The UC channel has been transitioning from transactional models to build monthly recurring revenue for a number of years. This is cash-hungry exercise that puts huge pressure onto the CFOs cash-flow but as the business reaches tipping point financial stability ensues. But in a post-pandemic economy can CFOs remain relaxed?
The number of registered company insolvencies in May 2023 was 40% higher than in the same month in the previous year and has doubled since the start of the first lockdown (1) . These insolvencies cause a domino effect of bad debt through the small business community.
Coupling this with 26% of businesses reporting a drop in turnover and 35% reporting increases in the prices of goods or services (2) we can start to see the requirement for stringent financial and cash-flow management.
Confidence among CFOs edged lower in the second quarter with higher than expected inflation and a sharp rise in interest rate expectations. In fact CFOs now see tight monetary policy as posing the greatest threat to their business.
CFOs rate credit as being more expensive than at any time since the end of 2008 coupled with availability of credit being harder to access than at any time since 2010.
This leads to an overwhelmingly defensive strategy stance, 55% of CFOs rate reducing costs as strong priority in the next 12 months with 46% looking to increase cash-flow (3).
This reinforces the policy that cash-flow is an overall priority for a business. Working capital and the capital structure must be optimized. CFOs are vital in managing the capital structure and enhancing cash-flow. Getting the optimal mix of debt and equity financing alongside exploring financing alternatives is a must.
But in a period where availability of credit is the hardest it has been since the financial crisis and with rising interest rates what alternatives are available to the CFO?
Traditionally cash has been raised by selling parts of the customer base MRR, leading to a drop in turnover and operating profit as well as eroding long term shareholder value.
Invoice discounting and factoring facilities typically exclude MRR invoices, and even if an option are usually high cost with onerous security requirements.
This is where our CFO customers are using Liquid Subscriptions to accelerate cash from customer MRR; using the current assets of the business to optimise cash-flow without having to enter into expensive credit agreements or selling hard won customers.
The biggest objection we face is that the channel does not want to be seen to be in financial difficulty, our retort is that the customer CFO will take confidence in your strategic decision to ensure their services are never disrupted and always improved via their financially strong service provider.
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1 Source: Insolvency Service Monthly Insolvency Statistics May 2023
2 Source: ONS Business Insights and Impact on the UK Economy
3 Source: Deloitte CFO Survey Q2 2023