Leading businesses are unable to identify £2.7 billion worth of expenditure every month until after it has already happened, compromising their ability to manage costs and protect liquidity, it has been claimed.
Finance teams in firms with more than 50 employees are struggling to account for a quarter of such expenditure giving them major problems in tracking and managing their outgoings.
Company insolvencies in the first quarter of the year were up 18% year-on-year while the rate of creditors’ voluntary liquidations remains at its highest level since records began in 1960.
At a time where companies are anxiously watching the bottom line, new research reveals that larger businesses have limited visibility and control over where their spend is going, according to new research by payments software company Proactis who say companies report that just half of their spend is pre-approved each month.
Ilija Ugrinic, Commercial Solutions Director of Proactis, said: “One of the most important weapons against company failure is financial control. Not knowing about where your business’ money is being spent until it is too late can make it incredibly difficult to make sound and accurate financial decisions.
“While a quarter of spend in mid-market businesses isn’t known about until after the fact, we also found that another third is identified in real time – leaving finance leaders with advance notice of two fifths of their monthly outgoings. This can create significant complications for cash flow, leaving organisations less able to act with agility to changing pressures. ”
The’ research found that the minority of businesses are able to accurately forecast their cash flow. Less than half have the ability to forecast their cash flow three months in advance, and fewer than one in ten can only forecast a month ahead.
He added: “When businesses lack financial oversight, it reduces their ability to protect their operating profit. And in this current climate, businesses are under even more pressure as they compete and fight for survival.
“These high stakes don’t leave much room for error and demand even greater accuracy when it comes to financial forecasting. But hard graft to protect and build profits needn’t be as much of an uphill climb as it is.
“The solution is to increase spend visibility. By implementing a spend management solution that offers real-time data on spending activities, companies can gain visibility into their spending, identify areas of overspending, and take action to prevent financial black holes.”
A summary of the report is available here