Finance Monthly - April 2023

a portion of an invoice, and a small concession in such cases may unlock a larger payment. However, understanding the reason for the dispute can also be enlightening. Warranty claims and service level disputes may reveal underlying business and performance issues that are at the heart of business underperformance and are pointers to where operational changes are needed to restore the business to profitability and positive cash flow. Cash pressure can have severe consequences in group companies, especially where there is inter-group trading. Local finance managers may become cash hoarders and hold onto cash for their local interests. In groups, cash flow needs to be managed on a consolidated basis, and a senior-level manager should have close control over the process, authorising and approving payments over a certain level. There may be a tendency to understate local cash availability in reports sent to head office, so vigilance should be exercised, and cash flow reports should be checked for accuracy against bank statements. A group approach to critical payments should be adopted to ensure that local subsidiaries are not prioritising non-critical payments ahead of group needs. Good practice is to allow local authorisation for small payments, making up the majority of the number but a small proportion of the value, while focusing control on the larger payments, which make up the majority of the value. Local sales subsidiaries should be aware that they depend on the manufacturing entities that have pressing supplier needs to maintain production. This can be particularly acute in industries that have significant seasonal variations or protracted plant vacation shutdowns. As the turnaround process unfolds, cash flow management becomes routine, and business disciplines become embedded as better practices. Operational improvements revealed during the cash management process can be implemented. Opportunities for better asset-based funding may arise with improved cash management disciplines. The downward momentum on the decline curve will have been reversed, and the turnaround will be underway. However, continued vigilance on cash management is crucial. It is the foundation upon which the turnaround is built and should never be forgotten. “Cash pressure can have severe consequences in group companies, especially where there is inter-group trading.” Finance Monthly. Bus i ne s s & Economy 59

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