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What are Client Financial Management Services?

by | Jun 11, 2020 | Accounting Firm Services

Client Financial Management spans the nitty-gritties of day-to-day cash management (cash-flow management), through to accurate financial statements – for transparency and business health and growth.

The main areas accounting firms and financial managers deal with when it comes to financial management services are:
Debtors and
Financial Statements

The above comprise the key financial management areas. When pulled together through financial management services, the management of each becomes a tool in strategic financial management.

The three-fold approach to financial management practices is an essential component of a business strategy.

It’s not enough to have a business plan, or objectives and goals. Those are all important of course. Essential in fact, but they are aim for static goalposts. What looks good on paper (and works on paper) might not work so well in practice. Ultimate, or long-term, business goals and objectives can only be reached via short and medium-term goals and objectives. What one might call ‘milestones’.

Attaining financial milestones is often far more complicated than business entrepreneurs imagine. This is because business is done in a shifting landscape. The financial strategy defined in a business plan will need to be modified in response to outside factors. These can be market-related, economic (including interest rates), due to technological advances, or from competition. There are many external risks to a business, and these risks are also evolving. None are directly within your control, but your businesses response and change in strategy is within your control. As long as you have cash-flow and capital, and an informed financial management strategy to use those resources – to help you:

  • Protect your business against these kinds of external forces and risks that could lead to insolvency
  • Invest in new tech, stock, capacity (operational and/or skills) when needed (especially when it’s a do or die situation in order to stay competitive)
  • Take advantage of unforeseen opportunities to grow your business (e.g. purchasing wholesale stock available at a cut-price for a limited time / opening up of new markets / faltering competition)
  • Ride out the lean months and survive unforeseen or prolonged negative cash-flow situations.

Managing financial resources to do all of the above, and to be prepared (as far as possible) for any eventuality, is essential for the long-term survival of any business. It requires financial controls and processes to ensure availability of capital whenever it is needed, and it requires informed financial decision-making at every (and any) point.

Cash management is key to ensuring that decision-makers have the right capacity when decisions must be made for the financial health of a business.

Using the right accounting software, cash management tools and cash management expertise, are all key to ensuring that decision-makers have the right information on the financial health of your business when decisions must be made.

Cash Flow Management falls under Client Financial Management Services

Cash-flow calculations are easy. It’s simple formula. What makes the result of applying that formula a good one that speaks for the health of your business and the capacity of your business to grow and thrive requires a bit more application and care.

Even more important is managing cash-flow, in the current reality, in the short to medium term and setting things up for cash-flow management in the long-term to avoid the pitfall of insolvency. Insolvency leads to bankruptcy. It’s a quick process, but it’s a bumpy road you want to try and avoid at all costs. Diligent cash-flow management is the best way to avoid that risk. ‘Brisk’ business is usually not enough.

Cash flow problems are the leading cause of business failure. This is a well-documented fact. What is equally well documented is how easy it is for a business to find itself experiencing cash flow problems.

There are many reasons why a business might find itself suddenly experiencing cash flow problems. These include:

  • Debtors not paying
  • Low sales
  • Low profit margins
  • Holding on to stock
  • Overinvestment in operational capacity – from machinery to infrastructure, IT systems, staff and other overhead-heavy capacity. This can happen when you start off with a big cash injection and build for a long-term operational goal too quickly. If you don’t have cash-flow and capital (or cash-flow to get capital) to tide your business over until your reach the aimed for capacity, you could become insolvent quickly.
  • Expansion – the opposite scenario to the above. You have started off small, but now you need lots of stock. You need to be able to buy that stock, move that stock, and do it before extended negative cashflow outs you at risk of insolvency – and out of business.

However, the most common scenario is when a business starts expanding.

If you are growing your business, careful and very precise cash flow management is crucial. This means using an excellent cash management accounting system, like Xero, and utilising financial management services – even if only for an initial consult at the outset.

There are certain fundamental methods to good cashflow management. Many business owners can do this on their own. However, there’s no doubt that more can benefit from financial management consultancy to set things up or get things in order. This is especially the case when a business needs to expand.

These fundamental cash-flow management methods and techniques include:

  • Prompt invoicing
  • Accurate, error-free billing
  • Incentives for clients and customers to pay promptly (or even early, or partially or fully upfront in some industries and sectors)
  • Dedicated cash-flow monitoring – with one person (in-house) responsible for alerting decision-makers to potential cash-flow problems or opportunities.
  • Cost-cutting measures to save cash. This includes managing loan repayments
  • Credit-lines. Good to have before you need them; to maximise the potential for credit, you’ll up-to-date and accurate financial statements, with independent valuations on inventory.
  • Taking advantage of other bank and financial institution offers – for short or medium-term cash injections with good interest rates.
  • Setting up easy banking and remote access to accounting software (remember – time is money…)
  • Devising strategies to keep money in your business account for as long as possible (e.g. last- minute payments to vendors or taking advantage of early payment incentives – and working out which strategy will benefit you financially the most)
  • Technological tools – specifically accounting software tools. Other IT tools or informed financial decisions on investment in any technology that improves on production, efficiency, quality control, and save time, also impact on cash-flow management.

