The CFO's guide to best practices in 2024

Through a recent survey of finance professionals, APQC found late payments from customers are among the most common cash flow management challenges facing organizations in 2024. This finding makes sense — delayed customer payments can contribute to a liquidity crunch that prevents an organization from taking advantage of key business opportunities or even simply keeping the lights on.

After reviewing cross-industry cycle times for receiving customer payments, we’ll dig into some of the practices leading organizations follow to bring cash in more quickly. 

At the median, organizations wait 26 calendar days between the time they transmit an invoice and when they receive payment from customers. The slowest organizations (at the 75th percentile) wait 35 days or longer, while the fastest (at the 25th percentile) wait 16 days or fewer.

Cycle times for this measure can vary based on industry. Financial services and banking companies tend to have shorter cycle times, with 15 days at the median and 18 days at the upper end of the spectrum. It won’t be especially helpful to compare yourself to these companies if your industry is industrial products, where the median cycle time for payment is 38 calendar days. Find the organizations that most closely match your own for the most accurate picture of where you stand on this measure.

Get Paid Faster

There are at least three effective strategies that leading organizations use to get faster payment from customers: staying connected to customers and keeping the invoice on their radar, making it easier for customers to pay, and following up with customers who are late to pay.

1. Connect with Customers

It seems trivial, but making sure you have the correct billing contact for your customers and that they understand the payment due dates are two of the best ways to ensure your invoice gets paid as quickly as possible. Provide customers with at least an annual opportunity to update their contact information and send system-generated reminders that their due date is approaching (or already passed) to keep the invoice on their radar.

2. Encourage Electronic Payment

Providing easy payment options for customers — and making those options visible — can also help to drive down your cycle time. While some customers are still paying their invoices with a paper check, even in 2024, many would be willing and would even prefer to pay electronically.

If you provide electronic payment options for customers, review one of your most recent invoices to make sure these options are visible and easy to access — not buried at the back of the invoice in tiny print.   

3. Invest in Your Collections Effort

The term ‘collections’ is often associated with sternly worded letters and damaged credit relationships, but the work of collections is not always punitive. Developing the capability to follow up proactively with late-paying customers helps you to get paid faster, and in many cases, your customer may appreciate knowing that you’re still waiting too. Especially in a business-to-business context, your customer may think they already paid when in fact (whether due to fraud or problems with AP) that payment has fallen through the cracks.

Reaching out also provides an opportunity to work with your customers if they are having difficulty paying. While the profitability of your own company is your highest priority, you may want to offer flexibility if one of your best customers is struggling now. Keeping that customer, in the long run, may be better for your bottom line than aggressively collecting payment at the expense of your business relationship.

Late payments from customers are a challenge for any industry and contribute to liquidity challenges that can be crippling for your business. Staying connected to your customers and making it easier for them to pay will help to bring cash in more quickly. When customers fail to pay on time, following up with a robust collections effort is an important next step, but it’s important not to alienate your most strategic customers today and lose their business in the future.

 

Challenging and chaotic business environments teach us important lessons — if we are willing to learn them. For example, in 2020 the COVID-19 pandemic taught us that humans crave social interaction, parents generally don’t make very good math teachers, and your household should always have an ample stockpile of toilet paper.

But there is one critical lesson from 2020 that seems nearly forgotten already, even in a world of complex financial structures and interest-rate escalation: Cash is king. Amid anxiety about the economy and media headlines about layoffs and bank failures, is your finance organization doing all it can to increase its cash reserves? Benchmarking and tracking your uncollectible balances is one way to ensure you’re keeping a close eye on your cash flow.

Through its Customer Credit and Invoicing Open Standards Benchmarking survey, APQC finds that uncollectible balances — that is, bad debt in the form of payments owed that will never be collected from customers — represent 0.55% of revenue for organizations at the 25th percentile. Organizations at the 75th percentile, meanwhile, have uncollectible balances equal to 0.81% of revenue. 

