A guarantee of survival in 2009, is not necessarily a strong order book. The risk it brings can tear the heart out of a business. CFO’s work is not just about managing cash and costs. It is also to get business through tough times.
Equally involving is working with the front line to give them confidence that new and recurring business will be worthwhile. CFO’s must now spend quality time on risk management planning.
Large orders can be a concern with things like exchange rates and supply uncertain. Trying to get a long range view on these is not easy to ensure that margin isn’t lost on volatile currencies or delays. CFO’s need to be assertively active to help moderate customers and suppliers, who have become intolerant of even the most reasoned arguments.
Business Credit indemnity is also tighter and risks have now shifted. Insurers are rejecting applications as they press for more information, and then charge for re-submissions. Additional guarantees are also being demanded for deliveries schedules keep within to insured limits. As a result the CFO’s finance teams are required to provide increasing support for sales and purchasing functions.
With Bankers now high risk attentive, facilities and covenants administration vigilance is crucial. Breaches or tardiness, even just on reporting timeliness, could mean that life line facilities could be withdrawn. At minimum, this may give bankers an excuse to re-price.
Additional facilities for acquisitions or investments will most likely be priced higher, so CFO’s should be sure to shop around and give thought to planning other financing options. They should also beware of “restructuring” advisers whose motivation is getting administration fees.
The insurance market is also more difficult. Underwriters are insisting on more information. Reverting to checking amalgamations of cover is being used for a pricing edge. Things like risk points on product liability between manufacturer and distributor are being painstakingly scrutinized. And previous cursory checks are now being strengthened or extended to things such as professional indemnity cover of contracted technical experts.
Looking just at risks with customers and taking cover on getting paid is also now not enough. It is equally as important to assess suppliers to ensure supply chain integrity. In doing this credit information may be out of date, so monitoring submission dates, utilizing associations and networks, check-listings and swapping information with colleagues can reduce risks of the unexpected.
In summary the CFO has an onerous task to ensure future financial viability of the company’s ongoing business. A duty of care to involve all C-Level executives in a regular run through of the business risk profile and mitigation strategies. Vital for this in business now is well understood assessment processes, transparent & well monitored metrics and an embedded always-alert risk management culture.