How CFOs are navigating the financial challenges of 2022

Chief Financial Officers and business leaders face another challenging year, as global markets recover from the pandemic but supply chain disruption, staffing challenges, and the need for greater financial agility and resilience place new pressures on business.

Profitability and bottom line KPIs are all very well, but the role of the CFO is also to drive long-term growth for stakeholder returns. Top priorities for CFOs include re-investing profit to ensure customer retention, digitalization, and stability. CFOs are also increasingly called upon for strategic input into sustainability and ESG objectives.

Better financial decision making lies at the heart of every demand placed upon a CFO, so it is no surprise to see the challenges posed by the great resignation and the opportunities from better use of technology feature in the top priorities of respondents to CFO surveys, such as those referenced in this great article on Top Priorities for Financial Leaders in 2022 by Gartner.

This article dives into each of the areas we see as crucial for CFOs to address in 2022, and how they are doing this.

Supply chain issues

Straight off the back of the pandemic, businesses have struggled to return to expected supply and demand. Customer demands have changed, but we are also now seeing a greater impact on supply chains from geo-political tensions (e.g. the invasion of Ukraine), staffing shortages, and China’s stringent lockdowns.

Chief financial officers and FP&A leaders have long championed just-in-time and lean business initiatives, but may have been bluntly reminded of the value in having larger inventories and greater resilience to supply chain delays.

There’s no easy answer to resolve the supply chain crisis, but financial leaders may do well to reassess risks to their supply chain and increase inventory in higher risk areas. This change comes at a time when we are seeing inflation rise globally, further supporting the wisdom of stocking inventories higher and sooner.

As businesses place more importance on supply chain relationships, to encourage timely deliveries and commitments to maintain supply levels, businesses may also look to supply chain finance as a way of supporting supply chain partners and strengthening these relationships.

Budget and forecasting

Following on from the impact of supply chain issues, most CFOs would agree that financial planning needs to be more flexible and agile in the 2020s. A fact shown up by the pandemic and tested by ongoing supply chain challenges.

Business leaders across the C-suite look to the finance function of the business to provide insight and guidance for better business decision making. Businesses need to prioritize and adapt spend more fluidly if they are to remain competitive.

Finance teams will need to improve collaboration, through technology and process change, to support the growing need for holistic cash forecasting – bringing together cash flow insight from accounts receivable (AR) and accounts payable (AP) as one.

Without doubt, these changes will require new technological solutions and the skills to wield them. CFOs may need to consider the cost/benefit case for hiring, managing, and retaining skills alongside technology licenses versus the opportunity to quickly ramp up AR and AP automation and forecasting through managed services and business process outsourcing.

Furthermore, cash flow uncertainty will always exist beyond the projections of even the best holistic cash forecasting solutions. CFOs may do well to look at service providers who can guarantee business outcomes such as shorter, even fixed, days sales outstanding (DSO) and longer days payable outstanding (DPO) – supported through financial service offerings like Managed Accounts Receivable and Supply Chain Finance.

Staffing

The great resignation has taken its toll on businesses across the globe. Some reports suggest that as much as 44% of US workers are looking for new jobs. However, that’s only half of the story. The biggest challenge faced by businesses is the lack of applicants for roles; the UK had approximately 1.5 openings for every unemployed person in January 2022.

Recruiting to address skills gaps is more expensive, due to a shortage of candidates for openings, and may require changes to the business environment such as an allowance for remote work and more flexible hours.

Finance teams and finance leaders are being called on to do more with less – providing greater insight into cash flow and more accurate projections – despite staffing challenges and increased unpredictability in markets.

However, hope is in sight. As businesses learn to have a greater acceptance of remote working, traditional objections to business process outsourcing (BPO) seem less relevant. This opens the doors to consider strategically outsourced services from expert partners, who can scale up and down more quickly and without the overheads of employing staff to fill these roles.

Technology

The digital transformation and automation of financial processes is happening at a rate faster than CFOs predicted. According to a recent Accenture survey of CFOs, 60% of traditional finance tasks are now automated, which is up from 34% in 2018. Looking back to Accenture’s previous CFO survey in 2018, it was expected that just 45% of finance tasks would be automated by 2021.

According to a recent Gartner report into the Top Priorities for Financial Leaders in 2022, CFOs should be looking at hyperautomation next; combining robotic process automation (RPA) with machine learning, to improve multiple end-to-end processes by combining different technologies for process improvements. You can find hyperautomation at work, using artificial intelligence to streamline various aspects of the Source-to-Pay process, in Corcentric’s Source-to-Pay solution.

Through the digitization of content and communications and digitalization of business processes, businesses are able to optimize and streamline workflows and do more with less; improving performance and driving down operating costs. Furthermore, digital frameworks provide real-time visibility of status – enabling businesses to respond more quickly to situations, becoming more agile and adaptable to market opportunities and customer demands.

Another insight from the Gartner report mentioned earlier, was that more than 80% of CFOs expect to increase their time-spend on advanced analytic technologies and tools that the finance function can use to provide forward-looking and predictive insights to the business.

Analytic technologies for finance fall into two main camps, both relevant to CFOs:

• • External analytics – providing a better understanding of pricing performance, competition, customer demand and market factors
  • Internal analytics – providing insight into cash position, holistic cash forecasting, asset performance and productivity

CFOs should also consider the capacity of technology to enhance customer experience, as well as improve workforce performance and experience, supporting the skills gaps from the great resignation.

With such a strong focus on digital investment for process digitalization, CFOs need to invest in digital competencies to utilise and generate value from technology investment. In a candidates’ market this presents yet another recruitment challenge.

Perhaps these combined pressures are why 85% of companies are engaging or plan to engage a managed service provider to guide their efforts – according to a a recent study conducted by Forrester Consulting, on behalf of Corcentric.

CFOs may well face a year or more of unprecedented supply chain uncertainty, staffing challenges and technology investment, but the opportunities to drive efficiency and performance improvement through investment in people, process and technology to meet these challenges make it a very exciting time indeed.

Download the study The Future of Finance: 360-Degree Cash Flow Visibility and Control to find out more.

Get in touch with Corcentric today. We’ll give you the big picture.