Year-end ‘Dash for Cash’ — 7 Steps to Free Up Funds Without Resorting to Tricks

It’s the end of the year, time for New Year’s Resolutions, a little vacation time and Christmas Party hijinks. But the Hackett Group, a business consultant and digital transformation specialist, is cautioning against year-end fiscal shenanigans, where money is shuffled around to make it appear that the company has hit the finish line in full stride.

A new paper from the group lamenting the yearly “dash for cash” argues that you can look for sustainable, healthy ways of freeing up cash at the end of the year without pulling any three-card-monty tricks.

According to the paper on working capital, many companies think it’s too late at the end of a quarter or year to free up significant cash.

“Instead, they resort to tactics that provide a temporary boost in cash,” the authors write, “the two most popular being to delay payments to suppliers and negotiate earlier billing or payments with customers in exchange for discounts.”

But taking these shortcuts to present a healthy balance sheet is a temporary measure, one that doesn’t provide a clear picture of a company’s cash flow, and worse, affects the next quarter.

A recent Spend Matters story focused on working capital management and how it’s reported that $14 trillion in annual spend volume is trapped in global supply chains, and for every $1 billion in revenue, working capital programs can create improvements totaling as much as $70 million.

The Hackett paper on working capital states that adopting some simple, healthy financial “lifestyle” habits is akin to starting a workable exercise routine, rather than sprinting to drop 10 pounds for a special occasion. The authors recommend seven steps that can help companies break out of the cycle. (See the chart below.)

In terms of customer management, the paper recommends that companies focus collections activity on the customer invoices due before the end of the year by segmenting collection efforts and applying strategic collections techniques to specific customers. The paper also recommends companies target resolution efforts at the top-disputed customer invoices, identifying common, root causes that put allow customers to delay payments.

On the supplier side, the authors suggest identifying top invoices due and working with those suppliers on payment terms and opportunities to renegotiate. Also, companies should look for invoices above a defined threshold and ensure those are not paid in advance.

The other three recommendations out of the paper require big-picture thinking, like ensuring that your year-end plans take into account first-quarter needs.

And because nothing gets done that isn’t rewarded, Hackett recommends setting practical targets for all of the above actions, with clear key performance indicators, and then set rewards for achieving those targets. And finally, your company should measure your progress at achieving the year-end results that come from adopting these steps.

Like working out, it’s about discipline, and the authors suggest setting targets and rigorously tracking progress to keep from slipping into old habits. (And because it’s a Hackett report, they also recommend adopting an artificial intelligence solution to help with all of it. And a  recent Spend Matters PRO subscription series also delved into the future of AI and how “category wizards” will one day add strategic muscle to spend management.)

Everything is a mad dash at the end of the year, but these seven steps may help you sidestep the common pitfalls.