Cash management can become more in-depth when you start with strategic financial management. The above points are all good baseline actions/strategies for optimal cash-flow management, but if you really want to grow your business, there are many factors to consider. Economic factors that need to be taken into consideration and will affect how you structure your cash-flow strategies, include inflation and deflation. There are numerous other factors that come into play. Expert financial management – from the basics of cash-flow management to strategic management – can help you make the most of opportunities when they arise (or enable you to create opportunity), and also be prepared for economic, market and other threats – as they arise.

One of the most crucial aspects to ongoing strategic management is debtors management.

Debtors Management falls under Client Financial Management Services

Managing your Debtors, so you can pay your Creditors. So that you can pay your employees, stay in business and grow your business:

There are two components to debtor management. The first is ensuring that you get monies owed to you in a timely manner, from your debtors. This ensures that your business can pay your creditors.

The importance of getting due payments ion one time is exaggerated for starts ups and SMME’s . In many respects, the smaller your business, the more vulnerable you are to cash-flow problems from debtors not paying you. You are not chasing invoices to fill your coffers or to increase quarterly profits. You are chasing to either survive or build your business.

Your business’s primary income comes from individual direct sales and/or customer and clients debtors. Depending on the type of business you have, you may be 100% dependant on clients who pay on a weekly, monthly, or otherwise termed time period.

It’s clear that the risk to your business goes up with the amounts of money that each debtor owes, and with the time periods given for payment. Common risks associated with debtors include – debtors:

  • defaulting on payments,
  • paying late, or
  • part-paying while extending credit lines or payment periods against a promise of increased future income

Add to this loss of income (to a greater or lesser degree – but always some loss), from:

  • Negative cash-flow periods – where you have income pending, but may need to pay out for stock, pay employees etc. Negative cash-flow is not a death-knell for your business. However, extended or repeated periods of negative cash-flow drain capital reserves and make your business more vulnerable to the cash-flow problems that can lead to insolvency.
  • Drained capital. Every business needs capital reserves. You need it to tide you through the almost always inevitable ‘rainy days’. You should also have maximised capital reserves, to be able to take advantage of opportunities that can grow your business. Capital is also needed to ensure that when you need to invest to stay competitive, you can. This can happen sooner or later, or at any time. Slow sales? You may need to invest in a targeted marketing drive. Wholesale stock at dirt-cheap prices – on-day-only deal? If only you had the cash…
  • Loss of positive interest on a positive bank balance.
  • Loss through interest on a negative bank balance, late loan repayments or not being able to take advantage of early payment savings.
  • Unable to take full advantage of you creditors early or on-time payment incentives.
  • Not being able to pay employees on time or in full on time…
    Not being able to pay creditors on time or in full on time…
  • Not being able to pay employees or creditors at all!
  • …and various other scenarios that can damage your business, slow growth, taint the reputation of your business, lose you opportunities and capacity. And when worst comes to worst – lead to litigation and/or insolvency…

Debtors management through independent third-party consultation:

Apart from cash management techniques, your accounting form can help you set up a system that red flags high-risk customers and clients. They can help check credit records, reputation and various other aspects of their financial dealings records that are in the public domain. They can also request financial information from your clients – including reviewed or audited financial statements.

An important part of debtors management is evaluating the risk associated with a client who may not have a squeaky-clean pays-on-time record, but who could bring in a huge amount of business.

With the right information at hand, you can now assess how to proceed. How does one accurately predict debtors risk, mitigate it, or structure your relationship with the client in order to protect your business?

Ultimately, debtors management is not an investigation service, though it involves providing assurance for your as a business owner. The aim of debtors management is to ensure that you can pay your creditors. Not only is the health of your business at stake – but this is how economies thrive, and the businesses (and their employees) within them.

Other aspect to debtors management include:

  • Structured billing systems – with auto-invoicing, pricing scales and incentive schemes
  • Debt collection
  • Pre-litigation collection drives
  • Structuring your relationships with your debtors to help them pay you – to help keep them out of trouble, so you can stay out of trouble.

Financial Statements fall under Client Financial Management Services

A cash management cornerstone: ensuring that your financial statements are accurate; that they precisely reflect the health of your business, and provide a solid foundation for informed and strategic cash management.

Accurate financial statements are required for many purposes, and one of the most crucial of these is financial management of your business. However, they are also required for public and shareholder scrutiny, and for investment. Accurate, audited, financials (issued in an Annual Report) inform share prices for listed businesses.

Irrespective of the size of your business, financial statements – reviewed or audited – are fundamental to financial management – and a key service offered by financial managers – along with cash-flow and debtor management.

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Erasmus Pretorius

With over 23 years of unwavering expertise, I am a seasoned Chartered Accountant committed to financial excellence. My journey in the realm of finance has been marked by astute strategic insights, meticulous attention to detail, and an unyielding dedication to precision. Over the years, I’ve navigated the complexities of financial landscapes, providing invaluable counsel to diverse clients. My proficiency extends across auditing, taxation, and financial management, coupled with a profound understanding of regulatory frameworks. As a registered professional, I have consistently upheld the highest standards of integrity and ethics, earning a reputation as a trusted advisor in the dynamic world of finance.