Expert Advice: 5 Tips to Navigate Recession and Protect Cash Flow

As a growing number of financial institutions sound off warnings that an economic downturn is approaching, worries are mounting for both businesses and consumers. As a result, finance leaders across industries are scrutinizing their current strategies.

Now is the time to revisit lessons from prior recessions and take advice from economists and finance experts. So, between record high inflation, supply chain troubles, and talent shortages, how can finance leaders shield their organizations from a recession?

We have learned from top performers that decisive action at the beginning of volatile periods determines who wins and loses in the long run.

Here are 5 Tips to Help Finance Leaders Stay on the Offensive:

Go digital before it's too late

According to Gartner, there are two distinct characteristics of those who outperform during economic downturns. The first commit to strengthening the organization's key differentiators to power through uncertain times. They implement tactical strategies while the downturn is still on the horizon. The second focuses on effectively balancing growth. The most profitable companies can grow both their top and bottom lines simultaneously, regardless of market conditions.

How can CFOs and finance leaders capitalize on differentiators while growing their top and bottom lines? Experts say that success relies heavily on the finance function's digital capabilities. In a recent Gartner survey, 97% of CFOs and finance leaders reported that they plan to increase or maintain digital technology spending to improve profitability. Enhancing digital capabilities offers significant benefits like process efficiency, accuracy, and financial insights, which are particularly valuable during times like this.  

Work to maintain profitability

Concentrate on profits rather than revenues during economic disruption and uncertainty. According to Fannie Mae economists, as inflation persists at a four-decade high and the Federal Reserve raises interest rates, these factors combined will likely tip the U.S. economy into a recession in the first quarter of 2023.

Because of this, it is wise for finance leaders to reconsider how they approach growth. Expanding at this time could have negative consequences on the business. Instead, take a step back and consider how to ensure the company remains profitable. Be agile and adaptable, even if that means suspending specific projects. There are two strategies finance leaders can lean on right now: ramping up revenue through sales or reducing costs and expenses. Consumer demand can be challenging to manage, but costs are something that finance leaders hold some control over. Finance leaders should use this time to strengthen cost controls and focus on price to ensure they are adequately covering costs and generating profits.

Fight for better contract terms

Cost reduction relies on the finance team's ability to negotiate and be competitive. Experts from McKinsey suggest supplier collaboration is key to joint efficiencies and finding innovative ways to reduce costs. This includes leveraging long-term partnerships; be open with suppliers about the inability to pass price hikes to consumers. Increasing costs can create negative consumer perceptions, and candid dialogue with suppliers can mitigate this risk.

Purchasers should explore both short and long-term levers to reduce costs. First, review all of your partners to find savings, whether it's business services, employee benefits, or miscellaneous expenses. Always receive multiple quotes. Finance leaders can use the quotes and current payables data as leverage to negotiate the company's best deal and payment terms. In addition, you can also consider locking in longer-term agreements with your best-performing vendors in exchange for lower pricing.

Keep long-term planning in mind

For an enterprise to be resilient in the face of change, the C-suite needs to maintain financial performance through planning. Balancing current financial constraints with the company's vision can prove to be challenging. But finance leaders must know the direction the company is headed in, despite uncertainty. Think about where the company is going and strategize on how you can ensure that still happens. Even if timelines shift, long-term objectives should remain the same. When working with limited resources, ensure the long-term is always in mind. Know what you will and won't do, and stand firm on your decisions.

Transition the accounting function from a cost center to a value center

Traditionally many of the tasks associated with payables and receivables are not revenue generating. These back-office functions, while critical, can also be a significant expense. During an economic downturn, inefficiency and inaccuracy within the accounting department can be damaging to the organization, particularly to cash flow. Finance leaders can generate much-needed cash flow by ensuring vendor invoices are accurate before payment remittance. With the help of accounts payable automation software, accounting teams can reduce the time and costs associated with invoice auditing. As a result, they have more time to concentrate on driving profits through strategy, creating business partnerships, managing dispute resolution, and more.

OpenEnvoy enables finance teams of all sizes with visibility, automation, and cash flow solutions. Are you ready to get ahead of inflation and protect your cash flow? Schedule a demo with an OpenEnvoy expert today, visit https://openenvoy.com/contact-us.