Can finance leaders achieve short-term cost-cutting and still maintain mid-term business priorities?

The on-going economic uncertainty and cost-of-living crisis is without doubt creating huge challenges for both consumers and corporates. As consumers, I suspect the vast majority of people reading this article will be able to relate to a recent report by NielseniQ that confirmed that 72% of UK households fear they will be severely or moderately impacted by the cost of living crisis in the first six months of 2023. 

Consumers have been forced to take drastic cost-cutting measures on the home front to try and weather the storm created by the cost-of-living crisis, often turning to friends and a variety of online sources to obtain tips and advice on ways to reduce household outgoings and find ways to make ends meet.

And then we turn to the corporate version of cost-cutting. Here we find the finance leader that has had to evolve from a "growth-at-all costs" mindset to one that considers current economic dynamics and integrates cost-cutting into their responsibilities. 

During the pandemic, finance and payments leaders were thrust into the corporate spotlight by being called on to ‘keep the show on the road’ by ensuring that millions of pounds of money flowed in and out of their organisations, all from the kitchens and bedrooms of their AR and AP teams. Fast forward to 2023. Once again, finance and payment leaders are being called on to save the day, only now it’s not to ‘keep the show on the road’; it’s ‘show us how to make material savings whilst also protecting our mid-term ambitions’. But how do you cut costs and still support the company’s growth ambitions? This question is what today’s finance leaders are wrestling with.

However, it’s easier said than done. For example, there is a distinct lack of online guidance and advice to tell us how to drive efficiencies in our payments and cash management operations. In any case, it’s about more than just saving money. Key activities can't be ceased or altered to trim overhead for the short-term objective of meeting stakeholders' needs at the potential expense of risking the company's financial health mid-term.

It’s time finance leaders had a helping hand to address this challenge, so here are five tips to help reduce costs and, at the same time, drive new business value across the organisation: 

o   Embrace new collections payment types. I still see an over-reliance on payment cards to take one-off payments from customers, even though this is arguably one of the most expensive ways to do so. The UK’s new Open Banking regulatory changes have resulted in a viable alternative to cards using a near-real-time account-to-account bank transfer. Open banking can help corporates achieve up to a 40% reduction vs. card fees. It’s ideal if you have a customer base that is mobile/online banking savvy. 

o   Reduce the need for time-intensive manual checks when verifying a customer or supplier bank account. This can be done via the new regulatory-driven Confirmation of Payee (CoP) capability, which offers the latest bank account verification innovation. CoP has strong coverage of consumer but also business bank accounts, so there are fewer instances where a manual process is required, freeing up your resource and providing a better, faster experience for suppliers and customers. And it saves you money.

o   Replace costly cheques with digital bank transfers. It’s amazing how many organisations I chat to still make one-off payments to customers using a cheque, for instance, when needing to make a refund. There are much better, secure digital alternatives to sending a cheque that conveniently lower costs for organisations whilst providing a much better customer experience to the recipient of the funds. What’s more, thanks to modern identity and verification techniques, these digital alternatives to cheques work even if you don’t have your customer’s bank account details.

o   Use Open Banking to provide a more efficient way to manage failed Direct Debits. The cost-of-living crisis has resulted in increased failed Direct Debits, the biggest driver for this increase is due to customer’s having insufficient funds in their accounts. Each failed Direct Debit typically costs in the region of £50 to manage and re-present, using Open Banking to collect the payment via an account-to-account transfer can offer a better customer experience and significantly reduce the costs of collection.

o   Embrace real-time visibility of cash. A timely understanding of a company’s cash position is vital for any business, especially in the current uncertain economic climate. Many companies are still logging in to multiple banking portals and relying on spreadsheets to visualise and optimise their cash. This excel-reliance is not only manually intensive but also fraught with risk and error. Now, cloud solutions provide real-time cash visibility and cash management solutions that are relatively quick to implement and offer a lower-cost alternative to traditional Treasury Management Solutions.

The Bottomline: Finance leaders are doing all they can to focus on the financial health and growth of their companies, alongside managing the impacts of the economic uncertainty. With that in mind we’ve boiled it down to three easy steps that might help:

1. Look at the tips above and ask yourself, is this an area we can explore? 

2. Tap into your payments provider for advice and seek support in tools and services to help you achieve your goals quickly.

3. Don’t compromise mid-term priorities for short-term cost savings - implement changes that bring cost savings and incremental value to your business, drive better customer outcomes, and ultimately protect the mid-term priorities.

Of course, not all Finance Heroes wear capes, but if you can implement some or all these initiatives, it might help in doing more to drive successful business outcomes. Heroics indeed.