“It’s a really difficult time to be a CFO and think strategically,” OpenEnvoy CEO Matt Tillman told PYMNTS’ Karen Webster. “Lately, it’s been more about, ‘What fires can I put out?’”
Not all that long ago, chief financial officers may have relied on a single banking relationship to manage cash in and cash out, to tap credit lines and to gain insight into their daily cash positions. But what’s taken root more recently is an operating financial infrastructure stitched across a variety of vendors. The cost of that infrastructure has increased over the past several years as CFOs have had to manually manage it across a variety of partners in their treasury groups, their accounts receivable (AR) and accounts payable (AP) functions, too.
“But when a bank goes under, or a couple of banks go under,” said Tillman of the CFOs. “You start thinking, ‘My deposits may be a problem, or my treasury ops are an issue.’ And then you start unwinding that bit, realizing that it’s an issue throughout your credit portfolio or your treasury portfolio. Certain companies handle that well, and other companies — legacy providers — don’t.”
See more: Spreedly CFO on Being Nimble and Capitalizing on Macro Trends
The CFOs’ gaze has extended beyond their own internal operations to view their financial supply chains’ risk too, to understand whether freight financing or trade financing will be available in uncertain times.
Tillman offered up AP solution provider OpenEnvoy’s own experience during the banking crisis as an example of the domino effect. Tillman’s firm, he said, operates a small company with no direct exposure to Silicon Valley Bank (SVB), and the firm was, and is well capitalized. But OpenEnvoy’s HR provider did use SVB, and that created at least some (temporary) uncertainty about what might happen during some fraught days in March.
Against that backdrop, he said, “as a CFO, your team is not just responsible for your own internal change management, you’re now responsible for your vendor’s change management.” When there are hiccups, Tillman added, “if a company cannot access their account, they cannot pay their vendors.” The end result is that the upfront cost of the technology, in terms of fees, may be cheap, but the back-end cost, in terms of working capital and cash flow inefficiencies, can be quite expensive.
Last month’s volatility may be in the rearview mirror, but Tillman remarked that the SVB collapse has left some lasting impact within the tech sector. The cost of capital has become more expensive no matter where you look, and tech sector valuations have been declining.
In the AP space, he said, a standard AP workflow tool still incurs a cost of $14 per invoice processed — and that’s before any payment disputes.
“Finance teams are now looking at capital not just on a cost basis, they’re looking at it on a cost-plus-risk basis,” Tillman said.
Every dollar counts, and reducing operational costs can go a long way toward stretching those dollars. Reducing costs, of course, can be a direct result of automation — but automation becomes harder with so many vendors and software and tech upgrades coming at a constant pace. The AP arena is a huge one, as Tillman noted that, with AP, OpenEnvoy is one of nearly 200 firms.
See also: 12 CFOs on How SVB’s Collapse Transformed the Finance Department
Tillman recounted one example where an OpenEnvoy customer had come to the firm stymied by the fact that they had to evaluate a new AP automation company every 14 months. A typical OpenEnvoy client may have had a payment remittance platform and a vendor management platform in place — essentially creating workflow tools, but without the staff in place to manage those workflows.
The very concept of return on investment (ROI) for new tech deployments has been changing for CFOs, Tillman said. The initial metrics, pre-pandemic, may have revolved around reducing the hour spent on each transaction or unit of inventory. During the pandemic, a significant number of people left the workforce, so the urgency was there to offshore at least some back-office functions. And more recently, he said, the focus of CFOs has been replacing the job functions that cannot be filled, with technology.
Tillman said that the ROI on a tech solution should be 10 times: That’s 10x in hard dollar savings relative to the cost of the solution.
“Let’s say [Open Envoy] charges you $100,000 to get started for an annual contract,” he said, “and that means we need to bring you $1 million in savings, otherwise you shouldn’t do the deal.”
Read more: Mangopay CFO: There’s No Replacement for a Healthy Balance Sheet
The $1 million in hard dollar savings means vendor overbilling is blocked, prevented, not paid … and that decreases the overspend that shows up in cost of goods sold, he explained. Each 1% of gross profit margins can have a significant positive impact on operating income and cash flow.
Looking ahead, he said, CFOs are going to have to focus more on cash flow metrics, and hurdling the cost of capital, because their boards and their investors — the public markets too — are going to do the same. The companies that don’t focus on automation to boost cash flow are going to fade away. The good news is that CFOs can demand better ROI from their vendors.
For the forward-thinking financial executives, Tillman told Webster, “the infrastructure they’ll have to put in place in the current reality will improve the business as whole, while lowering operational costs over time.”
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More