These percentages may appear small but they add up quickly, especially for larger companies. For example, at $50 million dollars of revenue, the cash reserve difference between 75th and 25th-percentile companies would be $130,000 dollars. At $500 million dollars of revenue, 75th percentile companies lose $1.3 million dollars more than the 25th percentile companies as a result of uncollectible balances. The differences are significant at any level of scale.

Uncollectible Balance Warning Signs

In times of broad economic distress like a recession or global pandemic, it is reasonable to expect that uncollectible balances will creep up across the board. But customers could potentially lose their ability to pay you at any time for a wide variety of reasons. Fortunately, there are at least three things you can do to ensure that uncollectible balances don’t spiral out of control.

1. Benchmark Uncollectible Balances Internally

While APQC frequently recommends benchmarking against peers and competitors, it’s also important to benchmark internally and track your company’s data over time. For example, do you know where you stand on uncollectable balances relative to three months or a year ago? Benchmarking not only reveals the presence of bad debt but can also help you to discover patterns and trends that enable you to make better cash flow decisions.

2. Benchmark Your Revenue-to-Cash Ratio

As you internally benchmark your uncollectible balances, you should also be paying attention to leading indicators like your revenue-to-cash ratio. Ideally, this ratio should be as close as possible to 1:1. If a company reports one million in sales for one month, it should also bring in the same amount (or close to it) in cash in the subsequent period. If the subsequent period’s cash collections are 80% of the prior month’s reported revenue, ask yourself where that gap is coming from. Today’s gap could very well signal tomorrow’s uncollectible balances. 

3. Know Your Customers

A third way to stay on top of uncollectible balances is deceptively simple: Know your customers. A company that does will be well-positioned to know which customers are likely to have challenges paying.

For example, if your company sells component parts to aircraft manufacturers and you know the industry is in a downturn, you should know what’s likely coming and be ready to extend terms, write off that bad debt, or tighten your credit policies as needed.

Bring Cash In the Door

If your uncollectible balances are higher than you’d like them to be, the good news is that there are plenty of proactive, holistic strategies at your disposal. For example:

• Invest time and training into your collections effort. The right people with the right training will know how to stratify and prioritize accounts for collection, how to work with customers, and who might be worthy of extended payment terms.

• Require deposits upfront. Deposit payments give you insight into your customer’s payables, provide immediate cash to your company, and insulate you from a total loss, should your customer not pay the remaining balance.

• Leverage credit holds until your customer pays the existing balance.

• Offer early pay discounts, which incentivize the customer to pay sooner. 

• Provide customer self-service portals, which accelerate the speed at which customers can research and resolve disputes to bring money in more quickly. 

While all of these strategies should be on the table, you should also think carefully about how flexible you’re willing to be for your most important and strategic customers. While you certainly shouldn’t sabotage your own bottom line, keeping a high-value customer might make it worth accepting slower or lower payment for now.

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As the financial landscape of 2024 continues to be shaped by inflationary pressures, geopolitical uncertainties, and a climate of cautious spending, CFOs' roles worldwide are extending far beyond traditional fiscal stewardship. The role now demands a nuanced approach that not only navigates the complexities of financial reporting and management but also embraces innovation and adaptability in the face of unprecedented change.

Central to this context is the imperative of cash flow management, a key principle that underscores the very essence of financial sustainability.

The significance of cash flow management is most pronounced for two distinct categories of businesses, each indicative of divergent trajectories. On the one hand, struggling businesses stumbling on the brink of insolvency in a desperate struggle for survival, where every dollar becomes a lifeline amidst the looming threat of financial despair. On the other hand, expanding enterprises poised for rapid growth constantly need capital infusion to fuel their ambitions.

Illustrating this conflict is the cautionary tale of Atari, a once-trailblazer in the electronic entertainment industry. From its groundbreaking success in the early 1970s to the video game crash of the 80s and its consequent downfall in the early 2000s, Atari's journey is a bitter reminder of the perils of mismanaged cash flows.

