Learn The Lessons from COVID to Prevent a Recession-driven Cash Crunch

June 6, 2022

6 min read

Summary

If your team is still struggling to manage paper-based AP processes, preparing yourself in advance of an impending recession is critical to entering this period in the best financial shape possible. How can your finance organization best prepare for any future downturn?

    Data points like low unemployment levels and the strong return to business travel point to an economy that remains robust. If the economists’ predictions are correct, however, there is a significant chance of recession in the coming months, thanks to the cumulative impact of inflation, lingering COVID-driven supply chain issues and uncertainty about Russia’s war with Ukraine.

    While this is obviously bad news for any business leader, one piece of solace is that the current strength of the economy means the impact of a downturn is likely some months ahead. This gives finance teams the opportunity to harden their financial operations in advance, unlike the lightning-fast impact of COVID on the global economy.

    So what lessons can finance teams learn from COVID’s impact, and how can these help mitigate the impact of a future recession?

    Cut wasteful spend before it’s too late

    An alarming amount of corporate spend is wasteful, including an estimated 31% of SaaS expenditure. Why? Companies have limited central insight into who is spending what, where. Individuals may be purchasing individual software licenses instead of cheaper company-wide packages. Employees may be booking travel that doesn’t take advantage of negotiated rates. Purchases that are outside corporate policies may be getting overlooked or rubber-stamped. Much of this waste can be eliminated with zero impact to the business. However, doing so requires the ability to track and analyze spend, identify duplicate expenses with vendors, and effectively enforce spend policies before purchases are made. Data held in spreadsheets can make identifying these potential areas for savings like a needle in a haystack, so spend data needs to be easily managed and available to easily analyze.

    Learn more: See why analyst firm Quadrant Solutions positions Emburse as a Leader in accounts payable automation solutions.

    Real-time visibility is critical for smart decision making

    When COVID suddenly hit, almost every company - us included - had to quickly assess their current financial situation. What are our expenses and payments? How could this impact our customers’ financial health? What would the impact of slower payments be on our cash flow? Based on this insight, companies could make adjustments to minimize the negative cash flow impact. Doing this with a meaningful level of accuracy requires near real-time visibility into a wide range of financial systems and processes, including accounts payable and receivable, general ledger accounting, expense management and treasury. Companies that hadn’t effectively integrated these systems in advance found it difficult to use the most up-to-date data and often had to make crucial decisions based on limited or outdated information.

    Manage payment timing and modality to optimize spend

    The timing and type of payment modality used can have a significant impact on an organization’s ability to both reduce costs and increase revenue, and this becomes even more critical during periods of financial uncertainty. Early payment discounts can provide an excellent return on investment, but often requires a number of AP processes to be optimized.

    First, you need to be able to see which payments are upcoming, their amount, and when they are due. This requires the real-time visibility I mentioned above - you can’t fly blind and just hope for the best. Second, you need to be able to move the approval process expeditiously. The ability to benefit from a 2/10 discount is moot if you have a paper invoice sitting on someone’s desk for two weeks, or if check runs are only made every few days.

    Moving vendor payments from check to card can make a huge difference for speeding up payments, turning what could be a multi-day process into something that can be performed immediately. In addition to speeding up the payment process, an additional benefit from this is that corporate cards deliver cash-back rebates. If used across all payments - possibly with an individual virtual card number allocated to each vendor for even easier reconciliation - organizations can deliver significant revenue generation capabilities.

    Get rid of paper-based processes

    One of the big issues that COVID created for finance teams was the inability to easily manage paper-based processes, due to team members not being physically located in the office. This problem may have gone away, but the underlying challenges that manual, paper-based processes create are still relevant, including:

    • Slower processing times
    • Lack of insight into approval processes
    • Greater potential for data entry errors
    • Fewer built-in fraud prevention capabilities
    • Difficulty in analyzing data
    • Delayed payments harming relationships with key vendors

    Eliminating these roadblocks may not be able to solve all of an organization’s challenges relating to a recession, and certainly doesn’t make it immune to major macroeconomic factors. However, by moving from paper and spreadsheets to expense and invoice automation solutions, finance teams can have a far greater impact on areas that they can control.

    If your team is still struggling to manage paper-based AP processes, preparing yourself in advance of an impending recession is critical to entering this period in the best financial shape possible. And that means finding a technology solution that fits your specific needs. Choosing the right partner could be the difference between weathering the storm and floundering.

    Now what?

    Download this report to learn why analyst firm Quadrant Solutions positions Emburse as a leader in AP automation solutions, and then schedule a call to see for yourself how Emburse can help make your finance processes more resilient to future downturns.