A Perspective on the Deloitte CFO Survey

The winter and spring Deloitte CFO Surveys reveal some familiar concerns and intriguing insights into how CFOs are managing them. Geopolitical risk continues to be a top of mind issue for Swiss CFOs, and the proportion seeing the level of uncertainty in the economic and financial environment as high ticked-up one point in the spring survey, to 59%. These concerns are natural - with the 100 day milestone for the Trump presidency only just passed, in the midst of Europe’s election super year, and with Brexit negotiations only just beginning, electoral and policy outcomes in major global markets remain unclear.

As an export-led economy Switzerland can benefit strongly from growth in world trade, equally it is vulnerable when uncertainty or protectionism foreshadow a downturn. The likely impacts of “America First” or Brexit remain far from clear and CFOs see significant uncertainty too in some of Switzerland’s other major trading partners, including France and Italy.

The notable concern over the international arena is balanced by more confidence about the performance of the Swiss economy. Domestically the darkest fears about recession following the 2015 exchange rate shock have receded - nine out of ten Swiss CFOs now do not expect a recession at home in the next two years.

The Spring Survey indicates that the unpredictable international business environment may now be casting a shadow over the outlook for cashflow. Though sentiment amongst CFOs is mixed, and the consensus around revenues remains strongly positive, there is also recognition that revenue growth in 2017 may have to be earned through margin erosion. Pressure on margins and prices has risen four places to number three in the list of greatest risks CFOs see to their companies over the twelve month horizon. Confidence about investment has also taken a knock. Despite record low interest rates producing an attractive external financing environment, fewer CFOs now expect replacement and new investment levels to grow in the coming year than was the case in the winter survey.

With global uncertainty dampening the prospects for international growth and expectations for only modest growth at home, it is more important than ever for CFOs to help their businesses deliver maximum value from existing operations. Generally, CFOs appear to feel they have the means in their financial toolkit to work through the uncertainty and remain positive about their ability to enhance operating cashflow over the next twelve months. Doubling-down on costs is re-emphasized by a growing proportion of CFOs who share an expectation that discretionary spend will reduce in the near term.

Working capital management is an area which is debated less often but can be a powerful aid to improving operating cashflow. The day-to-day governance and operating effectiveness of days sales outstanding (DSO) and days purchases outstanding (DPO) policies can be complex and time-consuming. Supervision is more complex when more stakeholders are able to negotiate bespoke payment terms for their individual clients or contracts. With a proliferation of different terms in place upholding compliance can be more expensive, breaches are harder to detect and it becomes more difficult to provide transparency on where collection dates are missed, or where more generous payment opportunities on the purchase side aren’t fully leveraged.

Cash collection targets, a key lever in attempts to boost operating cashflow, are difficult to achieve without effective control over DSO policy and even when the primary DSO KPI is achieved, cash leakage can occur when customers are granted settlement discounts even though they pay outside their agreed early settlement window.

A review of payment terms, on both the sales and purchases sides, can quickly highlight areas which need to be shored up to protect value, spotlight the areas presenting the greatest risk and reveal opportunities for simplification and risk mitigation through payment terms harmonization.

Procure-to-pay and order-to-cash processes are fertile ground for further automation through process robotics. Companies who have successfully introduced robotics, driven by common motives of higher accuracy and lower cost, report some remarkable results including the elimination from their processes of some of their most important quality fails.

In their role as value protector, when margins and cashflows are under pressure, CFOs can find that effective governance and automation of working capital management can be a potent ally for an organization needing to safeguard its liquidity.

We hope that you find these perspectives thought provoking and useful and welcome your contributions to the discussion of the points raised in the CFO survey.