Cash Flow Remains a Hot Topic

However, some of the panic has subsided.

With fears of a “double dip” recession still prevalent – 84 percent of execs participating in a recent Deloitte survey said they were concerned that the economy would sputter yet again – it's not surprising that cash flow also remains top of mind. “It's still a very hot topic of conversation,” says Jim Graves, senior vice president with Key Bank.

However, Graves added that his conversations with corporate clients over the past 6 months have become less frantic and more focused on the steps needed to ensure that a company's cash flow forecasting abilities consistently measure up. For instance, more organizations are moving far-flung divisions onto common systems and procedures. That's a shift from the pre-economic tailspin era, when many financial executives had less of a sense of urgency about ensuring that various parts of their firms took a common approach to functions like invoice tracking and approval, Graves notes: “Now, we're seeing some delayed or deferred consolidation happening with more urgency.” Given ongoing tightness in the credit markets, CFOs and treasurers want to know, as precisely as possible, when cash is coming in and going out.

Also along those lines, many companies have pared their inventory holdings. Overall, U.S. inventories fell 5 percent between March 2009 and 2010, to $1.328 billion, according to the U.S. Department of Commerce. Similarly, the ratio of inventories to sales has dropped from about 1.48 in early 2009 to 1.25 currently. That's the lowest since 2005. It appears that finance chiefs are more focused on avoiding stockpiles than on potentially losing sales due to empty shelves – not surprising, given the concerns over the robustness of the economy.

Similarly, corporate debt loads also are shrinking, Graves notes. A recent BusinessWeek article noted that the average level of liabilities on the balance sheets of large-cap, nonfinancial firms within the S&P 500 had shrunk by 8.2 percent. “Most companies have debt levels where they want them,” Graves says. “The cash positions I'm seeing from core customers are pretty solid.”

And, while companies are making some investments, they tend to be moderate in scale and backed by solid financial rationales, with projects either enhancing control and compliance or boosting operational efficiencies. In addition, some financial execs are greenlighting projects that help free up or more accurately forecast cash flow, with the understanding that today's low rate environment will turn at some point, Graves adds. When it does, they want to be ready to take advantage of it.

Overall, managers increasingly recognize that a “we've always done it that way” mentality no longer works, Graves notes. Not that they're interested in radical, out-on-a-limb changes just for the sake of trying the latest and greatest. Instead, they're trying to minimize the “operational slog” and streamline day-to-day processes so that they (and their employees) can take a more strategic, analytical approach to their operations.

As painful as this downturn has been for many businesses and individuals, if even some of these newly acquired habits can stick as the economy recovers, that won't be all bad. It may even help to prolong the good times and moderate the next downturn. ###

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What's Basis Points?

Karen Kroll supplies the Business Finance community with reporting and commentary examining cash management and treasury-related topics.

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