An ongoing objective for your finance team is to find savings opportunities. And never before has that been so necessary.
With a worldwide pandemic, a dwindling economy and companies everywhere finding themselves in financial binds, the focus on cutting costs and capably managing money has grown exponentially.
To be more frugal, some companies may opt to simply cut back on certain expenses in the short term and extend payables temporarily to boost cash flow and working capital.
But you know a better solution is to take a strategic, long-term approach to cost savings and cash management. Of course, that requires Finance to work with other departments and company leaders to create a culture centered on optimizing payables, explains accounting organization Deloitte.
Check out four essential areas that Finance can focus on to boost savings now and for the long term:
1. Vendor selection
First, does your company should have a preferred vendor list? And just as important, is that list up to date? You don’t want your employees buying from just any supplier they find and perpetuating maverick spend. Encourage your team to work with Purchasing to ensure the list includes vendors that are the most cost-effective and reliable for your company.
To go a step further, have your team keep and regularly update scorecards that detail vendors’ prices, customer service, quality, etc., so you always have an eye on what vendors really cost you in terms of time and money.
2. Contract reviews
Unfortunately, your company doesn’t have control over its vendors’ billing practices – and poor practices can lead to overpayments or other costly errors. But Finance does have a sense of control over its vendor data and contracts. That’s why Deloitte advises creating a team to monitor vendor data and contracts for completeness, correctness and compliance.
Also, to get vendors serious about sticking to terms, your company could include a clause that imposes fines or penalties on them in the event of explicit underperformance.
These extra precautions may mean a little more time dedicated to contract management, but they could save your company big in the long haul.
3. Contract negotiations
CFOs know that contract terms often need to change over time – especially when unprecedented events, like the coronavirus pandemic, occur. When it comes to negotiating with vendors, your team should:
- Involve all relevant leaders (controller, CPO, Treasury, etc.) to get different functions’ expertise and discuss your current payment strategy. For example, you can go over when or if it’d be good to negotiate longer or shorter payment terms.
- Research competitors, then see if your vendors are willing to match their prices or offer larger discounts.
- Leverage those vendor scorecards as a way to encourage better pricing, service, response times, etc.
4. Purchase-to-pay processes
Some companies may have hundreds or even thousands of vendors to manage. And with all those invoices, it becomes harder for Finance to monitor and control maverick spend along.
That’s why, as mentioned, it’s key for Finance to collaborate with Purchasing. Together, they can work to prioritize any purchases that include early pay discounts, volume rebates or trade spend initiatives.
And it doesn’t have to be a drag! CFOs and CPOs can make savings a competitive team effort by setting and tracking metrics (e.g., percentage of invoices paid to terms, discounts captured). You could even tie metrics to incentive pay to motivate both teams to work hard and take metrics more seriously.