Pinnacle: Cash in the time of Covid-19
It is probably fair to say the expression ‘cash is king’ has never resonated more. Business stakeholders are more demanding on cashflow position, and in particular look for more predictability in receipts from clients.
Law firms have used different strategies to manage their finances through these uncertain times, including controlling costs with the government’s furlough scheme, reducing the working week, and reducing non-essential expenditure, including major project activities. These all help to manage costs, but as many projects are capitalised, the real prize is managing cashflow. So, it’s interesting there are no out-of-the-box cashflow forecasting tools available to law firms.
The ability to manage cashflow, and to forecast accurately, relies on up-to-date and reliable information, and this can be supported through improved process automation and integration.Typically credit control teams manage collection activities, and produce forecasts that can be integrated into firm-wide cashflow projections. In order to get clients to prioritise outstanding firm invoices, firms are looking to adopt different strategies in the collection of outstanding receivables, and technology suppliers are looking at ways to assist.
Pinnacle and Intapp have worked with small groups of firms to develop processes to support remote working. These have been rapid to build: working with three US firms, we have developed a finance form and workflow to help improve cashflows. The lawyers are given authority to offer incentives to clients to pay outstanding bills, through either alternative fee arrangements or a reduction in outstanding fees. The approval process for any write-down is managed through the forms and in email, and provides decision makers with client-specific financial information, including on revenue, realisation, and profitability, to support the decision-making process.
McKinsey’s recent report, A road map for post-Covid-19 growth, advocates a mental model of SHAPE for the ‘new normal’, The S stands for startup mindset – acting fast. A stands for accelerate digital, tech, and analytics – getting insights, knowing how things are changing, seeing the recovery. And the E is for ecosystems to drive adaptability. Our work with three firms is a simple example, but they will now have clearer, faster decision-making – and a fair part of the SHAPE mindset.
It seems remote working is here to stay. Firms have generally been able to make staff productive, but there are still too many processes that rely on email, or people being in the same building. It’s not unreasonable to expect the next wave of activity that supports remote working being to build in efficiency through process automation, which at the same time will enforce internal controls and ensure consistency and auditability of each process. For example, cash management solutions are an imminent challenge, filling a gap in the finance department armoury and giving the CFO and treasury team many capabilities, including:
- Automated cashflow forecasting
- Simplification of integration between finance system and the banks, allowing a simple file format to automatically transform into almost any format required to support payments.
- Ensuring compliance with, and managing changes to, mandates
- Improved detection of potentially fraudulent payments.
Cash was, is, and always will be, king. We are working on finding new ways of dealing with an old reality.
This article was taken from Briefing June 2020. Read the full issue here