Lessons from Atari: Navigating cash flow challenges

Flush with capital through the success of iconic titles like Pong and the Atari 2600 gaming console, the company desired to capitalize on its brand recognition to propel itself into new frontiers in the gaming industry. During the late 1990s and early 2000s, Atari embarked on an ambitious acquisition spree fueled by a fervent desire to expand its market presence. 

However, what began as a strategic maneuver to consolidate its market position soon spiraled into a risky game of financial bluff as the company grappled with the mounting debt burden.

The financing mechanism for Atari's acquisition spree largely revolved around the issuance of convertible bonds, which provided the company with an influx of capital and loaded it with a staggering financial liability. As investor sentiment receded, Atari was trapped in a cycle of debt servicing obligations, constraining its ability to further invest in innovation and adapt to changing market dynamics.

Numerous consequences and subsequent debt resulted from this spending binge. It drained the company's financial reserves, eroded its liquidity cushions, and dwindled investor confidence and shareholder value. Despite efforts to restructure and reposition the company for future growth, the ghost of past financial indiscretions cast a long shadow over Atari's prospects for revival.

The enduring relevance of cash flow management

The demise of Atari serves as a stark reminder of the perils of unchecked expansionism and the pitfalls of financial leverage without adequate cash flow management. As CFOs navigate the treacherous waters of corporate finance in 2024, this cautionary tale looms large as a poignant reminder of the enduring relevance of sound financial management practices in safeguarding against the peculiarities of market volatility and economic uncertainty to ensure long-term sustainability.

Indeed, while an abundance of profitability offers an optimistic view of a business's long-term viability, the true test lies in its ability to generate and sustain positive cash flows. As the pulse of financial health, cash flow will forever serve as a barometer of a company's resilience and agility in navigating the flows of economic tides.

To optimize cash flow dynamics, CFOs must harness the arsenal of tools and technologies to streamline financial operations and enhance efficiency. From leveraging finance automation solutions to expedite month-end close processes to harnessing the power of data analytics for informed decision-making, the quest for accelerated time to cash demands a multifaceted approach that transcends conventional boundaries.

In addition to technological advancements, CFOs must champion a culture of innovation and continuous improvement within their teams. Encouraging collaboration and knowledge sharing, investing in employee training and development, and fostering a curious mindset of experimentation and adaptation are essential components of this approach. Innovation is the key for CFOs to unleash their teams' creative potential. They must let it steer the way toward meaningful change, not only in how cash flow management is approached and executed but also in how it will impact their organizations as a whole.

 

CFOs are pivotal in steering organizations through challenges, capitalizing on opportunities, and leading transformative initiatives. As the backbone of strategic decision-making, the finance function needs to respond effectively to market dynamics and drive operational excellence.

As CFOs navigate industry pressures and competitive dynamics, a well-executed finance transformation program can make organizations agile, responsive, and better equipped to make informed business decisions. The cost of inaction is too high.

CFOs across sectors are presented with a unique opportunity to transform finance functions into proactive engines of growth and profitability. By embracing a strategic mindset, deploying a hybrid talent model, redesigning processes for efficiency and agility, leveraging technology, and ensuring a systematic approach to transformation, CFOs can lead their organizations into a future where the "art of the possible" is realized. 

Transforming finance operations is not just a necessity but a strategic imperative. Here are five approaches CFOs can use to lead business transformation. 

1. Strategic Finance as a Catalyst for Growth

CFOs are positioned to play a key role in facilitating change. When integrated with the broader business, strategic finance functions can ensure transparent and rapid insights, contributing to improved business performance.

Finance functions demonstrating excellence collaborate with business leaders to establish a vision for services, processes, and organizational models. CFOs are essential participants in decision-making processes, playing a key role in identifying suitable markets for entry or exit, evaluating the impact of scenarios on profitability, overseeing the allocation of capital, shaping risk management strategies, executing expense management, and formulating product strategies to facilitate growth.

2. A Strategic Workforce Approach

As technology advances and market shifts unfold, CFOs recognize the need to view the finance function beyond a traditional supporting unit in the back office. Implementing a hybrid talent model, which combines talent from local and global sources, enables CFOs to identify the specific skills required for the organization while adhering to a cost-effective and streamlined approach.

