The CFO needs to play a central part in planning investments, writes director Lars Paredes, PA Consulting Group, in a comment in Økonomisk Ugebrev’s CFO newsletter. Only by planning investments carefully, the liquidity will increase, according to Lars, and the CFO can, with simple steps and based on his knowledge and experience create significant results in regards to controlling liquidity.
“Companies need to control the overall invested capital in order to get as much return on investment as possible as well as freeing up liquidity. Experience shows that optimising invested capital is one of the few areas left that contributes to increase liquidity without having to organise large restructurings. With relatively few means, the CFO can help freeing up significant liquidity,” says Lars.
Freeing up liquidity is depending on better investment planning and to making the most of the company’s assets. However, far too often, the scope of planning and investment is not aligned. The CFO must play a more active part in the planning phase and should have a voice in deciding on what investments should be made. This requires a clear distribution of roles and responsibility. Optimising work capital can be done in three relatively simple business processes: Purchase-to-pay, forecast-to-fulfill order-to-cash and by optimising liquidity by increasing the stock turnover, reducing DSO and increasing DPO.
“The CFO can and should drive this process and in this way ensure that liquidity is being streamlined,” says Lars.
Lars Paredes is business transformation expert at PA Consulting Group
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