PodChats for FutureCFO: Future-proofing cash conversion cycles

The adage “cash is king” resurfaces every time the world is on the brink of collapse when capital is tight and economies unpredictable as in the case of the last year and a half with the onset of the COVID-19 pandemic.

In an increasingly uncertain world, companies must build stronger relationships across their ecosystems if they are to achieve future growth.

The way we use technology has completely streamlined the way we live, communicate, and do business across the globe. Therefore, companies must build and create ways to retain business resiliency, particularly on the cash collection cycle.

Cash Conversion Cycles

Albert Leong, managing director, Esker Asia, defines the cash conversion cycle (CCC) as a metric to express the time it takes for the company to convert their inventory into cash flow. This touches on both accounts receivables and accounts payables of their business cycle.

Having been in the industry for more than 25 years, he stressed even before the pandemic there was already a lot of inefficiencies in existing business processes, including how they manage receivables and payables.

“The mandatory remote work that came about because of the pandemic exacerbated the situation. Particularly at the beginning, finance teams found themselves unable to access their in-house systems making it challenging to perform end-to-end payables processing efficiently,” he added.

It certainly did not help that those different functions, including finance, operations, sales and marketing, operated in silos. Before the pandemic, these departments although separated were accessible to finance through inter-department communications channels or by merely walking over to the other department office.

The pandemic raised accessibility, or the lack of it, to a new level. The lack of visibility at any given moment became a recurring challenge for function heads as well as the leadership.

Given that business environments, regulations and the competitive landscape continues to evolve, Leong believes that organisations would need to continue optimising their cash conversion cycles long after the pandemic has been eradicated.

He added that Esker’s focus of providing a global cloud platform is helping its customers unlock their strategic value for their finance and customer service professionals, by strengthening the collaboration among the various teams.

“The end goal is to improve the business process and the visibility for all stakeholders, including employees, the management, the suppliers, and the customers,” he added.

The value and limitations of ERP

Enterprise resource planning has been around for several decades and over the years have been modernised to stay relevant to current business environments. That said, it remains a general-purpose integrated business application where the business goals are managed and organized effectively and efficiently.

That said, the prevalence of third-party add-on solutions suggests that ERP are neither complete nor operate efficiently and effectively.

Case in point: accounts receivables (AR) and accounts payables (AP) from the perspective of cash management.

Better value comes with best-of-breed

Leong pointed out that Esker is a best-of-breed solution provider within the accounts receivable and accounts payable function of finance.

“Esker provides better functionality, better ease-of-use, better visibility and reporting, and better enablement of suppliers and customers. These things can be done in an ERP solution, yes, but the customisation and enhancements needed to deliver the same benefits as that of Esker will make the ERP solution no longer cost-effective,” he elaborated.

He also pointed out that all software undergoes regular enhancements throughout its solutions roadmap. The customizations that companies build upon their base ERP are not part of the roadmap and therefore the burden of integrating new features that come from the ERP vendor falls to that in-house IT team.

“The best-of-breed solution, like Esker’s, gives you a platform to allow AR and AP specialists to perform their jobs more effectively and more intelligently.”

Albert Leong

He added that Esker’s years of experience integrating with different brands of ERP solutions, from the popular to the obscure, bodes well for the business value it brings to enterprises around the world.

Click on the Podchat player to listen to Leong share his views on how building a harmonious business ecosystem will help you accelerate your cash conversion cycle, encourage positive-sum growth and speed up your cash collection cycle.

  1. What is “cash conversion cycle” (CCC)?
  2. What are some of the key challenges finance professionals face that impact their CCC?
  3. How has Esker enhanced CCC processes?
  4. You mentioned positive-sum-growth. Can you elaborate on how that will impact an organisation?
  5. How Is Esker different from an ERP & why should they choose to automate?
  6. The call to action of business leaders (C-suites and boards) in 2021 is resilience. What needs to happen with regards to CCC to support this resilience mandate?
  7. What is your advice to finance leaders looking to maximise the return on their CCC strategies?

– Written by, Allan Tan