Strategically reallocating efforts from non-value-added activities enables finance teams to apply analytical insights and foster collaborative partnerships. This agile framework enables the finance department to efficiently cater to various levels of the business and expand as required.

3. Process Redesign for Efficiency and Agility

Finance functions often need help with processes that are not well-integrated, limiting their potential to derive value from data. Transformation of processes is vital to enhance simplicity and effectiveness in operational processes, focusing on achieving the best cost outcomes, while also facilitating analytics, insights, and agility for processes that set the standard for excellence.

• Integrating expense management enhances transparency, controllability, and accountability, fostering operational efficiency and hygiene.
• Efficiency is achieved through standardization and automation, enhancing data accuracy, and redirecting staff efforts from production to analyses that contribute to decision-making.
• Utilizing agile scenario planning and analytics facilitates adaptation to unforeseen events and changes, enriching strategic planning throughout annual P&L cycles.

4. Proactive Adoption of Technology

In an era where data plays a central role in all aspects of the operation, CFOs recognize the importance of adopting technology to mitigate challenges associated with complex data landscapes. Enhancements to technology and the shift towards solutions based on cloud computing enable finance organizations to drive internal and external insights.

• Utilize advanced analytics and predictive modeling to gain an understanding of customer behavior, assess risks, and optimize pricing.
• Adopt solutions in cloud computing for flexibility, lower costs of infrastructure, seamless integration with third-party systems, and enhanced collaboration.
• Deploy user-friendly tools for data visualization to enable self-service reporting, minimizing reliance on IT teams and facilitating quicker decision-making.

5. Agile Transformation and Critical Success Factors

Finance transformation initiatives may not always meet expectations due to several factors. CFOs are recommended to adopt a systematic strategy, actively oversee return on investment (ROI), assess the financial operating model, and chart initiatives on a 2x2 matrix evaluating their impact versus complexity.

• A methodical strategy entails prioritizing initiatives by considering a framework that distinguishes between best-in-cost and best-in-class.
• Mapping initiatives on a two-by-two matrix establishes a roadmap with prioritized initiatives for transformation.
• Continuous measurement of progress against expected outcomes is crucial for success. 

The U.S. economy proved itself quite resilient in 2023, delivering strong GDP growth, lower inflation, and steering clear of recession. That’s not to say small and medium-sized enterprises (SMEs) have been sailing in calm waters. Indeed, we faced soaring interest rates, pressure to increase wages, tightened bank lending standards, and other challenges. That said, CFOs are uniquely positioned to see the bigger picture, understand the ins and outs of their companies, and map the best path to success.

Here are six challenges businesses will encounter this year and what actions CFOs should be taking.    

1. Volatility and Resilience as Cornerstones

There’s no denying it, we live in a world where volatility and change are not only constant but expected, and 2024 will be no different with ongoing geopolitical turmoil, including the wars in Ukraine and Gaza as well as strained U.S./China relations. A contentious presidential election is brewing in the U.S. along with political uncertainty in many other parts of the world. And, while we avoided recession in 2023, what should we expect of the U.S. economy in 2024?

During 2024, more than ever, CFOs must take a leading role to ensure their companies’ resilience. Ensure you intimately understand your financial position, identifying, analyzing, and trending the key metrics and indicators underlying the business. Invest in new reporting to address gaps and blind spots.

Tightly manage cash flows, ensuring you can meet debt obligations, pay suppliers, and issue payroll. Complete closings, reporting, and forecasting, including “what-if” scenarios, timely to ensure cross-functional partners can make informed decisions. And proactively manage risks and seize opportunities along the way.

2. The AI Revolution Continues

Artificial intelligence (AI) has been a disruptor for a long time, but recent breakthroughs have placed generative AI at the top of everyone’s mind. Think, for example, ChatGPT. While few of us were talking about ChatGPT coming into 2023, it grew to one million users in only five days and reached 100 million monthly active users within two months of its launch, “making it the fastest-growing consumer application in history.” Leveraging AI to automate existing processes and reporting, leading to faster data analysis, higher quality predictions, and more informed decision-making, could be a game changer for your organization.

