete picture of their sources and uses of cash.

Finally, they provide control over three key areas that impact liquidity: preventing trade credit defaults, ensuring healthy cash flows and achieving greater control over cash on hand.

Protecting cash flow begins before a sale is made. Companies must exercise heightened diligence in managing their trade credit. This requires sophisticated applications that enable credit managers to make faster and more accurate decisions on a customer's creditworthiness.

The process doesn't end with the initial approval; companies must also continually monitor their customer's financial conditions. Those who show any signs of financial deterioration should be carefully managed to prevent them from becoming a bad debt write-off.

Receivable: A Key Liquidity Source

As bank lines get harder to obtain, ensuring that accounts receivable are paid in a timely manner takes on heightened urgency. Clearly, companies need to minimize the number of overdue invoice, let alone those that end up in default.

Of all the factors that can drive up days sales outstanding (DSO), one of the more insidious is invoice disputes. According to a study by Accenture, up to 25 percent of a company's receivables can be tied up in disputes.

Disputes present a significant risk during a slowdown because of their impact on cash flow. Customers may delay payments for a variety of reasons: incorrect invoices, receipt of...

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