CFOs’ Top Concerns in Accounts Receivable: What Matters to the CFO? (Deluxe)

Announcer  00:04

Welcome to the Treasury Update Podcast presented by Strategic Treasurer, your source for interesting treasury news, analysis, and insights in your car, at the gym, or wherever you decide to tune in.

Craig Jeffery  00:18

Welcome to the Treasury Update Podcast. This is Craig Jeffery, your host today, our episode is what matters to the CFO, about accounts receivable. I’m joined with Chip Zint, who’s the CFO of Deluxe. Chip, welcome to the Treasury Update Podcast.

Chip Zint  00:32

Thank you. Good morning.

Craig Jeffery  00:33

We have, we have a lot to talk about, and one of them is thinking about the objectives for accounts receivable. You know, as CFO, you know, what do you think about in terms of goals? What do you want to achieve with your AR group?

Chip Zint  00:49

Yeah, I mean, look, efficiency within working capital is just so critical. So I could rattle off all kinds of metrics, and I know we’ll get into it as the conversation goes on. But top of mind for me, you know, I think of DSO. Last year, I was at 31 days in my DSO, which is a nice place to be. But how can I even make that better? I think about efficient and timely cash application, and really mostly so I can avoid bad debt expense and show up well to our customers, there’s nothing worse than calling a customer and telling them that they owe us money that they’ve already paid that we haven’t applied appropriately. So everything around efficiency, how we apply the cash manage our DSO, it’s so critical to free cash flow, which will be a key topic as we talk through the dialog today.

Craig Jeffery  01:31

As we look at the industry and from some of our research, we see the same things. The metrics about liquidity like DSO, Treasury may care also about liquidity throughout the whole month, rather than just the measure at the end of the month, but that’s a really good, good proxy for an organization that’s efficient and collecting. I think the two other things that we see from our research and our work is visibility. Make sure, like you said, nobody wants to go and say you owe us money, and then, like you accepted payment 10 days ago and somehow it didn’t post. So this visibility both prior to knowing when things are coming in, knowing when things are being sent, being able to manage the forecast. Those are some of the key areas of what people are trying to achieve. I think one of the other things that I want to get into through the conversation at some point is how, like, your treasury group works with AR this, this idea that they were separate islands, and there’s a slow, inexorable trend towards those groups working together. It’s not dramatic any one year to the next, but it’s only moving in one direction, where they’re working more closely on the liquidity side and efficiency and scalability side. So I want to make sure we’re we’re keeping that in mind. Can you tell us a quick intro about who you are and in your role at Deluxe?

Chip Zint  02:54

Sure. So I’m the CFO of Deluxe, which I’ve been at in this role for almost two years. I became CFO in October of 2022, and I joined Deluxe about four years ago, August of 2020 to lead corporate FP&A for organization. I had been at NCR Corporation for 14 years prior to that. So a little bit about me, maybe a little bit about Deluxe, if you don’t mind. So Deluxe is 109 year old company, mostly known for the check I don’t hide from that. You probably know us as the check company, but we’re so much more than that. You know, through our legacy and our heritage of check printing, we’ve diversified, and now we’re leveraging the cash flow from our check printing business, along with our relationships and our brand equity to invest in payments and data. And really, our goal is to help businesses pay, get paid, and grow, and so all of these areas around automating AR, digitizing payments, whether through B to B, merchant services and our data analytics division, that’s where Deluxe is heading. That’s what we’re focused on.

Craig Jeffery  03:54

So we’ll drop your company’s URL in the discussion or the chat area so people can learn more about Deluxe more than checks, right? That’s right, pay. Get Paid. You’re thinking about what matters. There’s a number of dimensions in receivables or in liquidity that matter for any industry, and some of them are more important certain aspects or certain dimensions, are far more important in one industry than another. I’d love for you to talk about those. And certainly there’s some aspects of risk, business process efficiency. Can you talk to that?

Chip Zint  04:31

At the core, cash flow is just key to everyone. So I’m not really sure an industry specific matters to me from this example, but I think the business you’re in and the stage you’re in can matter. So what do I mean by that? A couple examples. You know, if the business is a core, heavy user of working capital, that can make a difference in terms of how important AR and efficiency is, versus maybe a business that’s very recurring revenues or has very seasonal revenues. So. I think depending on the business where they’re playing, that can, for sure, matter, but I do know what matters always across every company, is just your overall cash flow, how you’re managing it, your visibility to it, and then obviously, how you connect that to your treasury operations. What is your debt load? That’s the big question that everyone wants to know today, in today’s environment with interest rates and everything the way the world is working that’s made everybody have to change their focus and their discipline around AR working capital in general, and ultimately, cash flow forecasting because of the high interest rates, the ability for as you mentioned, treasury to connect to that world and have the insight is so critical.

Craig Jeffery  05:41

If we’re talking about some of the risks you mentioned one, interest rates moved off of the essentially the floor, and now sit at a higher level. Little bit of delay before they come down. I think the Fed keeps saying it’s going to take a little bit longer before they reduce this. But what are some of the other changes, other risks that you see that can impact receivables, or the office of the CFO?