While AI and other developing technologies could benefit nearly every part of an organization, CFOs must play an active role in their adoption, use, and governance. Invest time in building your awareness of AI and other emerging technologies. Make experimenting with ChatGPT or similar tools part of your daily routine.

Know the risks of AI, including data bias, privacy, security, data accuracy, and authenticity concerns as well as regulatory compliance challenges. Formally define your organization’s policy regarding AI’s use and revisit this policy over time as your cross-functional team becomes more comfortable with the technology. Develop strategies to upgrade your digital processes, harnessing the benefits of AI and other emerging technologies, considering scalability from the start. And deploy these new technologies responsibly and securely.     

3. Cyber Risk Lurks Around the Corner

A data security breach is one of the CFO’s biggest nightmares, and the bad actors are getting really good at their trade. Malware attacks, especially ransomware attacks, are on the rise. A small company I knew, already tight on cash, fell victim to a cyber fraud that nearly resulted in its insolvency.

As CFOs, we must be vigilant and proactive regarding cyber risk. Document your cybersecurity and related policies. Require multifactor authentication to access company data, encrypt email, and secure email attachments. To protect against ransomware, back up everything. Build organizational awareness of cyber threats via all-employee training and phishing campaigns. Develop disaster recovery and business continuity plans. Leverage a cybersecurity framework (e.g., NIST’s framework) to assess your current approach vs. best practices, identifying and addressing gaps accordingly.

4. The ESG Drumbeat Grows Louder

According to Protiviti’s global finance trends report, environmental, social, and corporate governance (ESG) metrics and measurement were ranked as the top finance priority. The European Union’s Corporate Social Responsibility Directive (CSRD) took effect in early 2023.

The U.S. SEC continues refining its proposal on climate impact reporting requirements. Stakeholder demands, moreover, are forcing private and public companies alike to prioritize ESG-related initiatives and reporting. For example, while recently reviewing a potential new customer’s draft master services agreement, I noted multiple pages outlining their ESG policies and expectations.

As CFOs, even for private SMEs, we need to be proactive regarding ESG. Build your personal ESG awareness and that of your cross-functional partners, especially as it pertains to sustainability and reporting requirements impacting your business. To the extent you are gathering and reporting ESG data, moreover, whether for internal or external purposes, ensure appropriate controls are in place and tested.

5. Regain Control Over the Supply Chain

Many global supply chains have been severely stressed due to the lingering impact of COVID, energy shortfalls, geopolitical tensions, armed conflicts, soaring inflation, extreme weather, and other disruptions. These challenges are still unfolding but, when the dust settles, the global supply chain will surely look very different. 

To strengthen your supply chain, analyze it end to end with a continuous improvement mindset. For example, engage customers in joint demand planning sessions to pressure-test production requirements. Identify critical suppliers and strengthen relationships with each. Implement cycle counting to ensure accurate inventories. Assess your shipping network, holding freight partners accountable for providing reliable, timely, and cost-effective services. And proactively identify cost reduction opportunities.

6. Finance Talent – Help Wanted!

Although the U.S. job market may be softening, there is no relief in sight regarding the ongoing shortage of accounting and finance talent. At the same time, the CEO, board, and cross-functional partners are expecting much more from their CFO. Today’s CFO and their team must have strategic agility, analytical ability, and a business partner mentality.

Beyond the CFO hat itself, today’s CFO, especially the smaller business CFO, may also have accountability for IT, strategy, risk management, M&A, ESG, business transformation initiatives, procurement, and/or operational roles.

It’s a lucky CFO who doesn’t already have a lean team with gaps in knowledge and skills. To that end, audit your current team, identify gaps, and devise a plan to fill any gaps by developing internal staff or hiring new talent. To recruit high-caliber talent, network to create a quality pipeline, offer enticing opportunities, demand a diverse pool of candidates, and “sell” your company during the interview process.

