I had the fun opportunity to sit down with Tesorio and talk about one of my favorite topics - cash. As former CFO of Oracle, I’ve had my fair share of cash management and optimization exercises and truly understand the power it can provide to your business, but also to the finance organization as a key stakeholder within the business.

During our discussion in the video and write-up below, I cover the following topics

• What is cash flow performance?
• Why does cash flow performance matter?
• Why do CFOs need to focus on cash flow performance?
• How can finance teams collaborate on cash flow performance?
• What role does cash flow play in running a business?
• What business units care about cash flow performance?
• What should you look for in a cash flow performance tool?

What is cash flow performance?

Cash flow performance is the ability to manage, predict, and collect cash. Within cash flow performance, there are four main levers:

• collecting money
• managing payables
• interacting with foreign exchange
• forecasting cash

Predicting cash flow with high accuracy helps companies deploy capital more effectively. Optimal cash flow performance also helps companies grow more quickly and more sustainably.

Why does cash flow performance matter?

Cash flow performance matters for every single company – regardless of whether they are a large, profitable company, backed by private equity - or, supported by venture capital. Here are some common examples of how cash flow performance affects different types of companies and any future investments.

• Let’s say a large, profitable public company is considering a capital investment or an acquisition. Its hurdle rate for new investments is likely close to 11% but could be as high as 15%. When evaluating investments, it needs to exceed that hurdle rate. That’s the cost of capital and what its cash is worth.
  

• Same situation, different company: Let’s look at a private-equity-backed company. In this case, the business will typically have a higher cost of capital than the profitable public company in the last example. Here, it’s likely looking to make a 20% rate of return on any capital investments.
  

• For venture-capital-backed companies, the cost of capital is even higher. For this scenario, it can expect closer to a 30% rate of return on investments.

Why do CFOs need to focus on cash flow performance?

The short answer is that cash flow performance is like finding free capital for a higher return. The longer answer is that there are two ways a CFO can look at cash flow performance.

1. The first is as a one-time improvement in cash flow. If you can collect money faster, pay it later, or time your capital expenditures.
2. The second way is even more enticing. If you can permanently improve your collections, such as moving your days sales outstanding (DSO) from 80 days to 60 days (how Couchbase cut DSO 10 days), then cash flow performance is like free money. It’s free capital where your investors can make a higher return.

How can finance teams collaborate on cash flow performance?

Automation within the enterprise started over 40 years ago with enterprise resource planning (ERP) tools, which combined manufacturing, finance, and logistics. Over the years, different kinds of automation tools have spread to sales, human resources, and other parts of the business. Yet, there’s never been a series of professional tools for cash flow performance management until Tesorio.

Today, credit and collections, payables, foreign exchange, and cash flow forecasting teams have a purpose-built cash flow tool to help them collaborate and optimize their work, rather than having to rely on using Excel or Word (see it in action).

What role does cash flow play in running a business?

Most companies run their business on GAAP accounting because it’s how they report publicly and report to their board. Their internal management reporting is also based on GAAP and accrual accounting. However, CFOs need to run the business for cash flow to truly optimize cash flow performance.

A smaller group of people in finance take these accrual accounting numbers and convert them into cash flow. However, rather than doing this after the fact (when you can’t do anything about the numbers), Tesorio helps teams optimize cash flow performance every day.

What business units care about cash flow performance?

The benefits of cash flow performance software go well beyond just the finance team. Companies who use cash flow performance to run the finance organization often find that other parts of the organization are often eager to participate.

For example, the customer success team knows if a customer isn’t paying their bill on time, they may be unhappy with the product or service. In a case like this, they’re looking for early warning indicators of a problem.

The sales team also wants to get paid. Many companies only pay out sales commissions when the customer pays. If the customer doesn’t pay, the salesperson can also get docked their commission. Sales teams are invested in timely customer payment. What we find is that once Tesorio is used by the finance team, the customer success and sales teams say, “Hey, I’d like to get access to that information as well.”

Think about it this way: If you could find an extra million, or 10 million, or 50 million for free, what would that mean for your company? That’s what cash flow performance is. Tesorio solves the very important challenge of optimizing cash flow for companies. It’s the best way for any CFO or controller to improve their cash flow performance.

What should you look for in a cash flow performance tool?

At a minimum, look for a cash flow performance tool that includes capabilities such as:

Cash flow forecasting

• Automatic data collection
• Intelligent push-button forecasting

Accounts Receivable Automation

• Predicted payment dates and a sophisticated payment portal
• Vendor management capabilities

Cash flow CRM

• Integrations with common tech stack applications
• Codifies CRM best practices and record-keeping
  

Tesorio’s applications work together to improve your finance team’s cash flow performance by tackling the core pain points related to managing cash flow across different disconnected tools.