The 'relationship' between customers and company is at the heart of enterprise value creation. Sales organizations are highly compensated to achieve revenue growth at the best possible margins. What is sometimes lost in the dialogue is the efficiency of the sales process and more obscure are the terms and conditions surrounding the sales event. At the height of the pandemic, sales took the utmost precedent...sometimes at the cost of weaker collection terms or extended credit. Notwithstanding what may be a movement to selling process normalcy in a post-pandemic world, be wary of the customer moving the goalposts on DSO (to the worse). While the sales organization is worrying about ramping up production or services to meet their incentive targets, finance is tasked with good balance sheet governance. Ultimately it's about enterprise value achieved and strength of balance sheet to foster growth. Cash remains king...maintain the vigil.
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Balance Sheet Maintenance: Watch Your Receivables Risk
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As organizations began recovering from the initial shock of the pandemic, the risk to receivables dropped considerably. Government incentives to support hard-hit industries brought slight financial stability, while some geographies began slowly reopening businesses.
Now the risk to receivables remains steady — though still elevated from prepandemic levels. There’s uncertainty about which businesses will survive after government incentives end, and longer-term consumer behavior changes remain unknown.
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