To retain new hires and existing talent alike, create a welcoming culture and invest in your team’s development, providing ongoing feedback, access to upskilling opportunities, and timely advancement. Finally, if needed, augment the internal team with fractional CFO or other outsourcing support.

Billing adjustments are a reality for any business and should be relatively simple to make. However, inefficiencies in your systems, policies, or communication practices can make adjustments take much longer than they need to. A lengthy cycle time for adjustments, in turn, can cause ripple effects for key finance processes such as reporting and forecasting. After looking at cross-industry data on cycle times for adjustments, we’ll provide some strategies for making sure that adjustments don’t transform from a simple task into a driver for enterprise risk.

Adjustments come about for perfectly understandable reasons. In some cases, customers might find that there was a mistake in their billing, or that an order was delivered with defects or missing parts. Other times, sales or an executive might offer a discount to a customer that isn’t communicated to accounts receivable (AR). However they come about, it’s best to resolve adjustments as quickly as possible.  

The cycle time to resolve adjustments measures the cycle time in calendar days from identifying an adjustment to fully resolving and reflecting it in the accounting records. APQC finds that the fastest organizations (those at the 25th percentile) can resolve adjustments in seven days or fewer, while the slowest take three weeks or longer to carry out the same task.

Long Cycle Times Mean More Risk

Organizations that take too long to make adjustments face at least four different types of risk, which only grow in likelihood as cycle times increase for this measure:

1. Not getting paid (or not getting paid the full amount owed) can lead to cash management challenges for a company — especially if the company has already spent resources to deliver the product to the customer.
2. Time is money. Finance teams that take longer to make adjustments won’t have as much time to spend on value-added activities, like producing timely and relevant financial statements. 
3. Delays can also cause problems for reporting. A financial statement for the September quarterly close with numerous outstanding adjustments will not be a reliable guide to your company’s finances — especially if adjustments don’t come until three weeks later.
4. Related, delays can complicate forecasting if FP&A doesn’t hear about adjustments from AR or sales in a timely way. Especially in larger companies, millions of dollars in adjustments that aren’t reported for three weeks or longer can have ripple effects on financial planning, forecasting, and other dependent processes.

Eliminating Adjustment Bottlenecks

A lack of proper documentation and poor communication between key stakeholders are two of the biggest causes of longer cycle times for this measure. It’s important to look across your processes, people, and technology to find and remediate these bottlenecks before they create unnecessary risk for your business.

Process

Documentation is critical for your ability to quickly resolve adjustments. If your sales function offers a discount to a customer — or an executive offers a discount to a client over a working lunch — these agreements need to have concrete documentation behind them. If agreements are merely verbal, it’s going to take some time to investigate and resolve adjustments because signed contracts are going to stand as the official record. Put any agreements to paper and make sure that you have policies for approving adjustments in cases where documentation might be missing.

People

A lack of transparent and timely communication between your sales and finance teams can easily add delays to the adjustment process. Communication between these parties does not need to happen in real-time, but the longer it takes for sales and AR to talk to each other, the longer adjustments will take — which also means it will take longer for FP&A and decision makers to get reliable financial data for activities like forecasting. Work for open lines of communication between sales, AR, and other major stakeholders so that all parties (including the customer) can get on the same page as soon as possible.

Technology

An organization’s technologies and systems also “talk” to each other as data flows from one part of the enterprise to another. An overly complex systems environment can cause challenges for adjustments when (for example) a sales system, inventory system, and AR billing system are all working from different data or data definitions. Not only does standardization become more difficult in these environments, but mistakes become more likely and efficiency becomes harder to attain. Collaborate with your IT function to build a road map for cleaning your data and integrating your systems to the extent possible.

Key Takeaways

A lengthy cycle time for adjustments will increase your organization’s risk for problems with cash flow management, reporting, forecasting, and the ability to compile accurate financial statements. The good news is that these risks are entirely preventable. Airtight policies, communication across functional areas, and integrated systems with common data definitions will all benefit cycle times for this measure — which means more satisfied customers and more time for your team to spend on activities that drive value for the business.

