For those of you who work in procurement, the supply chain, with service contractors and/or accounts payable of large organizations, have you ever been asked the following:
- Your supplier, service contractor or other vendor has requested you pay them earlier than required as per your agreed terms and conditions? Maybe the basis for their request is they are a smaller private company and cash flow is limited?
- Have you ever received a complaint from your supplier, service contractor or other vendor that your company is slow to pay, yet you know your payment terms are well within the average for your industry peers?
- Your supplier, service contractor or other vendor has told you that they would take on more of your business, BUT their working capital is too tight and your payment terms and conditions are just too long.
This situation is happening more and more frequently. Whether it’s a request to pay early, a general complaint, or outright refusal to take on more business because of your practices, it’s stressful for your accounts payable team, your procurement, your supply chain representatives, and for the organization making requests or turning down business. Rather than getting frustrated (which is very understandable given the circumstances) and potentially losing future opportunities or damaging the current relationship, how about a novel suggestion that costs nothing, requires minimal time and effort, and possibly could prove to be extremely effective in improving the situation in the future, along with your relationship with the supplier and/or service contractor?
What is it? If they don’t have it already, offer to introduce them to a chief financial officer (CFO) services firm specializing in operational finance, cash management and cash forecasting for small to medium private companies in your industry. How to find out without asking? Most companies list their officers on their website; see if they have a CFO on the list. If they don’t, consider offering to introduce them to an established CFO services provider. Why? Because you want them to have access to experienced financial leadership that can help them improve and build their financial management, so they are more agile and resilient navigating these challenging business environments. You and your company rely on them and want them to flourish.
Maybe you don’t feel comfortable with this suggestion because CFO services are outside your core. That’s okay. Why not ask your financial management team (they are business partners) to help you put together a list of three reputable and experienced CFO companies that offer fractional CFO services to share with your vendors as a potential resource? It invites an opportunity for them to collaborate with you to explore ways to eliminate a headache and hit a home run for their company (the CFO companies may also benefit from being introduced to a prospective client).
How do you present this? Perhaps your conversation might go something like, “In our business we come across a lot of professional services firms that assist companies like yours. Many companies similar to yours outsource CFO services. Many of these CFO firms offer free initial consultations and may potentially result in creative ways to shorten your cash business cycle, speed up your collections or help you with the working capital so we can do more business. Can I send you three contacts and/or schedule a coffee or a Zoom to introduce you? You can take it from there. You will need to perform your own due diligence and evaluate them on your own.” While a bit indirect, it’s generally well received and appreciated over a more direct approach. Finance is one of those topics that can be sensitive for some people and for that reason an indirect approach is preferred. A good CFO can take the lead from there.
There actually may be a fairly simple solution to a common problem and it speaks volumes about how much you do care about the supplier, contractor or vendor, and demonstrates to them that you really do value the relationship. Likewise, you are creating goodwill with professional firms you might not otherwise come in contact with.
For those in procurement and the supply chain, you might also benefit in developing a relationship with industry experts who have local or domestic networks with small and middle market oil field and drilling services, midstream and infrastructure, equipment, engineering and construction companies that you don’t already know. Surprisingly, many of these private companies don’t advertise and have been operating for years via small, closed networks of word-of-mouth referrals.
The Energy CFO team has a great deal of experience helping energy product and service companies with improving their operational finance processes, cash management practices, planning and cash forecasting. These are essential to running a profitable and competitive business, and something you want for your suppliers and service contractors… a rising tide lifts all boats.
Owners and executives come to us for help with liquidity issues and for a host of other reasons like the owners need someone to help with finance so they can shift their attention to sales or operations, they may feel something is off in their business but not sure what “it” is, or the leadership does not feel they are getting relevant and impactful information that are actionable or aid in decision making. These are all common “growing pains” we help people with.
For example, we helped a large family-owned pipeline construction and maintenance company with more than 1,000 employees increase its working capital and improve its cash management and receivables practices, in order to eliminate situations where the company was getting squeezed paying independent contractors and other vendors before it was getting paid by its customers on infrastructure projects. This is a common situation that can quickly strain any company’s liquidity.
In addition, we rebuilt their excel pricing model and updated two-year-old cost data to close the gap on project losses and related cash shortfalls, improve the accuracy of new project’s profitability, and make it easier for accountants to update their cost structure more frequently. As a result, today the company is more agile and resilient as a result of the changes and tools we introduced.
We also recently helped an upstream services firm encountering growth resistance points and frustrated with an inability to make traction. We quickly jumped in with a plan to first get a handle on cash since they need cash to fund growth plans. We introduced the 13-week cash flow to help the controller and leadership accurately predict their cash sources and cash uses over the next 90 days. A 13-week cash flow is a tool many companies use to facilitate cash planning discussions with their leadership and anticipate shortfalls in cash flow from operations and so they can take corrective actions to mitigate pressure in advance (rather than having to react unexpectedly and disrupt operations).
We also built a budget from the ground up (something new for them) and prepared a pro forma P&L statement and balance sheet in a matter of days. With the improved accuracy and greater financial visibility stemming from their improved financial forecasting capabilities, we identified savings of approximately 2.5 percent of budgeted sales for owners that could be redeployed to meet their 2023 growth targets. These new tools along with the improved accuracy in cash and financial forecasting, will help put them on the path to overcoming their resistance points and help improve decision making.
Paula Waggoner-Aguilar is an experienced energy CFO, business controller, board advisor, and a CPA. She is the founder and Managing CFO for The Energy CFO and has received numerous awards for her work, including Best CFO Private Companies from the San Antonio Business Journal and a Women’s Business Award from the National Association of Women Business Owners (NAWBO). She is also the founding president of the Women’s Energy Network South Texas Chapter.
Prior to becoming an entrepreneur, Waggoner-Aguilar worked as a senior planning, finance and accounting executive for Lewis Energy Group, Buckeye Partners, BHP Billiton Petroleum and Suez Energy LNG North America. She started her career in the 1990s working in the oilfield as an internal auditor in Latin America for Dresser Industries.
The Energy CFO is a CFO services firm that specializes in helping private companies and family enterprises involved in all aspects of the energy value chain. Its CFO team understands the unique challenges businesses in this industry face and is committed to providing tailored solutions designed to take companies to the next level. The Energy CFO is woman majority owned and will be celebrating its 10th year in business in April 2023. The company always offers a free initial consultation and affordable fractional CFO services. www.theenergycfo.com
Oil and gas operations are commonly found in remote locations far from company headquarters. Now, it's possible to monitor pump operations, collate and analyze seismic data, and track employees around the world from almost anywhere. Whether employees are in the office or in the field, the internet and related applications enable a greater multidirectional flow of information – and control – than ever before.