“Mid-size companies can be vulnerable to economic swings, making cash flow management key to their ongoing stability and growth,” said Darryl Brown, President, Americas, Global Corporate Payments, American Express of a recent company report titled Cash and Liquidity Management. In short, cash remains king while conserving and preserving cash emerges as a critical discipline.
The alternatives to better cash management aren't appealing. Unsecured debt financing or equity financing come with a lot of baggage. As a result, a large majority of finance executives (78%) surveyed by American Express say that cash from ongoing operations will be their companies' primary source of growth capital over the next two years.
IT, often considered nothing more than a cost center that drains cash, can actually help companies conserve cash over the long run. In some cases it will require some investment to get necessary cash saving IT capabilities in place. Here are six places to start.
With the current flaccid recovery threatening to drop back into recession at every quarter and a business environment that continues to be characterized by scarce resources, tight credit, and costly financing cash has become even more critical.
Some of the following initiatives will take a small investment but others require only a little planning on the part of IT and the business:
1—simplify your IT vendor relationships (and all vendor relationships for that matter). This will reduce the cost of paperwork, contracting, negotiation, and vendor management while producing volume and preferred vendor discounts. You don't need servers from three different vendors and storage from different vendors. Rationalize and simplify to lower costs and conserve cash.
2—selectively outsource IT activities that are costly to do in-house. Some IT activities don't provide any strategic or competitive value and can be done for less cost by an outside vendor.
3—boost IT infrastructure utilization through server, storage, network virtualization. Greater utilization translates into improved efficiency and a higher ROI on your infrastructure investment. With free open source virtualization tools like KVM, this doesn't even require a big investment.
4—adopt pay-as-you-go cloud computing services. Here you pay only for the services you use as you use them. Amazon Web Services has driven the cost of on-demand server and storage services down to pennies and forcing its competitors to respond in kind.
5—automated payments requires an initial investment in the appropriate automated systems but once in place it will conserve cash by capturing vendor discounts wherever they are available and achieving other payables efficiencies.
6—electronic procurement similarly requires an initial investment in the right systems as it enables you to drive inefficiencies out of the system to preserve cash.
These will get you started on conserving cash through IT. There are more, and new opportunities emerge seemingly every week. Social networking, for example, can drive efficiencies in the recruitment and hiring process. Sit down with your CIO and see how IT can help preserve cash.