 

Traditionally, CFOs are expected to be beacons of ethical behavior for our cross-functional partners and throughout our organizations. We and our teams of finance and accounting professionals are known for integrity and trust. Professional ethics is in our DNA. Here are eight practical ways CFOs and their teams can inspire trust.

Ways to Inspire Trust

As finance and accounting professionals, we start building our own ethical awareness in the classroom. We solidify this awareness by joining professional organizations that require adherence to their respective ethical codes — for example, the IMA Statement of Ethical Professional Practice and the AICPA Code of Professional Conduct. To maintain our professional certifications, we must abide by these codes and participate in ongoing ethics training.

Over time, once we have built our solid ethical foundation and defined our personal values, we can begin inspiring trust in others in numerous practical ways.

1. Build Relationships

The first step in building trust is building relationships. Get to know your cross-functional partners and the members of your team. Show a genuine interest in their background, hopes, dreams, and goals. Learn about their hobbies. Celebrate their work anniversary and other milestones. And share about yourself with them too.

Whenever you assume a new role or someone joins your team, ensure the onboarding plan prioritizes one-on-one “get to know you” sessions.  

2. Actively Listen

When we are busy juggling multiple deadlines, it can be tempting to block our calendar, close the door, and remain focused on the task at hand. We’ve all been there. For example, the corporate controller stops by our office to give an update on the closing process. We waive them though, in reality, we are still thinking about what we had been working on.

But to inspire trust, we need to be available when our team needs us, and we need to actively listen to what they are saying. Listen without interruption. Paraphrase and repeat what you heard to ensure understanding. And read their body language to ensure verbal and non-verbal cues are aligned.  

3. Always Tell the Truth

As CFOs, we are the arbiters of ethical and effective business practices. To inspire trust, we must always tell the truth, even when — indeed especially when — the truth is not what others want to hear.

Maybe, for example, your CEO publicly announced a significant new product launch before the supply chain team could verify if production was feasible. Unfortunately, the technology is just not there. During the next quarterly call, when asked about the launch, you will need to give a truthful update. Communicate information fairly and objectively. Provide all relevant information. Be clear and concise, whether communicating good news or bad. Admit mistakes vs. bluffing. And, if you don’t know the answer, admit as much.

Honesty truly is the best policy!

4. Earn Respect

We must earn the respect of others through our actions. If, for example, you are invited to participate in a strategic planning session with other cross-functional leaders, but remain silent and disengaged throughout, others will question why you are there.

But if you are highly engaged, leveraging your inquisitive nature, prior experiences, and end-to-end understanding of the organization to drive new thinking, your presence will be deemed invaluable. To inspire trust by earning respect, be prepared, on time, and fully present. Be honest and tactful. And add value! 

5. Meet Commitments

A key aspect of inspiring trust is to meet our commitments. It’s imperative the CFO of a small business struggling to meet its bank loan covenants, for example, submits reports to the bank timely and communicates with their banker consistently, whether business results are good or bad. If they do, their banking partner is more likely to help them manage through short-term challenges. If not, their banker may quickly escalate default proceedings, severely impacting the probability of overcoming difficult times.

When it comes to both workplace and marketplace expectations, only make commitments that you can keep. In short, keep your promises!

6. Honor All People

Part of inspiring trust is celebrating diversity and honoring all people. Take, for example, a global work team, where members come from two or more national or cultural backgrounds. Such teams are inherently diverse in every sense, including ideas, thinking, and solutions. To derive the benefits of diversity and to honor all people, proactively engage all members of your team, ensuring each of their voices are heard. Avoid generalizing, stereotyping, and/or making assumptions. Focus on outcomes, not a team member’s work style or approach. And for globally diverse teams, in particular, respect different time zones and unique customs and holidays.  

7. Take Responsibility

Inspiring trust means “the buck stops here.” You are accountable for your and your team’s decisions and actions. On the other hand, when the team is successful, you must share the credit, whether celebrating small victories along the way with a “shout out” or recognizing the big wins with a formal award ceremony.     

