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Five ways to make a cash-conscious culture stick

Simon Davidson Simon Davidson

A cash conscious culture is vital for working capital management in the current climate, explains Chloe Salter.

Effective working capital management has always been a business fundamental. Now, more important than ever. As a result, many businesses are now managing receipts and payments more tightly and reviewing cashflow more regularly. In the short term, smarter working capital management like this will boost liquidity, could reduce the requirement for short-term funding and will help insulate the business against ongoing uncertainty. Long term, it will be key to restoring performance and maximising funds to capture future opportunities.

However, it’s not certain that good practices will last beyond the immediate crisis. Initiatives to improve working capital management often fade without any lasting impact. Teams slip back into bad habits and efforts to embed a cash conscious culture fail. As a result, CFOs must return to the issue again and again, when they would no doubt prefer to be focusing on other initiatives.

So, what can be done to make sure current improvements to working capital management last? The key lies in embedding the right behaviours across the whole business, not just in Finance. In other words, creating a “cash conscious culture”. Here are five priorities for making a cash conscious culture stick:

1 Set the right working capital management tone from the top

Embedding a cash conscious culture must be an organisation-wide endeavour, not just a concern for the finance team. That means the ambition to change working capital management attitudes needs to be driven and supported from across the top tier. Engage the whole senior management team in the mission to manage with a greater focus on cash and make that senior-level support very visible.

2 Keep your working capital management metrics under review

A mix of financial and operational metrics is more effective in changing behaviour than financial metrics alone. So, as well as measuring, for example, days sales outstanding (DSO) or cash collected, include metrics like frequency of billing, payment terms agreed and time taken to bill. COVID-19 requires businesses to remain agile as they move through the three stages of their response: assess, protect and restore. So keep reviewing your mix of working capital management measures to make sure they remain appropriate.

Make sure metrics are always focused on activities that individuals have control over, setting targets that are aspirational, but realistic. Benchmarking against peers or among business units can help with this.

3 Mind your monitoring of working capital management

Metrics mean nothing without monitoring, so build-in ways to track progress. Dashboards are a powerful way to remind teams of what’s being measured and they make performance highly visible. Working capital management monitoring will be especially useful for businesses looking to understand whether they can release enough cash to repay any short-term loans they have taken on to deal with the current situation and how they build up the reserves to repay deferred balances.

To reinforce monitoring, consider making performance against chosen targets part of employees’ overall assessment, or use specific incentives to encourage desired behaviours. Find an approach that fits with your existing culture. You’ll already know whether your people respond better to strict enforcement or gentle encouragement.

4 Keep communication simple

Motivate employees with a clear message articulating the practical difference their actions can make to working capital management. One housing association I worked with, for example, highlighted the fact that every £1 million of cash released from working capital would cover the running costs for one additional care home for a year. In the event, I helped this client release an extra £9 million a year. Expressing that in terms of care homes and residents, rather than just in pounds, made the target very real for all employees.

 Maintain clarity by promoting simple, straight-forward ‘golden’ rules. These can be as basic as:

  • Don’t leave billing until the end of the month
  • Bill as early and as regularly as possible
  • Get billing right first time; accuracy avoids delays
  • Avoid paying purchase invoices before their due date
  • Never deviate from standard terms without finance/procurement approval

Keep the narrative going by sharing achievements that support the mission. Celebrate successes against your chosen performance metrics as enthusiastically as you celebrate sales.

5 Invest in training

Even if employees understand the impact of cash flow on their personal finances, this insight doesn’t necessarily carry across to working capital management. So invest in training to help them understand how their behaviours impact business cashflow and why this matters not just now, but going forward. Including appropriate training as part of induction helps establish a cash conscious mindset from the start. Annual ‘reminder’ training works to keep the message strong.

Culture must be part of working capital management

Initiatives to maximise working capital offer important potential gains for business: improved resilience, better financial results and new funds for growth. But to succeed, these initiatives must be about more than new policies and processes. A shift in attitudes and behaviours around terms, billing and payment needs to be in the mix too. For CFOs looking for lasting results from their efforts to encourage better working capital management, culture really is key.

Written by Chloe Salter

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