Six Predictions Impacting CFOs in 2023
The role of the CFO has become increasingly complex in 2023 as organizations grapple with a more complex set of challenges, including high inflation, FX volatility, a rising opportunity cost of cash, and a need to extract costs from the organization to improve EBITDA. Based on our work with CFOs and their teams to drive efficiency and data-driven financial decisions, we believe these six predictions just might come true in 2023:
1. CFOs will resolve currency headwinds and volatility
2022 saw a perfect storm of currency headwinds – for USD-reporting entities – and unprecedented FX volatility, resulting in significant impacts to balance sheet value, income statements and cash flow. Most CFOs had to restate revenue and earnings guidance multiple times throughout the year as headwinds (or tailwinds for non-USD companies) impacted the top and bottom of income statements. Other finance leaders chose to report on a constant currency basis, effectively kicking the ‘currency can’ down the road. The issue now is that the USD is still high, meaning that the real impacts to financial KPIs will be felt more acutely in the opening quarters of 2023.
CFOs are already seeking analytics to help them quantify FX risk more precisely and reduce hedging costs to protect cash flow, earnings and balance sheet value. 2023 is more certainly the year for currency analytics and data-driven FX decisions.
2. CFOs will finally build reliable cash forecasts beyond 30 days
The art of forecasting has adapted since the pandemic, when CFOs continually monitored how many days of liquidity they had left. Treasury and FP&A teams now produce multiple versions of forecasts with higher confidence intervals. Previously these would be disparate processes in separate systems – often a treasury management system vs. an ERP or budgeting tool (or both). 2023 will see a convergence of forecasting practices and liquidity planning, culminating in more precise free cash flow projections and flexible what-if scenarios.
This new practice of liquidity planning gives CFOs an actionable forecast, optimizing liquidity decisions based on a full integration of investment, borrowing, and working capital data.
The key to better forecasting and liquidity planning in 2023 is data, which will be delivered by APIs and improved with artificial intelligence. Research from IDC revealed that 90% of finance leaders have already or plan to incorporate APIs into their financial technology stack, to unify enterprise data and free resources for CFOs to analyze forecasts rather than spend time and energy composing them.
2023 should be the year where CFOs solve forecasting and planning to improve financial resilience.
3. CFOs will invest in DPO and DSO programs to unlock cash flow
Cash has always been king, yet the value of cash increased in 2022 with interest rates rising in most economies worldwide. With the uncertainty of a recession at the top of mind, CFOs are recomposing balance sheets to improve EBITDA and build cash reserves, amongst other value-focused KPIs.
An underutilized tool is the cash conversion cycle. Most organizations have not monetized their supply chain with procurement teams and treasurers talking different languages about paying on time versus using payables as a source of cash performance. While there are multiple schools of thought – pay early and earn discounts that reduce cost of goods sold OR work with funders to pay suppliers early and pay those funders back later to increase DPO – it is undisputed that paying on time is a missed opportunity for CFOs. The opportunity cost of paying on time increases with every Fed rate hike, a continual reminder to leverage the supply chain to unlock cash flow.
Receivables financing offers similar opportunities for cash-seeking CFOs. While financing receivables via asset sales was historically considered to be only a last resort to cure financial hardship, over the last decade many sectors – such as the auto industry – uncovered value in accelerating cash flow. More recently, loan-based receivables financing programs are being implemented that leverage the strength of the receiver’s balance sheet. For those setting up programs anew, not having to factor (i.e. sell) invoices can be an attractive proposition.
Fortunately in 2023, CFOs have more choices to empower their teams to unlock free cash flow with their payables and receivables.
4. Finance will move from daily to hourly with greater, real-time decisioning
2022 saw an increase in instant and real-time data availability, including banks offering APIs with on-demand bank reporting alongside access to instant payment networks in over 70 countries globally. The move to real-time will continue in 2023, as organizations find value in having full visibility of an organization’s cash and liquidity constantly throughout each day. Finance teams, armed with real-time cash and liquidity views, can make instant investing, borrowing, hedging, and working capital decisions, knowing the optimal levers to pull to take advantage of increased investment yield, decreased borrowing costs, and better cash conversion opportunities.
Further, the CFO that can plan liquidity in real-time can also improve protection from inflation and currency volatility, translating to bottom line improvements. In 2023, incremental improvements will be rewarded by investors who have transitioned their priorities to EBITDA and cash flow generation. The missing ingredient has been the availability of intra-day liquidity – particularly investing and borrowing. Even today there is no invest by-the-hour option in the market – although there is little doubt that advancements are being made by innovating FinTechs who have lived as traders and recognize the opportunities to deliver differentiated value to their former CFO clients.
5. Blockchain will become a technology choice as Crypto falters
The last few months of 2022 have seen unexpected volatility and loss of confidence in cryptocurrency markets. This skepticism of digital currencies, especially by mainstream finance, will continue into 2023. This is not a bold prediction. However, the underlying blockchain technology that supports most cryptocurrencies still shows promise in delivering practical applications for banks and corporate CIOs. Blockchain, or distributed ledger technology, remains very much in its innovative phase, but as ‘useful’ use cases continue to be developed and tested, there is a growing acceptance in the financial community that an environmentally conscious deployment of blockchain can deliver greater security, simplified data sharing, improved compliance and cost reductions over legacy tech stack processes.
2023 may see blockchains move towards early adoption, the second phase of market maturity, according to “Crossing the Chasm” by Geoffrey Moore. There are opportunities yet to be developed as this technology is relatively untested, and pent up investment dollars earmarked for new innovation are stowed in highly scrutinized vaults.
6. ChatGPT will change how we use software
ChatGPT has become a popular generative artificial intelligence (AI) app, in part because of a $10B partnership with Microsoft. ChatGPT is well known for its natural language processing chatbot abilities that answer any question, including examples such as passing exams and arguing court cases. Yet the real opportunity for ChatGPT and generative AI is to change the way we interact with online software applications, including online search and business applications like ERP and treasury management systems (TMS).
For example, in treasury, we might ask “how much cash do I have” or “what explains the forecast variance in our Canadian sub last week” – and instead of opening menus and reports by clicking a mouse, we will simply ask the software what we want to know, either typed or by voice. Most providers are already testing this capability on their treasury apps, so it will not be long before our treasury software is ready for ChatGPT.
Whether each of these predictions come to fruition, the movement towards smarter, data-driven decisions supported by more intelligent software is a continuous journey through 2023. As CFOs prioritize financial resilience, alongside the need to generate cash and improved EPS, emerging practices will continue to drive innovation and new ways of unlocking efficiency and effectiveness.