8. Lead by Example

During my career at a Fortune 500 consumer goods company, we were instructed in the company’s leadership model and were accountable to live those core values beginning Day One. To inspire trust, you must “walk the walk,” ensuring your actions reflect the expectations and behaviors expected of the broader organization.

Tone at the top matters. If you expect others to be on time for your meetings, for example, you need to lead by example and arrive on time as well. Actions speak louder than words. As CFO, you can be the beacon of ethical behavior for your organization. But, first, you need to inspire trust in your team and across the organization. 

Financial reporting provides critical business intelligence that helps companies drive investment, secure credit, maintain compliance, and more. While the financial reporting process can be complex, leading companies still find ways to make the process seamless and cost-effective. APQC has found that some companies can carry out reporting at less than one-fifth of the cost of some of their peers and competitors. After breaking down cross-industry data on the costs of reporting, we’ll review the strategies that these top performers use to keep their costs lower.

The cost of financial reporting includes the costs involved with preparing balance sheets, income statements, cash flow statements, and statements of shareholders’ equity. The total cost is the sum of any outsourced, overhead, personnel, and system costs associated with the process. Calculating the measure per $1,000 revenue allows an organization to benchmark itself against peers and competitors of different sizes. 

We have found that there is a clear sense of top and bottom performance for this measure. Top performers (organizations at the 25th percentile) spend only $0.19 or less per $1,000 of revenue on financial reporting, while organizations at the median spend more than twice that amount at $0.40. Bottom performers (organizations at the 75th percentile) spend a dollar or more for every $1,000 of revenue — more than five times what top performers spend.

The wide gap between top and bottom performers means that many organizations have an opportunity to achieve significant savings when it comes to financial reporting. For example, an organization with $1 billion in annual revenue could potentially save up to $600,000 by moving from the 75th percentile to the median range of performance.

Optimizing the Cost of Financial Reporting

There are at least three strategies you can follow to keep costs lower for financial reporting.

1. Reduce Manual Steps in the Process

Labor is one of the biggest drivers of cost for any process, and financial reporting is no exception. Higher labor costs for this process are often a product of the hours that reporting teams spend manually pulling, cleaning, and manipulating financial data between disconnected systems. 

In addition to increasing the risk of errors and the need for rework, highly manual processes simply take longer — which means the labor costs associated with the process will be higher. Work to automate and integrate your systems as much as possible to reduce manual touchpoints in the process.

2. Train Your People

The reporting process has a lot of moving parts — especially in large and globally distributed organizations. Each team involved with the process needs to have a clear understanding of where to pull the data used for reporting (and from which systems), where to send it, when it is due, how it needs to be formatted, and so on. Standardize the process as much as you can and create resources like checklists that outline the relevant steps as clearly as possible. Process documentation and training guides help to minimize the amount of time that staff spend guessing about what they’re supposed to do and help to reduce the need for rework, both of which will help to keep costs lower. 

3. Know Your Audience

Typical stakeholders for reporting include a diverse range of stakeholders: Board members, employees, investors, creditors, the public, and the U.S. Federal Government among others. The length and content of your reporting are going to vary based on which of these stakeholders you address.

To avoid the need for rework, extended explanations, or penalties for being out of compliance, make sure your team knows exactly what needs to be delivered to each reporting audience. Some requirements, like those for the U.S. Securities and Exchange Commission, are highly formalized and relatively easy to find. Reporting requirements for your board might feel more nebulous and take time to draw out through a series of conversations. Build good working relationships across the enterprise, take the time to learn what each audience needs, and tailor your reporting accordingly. 

Financial reporting provides critical business intelligence for a wide range of different stakeholders. However, the importance and complexity of financial reporting do not prevent you from crafting a cost-effective reporting process. Leading organizations keep costs lower by working to reduce manual steps in the process, ensuring that each member of the team knows how to carry out their role in reporting, and learning the unique reporting requirements of different audiences.