What a Culture of Cash Flow Performance Looks Like in Action

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It's an understatement, but 2020 changed everything for businesses and cash and continued to evolve throughout 2021. Early in the COVID-19 crisis, McKinsey recognized that the pandemic presented companies with “an opportunity to build momentum toward cash excellence." It predicted that “organizations that seize the opportunity will be more competitive, while those that let the moment pass will find themselves on the sidelines again when the next crisis hits."

That prediction begs two questions. First, what is cash excellence? According to McKinsey, it’s “a set of best practices that enable prudent cash and liquidity management.” A key piece is creating a company culture of cash flow performance. The second question: What progress have companies made in implementing this culture in the year since McKinsey recommended it?

Considering the latter question, let’s see what that culture looks like in a best-case scenario.

A Cash Culture That Looks and Feels Different

Companies stuck in a pre-pandemic mindset might still buy into the notion that cash management is the finance department’s problem, but today’s competitors know better. McKinsey notes that “a cash-focused organization overcomes this misconception and ensures that business and finance share ownership of cash performance.” Here’s how they do it.

  • Management talks the talk: Everyone in a management position, from executives to team leaders, routinely and openly talks about the importance of establishing and maintaining a free cash flow positive state. It’s discussed in group meetings and one-on-one conversations so that employees connect what they do in their teams and jobs to cash flow performance. Management also measures and encourages activities that strengthen cash flow.
  • Employees are cash mindful: Because management has explained it, employees understand that free cash flow positive means the company can invest in things that make their jobs easier and more rewarding, whether it’s hiring more employees and recruiting higher caliber talent, or putting money toward better systems and more marketing outreach. They have an incentive to be cash mindful when they realize it’s not just about penny-pinching.
  • Systems create visibility: When it comes to doing their jobs, employees use integrated systems that display the real-time information they need to make decisions. These systems also help them time their everyday actions to improve cash flow rather than hinder it.
  • Structural cash levers are optimized: Within the finance organization, the push and pull of accounts receivable and accounts payable drives toward the same goal: Your collections efforts are generating cash faster than you’re paying your vendors.
  • Stronger relationships are the rule, not the exception: Whether it’s the relationship between accounts receivable and sales, or the one between operations and accounts payable, everyone inside the company is in sync thanks to better data visibility, more connectivity to colleagues, and a clearly defined culture. This congruity extends to external relationships on both sides of the ledger: customers and vendors.

Now It’s Your Turn

There’s no reason why your company can’t instill this type of cash flow performance culture. Contact Tesorio today to learn how to make it happen.