Sam Emery, CFO at Emrill, explains how the personal touch can help improve cash flow during a crisis.

Although Emrill is a large organisation, the important function of cash flow is not just the sole responsibility of the finance department, but is instead a relationship-based model, tackled by collaborative teamwork across operational departments and by the leadership team. We made the decision several years ago to share ownership of cash collection throughout the organisation on a relationship-basis. This has worked well for us during economic instability as it has enabled us to increase the organisation’s liquidity buffer.

Emrill services over 130 project sites, and each of them has a dedicated team. This has led to individuals within the company developing a stronger connection with the clients they work with. As a first port of call when payment delays are experienced, whoever holds this close relationship will reach out to clients personally. While many companies separate the delivery of services from the collection of cash, we see both functions as part of the same agreement. Since we implemented this ethos, we have seen a marked improvement in cash flow. In our experience, having members of the team who are disconnected from client decision-makers following up on late payments does not work. Communication from a site manager achieves much better results, as relationships are strengthened for both parties when they are two-way. We find this personal touch and high level of communication have been key components in the successful management in the cash flow of a large organisation. Often agreements with clients can be forged. Where there is good communication, transparency and some part payments made, we work hard to be as flexible and accommodating as we can.

We treat every overdue invoice as an individual project. Together, the leadership team decides how to best tackle these invoices during weekly cash meetings held between finance, commercial and operations. Despite following physical distancing guidelines, we have ensured these meetings have taken place every week, and we have adapted well to having these discussions using the video and teleconferencing tools available. During these meetings, high-risk debts are discussed, and we review what work has been completed and what should be paid. It is a real team effort. We understand that every client circumstance is different, so this discussion determines the course of action, taking everything into account.

Where a client simply cannot pay any more, we may agree to suspend services temporarily or permanently. There is no set breaking point or time limit. Rather we approach every client individually, considering the combination of several factors and an element of intuition to decide whether a relationship should be terminated and debt recovery procedures initiated.

While following up on late payments is a crucial part of any business, this is not where Emrill starts to build relationships. We lay this groundwork during the very early stages of a contract, building a relationship and working hard to strengthen it.  Cash collection is not always delayed as a result of a customer not paying. Rather, there could be an issue with incorrect invoicing or a delay in the final KPI report submission. Understanding what is causing payment delays, creating appropriate action plans to rectify any problems and working proactively with clients can often help to unlock cash quicker. If a client only ever hears from a provider when money is due or late, that relationship starts to break down. For that reason, communication is meaningful and frequent, regardless of payment issues.

Having implemented this approach several years ago, we have found ourselves in a much better position to deal with economic downturns or market fluctuations. We have successfully built up a cash reserve that has helped us navigate the challenges resulting from the COVID-19 pandemic. However, even if an organisation does not have these robust credit control measures in place, there is still action they can take today that will benefit them tomorrow and beyond:

1. Take control and understand your current financial position

Taking a holistic view of the business and understanding what is happening across the entire organisation can provide valuable insights. No one department or project works in isolation, so it is possible that something happening in one area of the business may affect another, which could ultimately affect cash flow. When navigating a crisis, such as a pandemic, appoint one person to be a central point and ensure he or she is fully appraised of all facts and information and can take control of making decisions while understanding the overall cash impact of any actions.

For example, due to COVID-19, we have adapted and updated methodologies to adhere to physical distancing guidelines by the Ministry of Health and use Dubai Municipality-approved cleaning products. Working alongside other departments, Emrill’s finance team has been able to review the costs incurred and make decisions that ensure compliance while understanding the financial impact of operational updates.

2. Scenario planning

The pandemic and its impact on the market are unprecedented. However, it is prudent for organisations to plan for unknown scenarios in the future, understand the effects these situations may have on cash flow and prepare a contingency plan should such an event be triggered. These scenarios may include future pandemics, interruptions in supply chain, restrictions on movement and the closure of key facilities.

The more you plan, the more you’ll know and feel prepared. Updating these scenarios regularly, ensuring you include the most up-to-date information available and having a robust plan in place will enable you to take action quickly and efficiently should the need arise.

3. Stay engaged

Create a culture in which everyone within the organisation is accountable and committed to delivering great service and maintaining relationships across the business. Every person is responsible for managing cash flow, whether that involves preparing invoices, winning business or ensuring project KPIs are achieved.

Communication is crucial to engaging every employee. Make key stakeholders within the business aware that every decision made may affect future budgets and spending.

4. Plan ahead and forecast

Create a twelve-month forecast that details all cash in and cash out. This will enable you to effectively look and plan ahead. While it can be a challenge to accurately forecast payments in, as receipts are more volatile, estimate all incoming funds based on what you know and engagement with customers.

Take this opportunity to identify and understand all of the business’s costs, large and small. By reviewing fixed versus variable and committed versus non-committed costs on a weekly, monthly and longer-term basis, it becomes possible to spot areas that could be improved to either reduce costs or increase efficiencies.

5. Review costs and cash conversion

When reviewing costs, begin with major areas within the business, such as inventory management, stock usage, re-order levels and aged stock. This will help you identify where savings or efficiencies can be made. Fixed costs may be inflexible, so focus on achieving quick and easy short-term wins. While these may be small and inconsequential alone, a series of small wins can add up and have a large impact in the short-term.

Critically review the balance sheet and identify any items which can be converted to cash. Involve key stakeholders in the review and analyse the pros and cons of these conversions. You can then create an action plan that can be implemented to increase liquidity.

While the majority of businesses, small and large, are experiencing the challenging effects of the coronavirus outbreak, taking action now to control cash flow will pay dividends in the longer term. By carefully defining actionable tactics and anticipating possible developments, and the impact they will have on businesses, managers and owners can survive and begin to rebuild and thrive.