Chip Zint  06:05

You know, there’s a lot out there. I mean, maybe two that come to mind from the last year would be, of course, geopolitical risks, right? And how you think about where you keep your cash and repatriation strategies, and obviously, where you keep your cash across bank accounts, and then also the banking environment, the regional banking challenges from a year ago that had a lot of people thinking similarly about where they keep their cash concentration risk, having to really look at your balances around your portfolio and make sure you weren’t exposed any one area. And so those were two you think about those two issues, along with interest rates, we’ve dealt with a lot over the last year alone, and those things just continue to shift the focus of daily discipline and visibility. I’ll give you an example for me personally, about this time a year ago, we had a pretty rough month for free cash flow. It was not the last month of the quarter, it was first month of the quarter, middle month of a quarter. But it completely surprised me, which I should never be surprised, as the CFO about cash flows. And so I actually started up daily cash forecasting with the team. And I can tell you, if you give me what my ending bank account balance is going to be across all my bank accounts with what it started at, and what debt changed, and a couple other metrics, I can tell you exactly what free cash flow is going to be for a quarter, which was super important to me. And so I put that process in place with the team. I put discipline back in place. And now, to your earlier question, every day, I get a report where I can see, what was the collections activity? What did the Treasury team do with that cash, where? Where’s my revolver at? With interest rates, where they are, I need them to keep that revolver as low as possible. So I need cash to be as low as possible. We have plenty of liquidity. So they’ve borrowed and repaid on the revolver more times, I think, in the last year, than they had in their entire career. Because I’m all over it, but it’s so important with interest rates and geopolitical risks and banking concentration risk. It was all related to how we manage this, and that was how I personally got involved into it. And as you would be surprised, once something starts working for a CFO, it’s hard to kill it, so now they have to keep doing it forever.

Craig Jeffery  08:20

Yeah, it’s a great example of maybe a shifting priority, or just an opportunistic change brought about by, like you said, a surprise. Have there been other shifting priorities that you’ve seen, either in your company or in the the broader finance industry at large?

Chip Zint  08:38

I think the other one, I would tell you, is other sources of utilizing your AR to fund your liquidity. So we just recently implemented an AR securitization. Now that’s not factoring that’s not factoring our AR, but it’s securitizing our accounts receivable as a cheaper form of debt, and that enabled us to shift out maturities, get favorable rate borrowing on our AR, securization, and ultimately go further, bring down term loan a balances. So for me, personally, that was a shift in priority that I had to take as a result of what happened in the interest rate market, as well as just the health of my AR. Over the last year, we just completed an ERP upgrade, which I’d love to talk about in a little bit more detail. But that was a shift in my priority with getting through the ERP upgrade, the ability to see the AR in a different way and go work with the bank partners to be able to collateralize that and do a securitization against it. Was a was definitely a shift for me personally.

Craig Jeffery  09:39

Yeah, Chip, the AR securitization, supply chain financing, these tools that treasurer and CFOs use to leverage that part of the balance sheet for favorable financial gain involving a third party in the process is that’s really picked up since rates have spiked, right? There was a little. A little bit of a lull there companies were doing it, but very slowly, that’s that’s picked up. So great example, running the finances of a company and also a company that provides services in this area. I’d love to hear how you think about this as a provider of services. I know you’re the CFO, not doing product, but you’re intertwined, and I’ve seen you speak at conferences, so I know you lend some good insight to that.

Chip Zint  10:24

Yeah. So I mean, first of all, as I mentioned in the company overview, we play in this space through our AR organization as part of B2B, and our specific our receivables 360 products. So another thing I did a year ago is I was client zero for a deployment. We partnered with IBM, and we leveraged our own solutions. Now we are an enterprise. Our solutions are more targeted for the mid market, so it wasn’t a full end to end deployment of exactly what the solution does, but we were able to deploy as client zero, a good aspect of our AR automation suite inside our lockbox operations with IBM, which led to some immediate process efficiency, cash application gains, and really improved the speed, efficiency and collectibility ratios of my organization, which was fantastic. So I guess on one hand, I would say we are a provider of these services, but I’m also a consumer of my own services, to an extent where it fits, but I think Deluxe, you know, this is an area we’ve been investing in for a few years. We have a long along with our long heritage of check printing, we have a long heritage of lockbox operations. And lockbox isn’t a very sexy area of the business, but it’s still a very large part of the economy and a large part of money flows that occur. And we have a ton of scale and a ton of volume going through our software. And so what we’re really doing is we’re investing in new applications that allow us to take what we do today at scale and move it to a SaaS based solution that a mid market company can do on their own environment, to find their own efficiencies and maybe remove some head, apply cash more efficiently, and just run their organization optimally. And so I think that’s really exciting. So my my ability to do a small piece of that as client zero within my environment was great, and it showed the returns I would expect. And that was a good indicator to me that if we developed the right product and we can get it to the right people, it’s going to drive good value for the market.

Craig Jeffery  12:19

When we were preparing you had mentioned some industry activities and thinking about the life cycle. What life cycle the business in? Can you share what what your thoughts are on on that?

Chip Zint  12:19

Yeah, and I was kind of alluding to that earlier. But when I think about that question you asked about what resonates from one industry or company to another, I immediately think of what stage that company is in. Now, as I already said, cash is king. Cash is key to everybody. No one gets a free pass not to focus on cash flow just because you’re a startup versus a large enterprise. But I do think if you’re an early stage private company, you maybe can afford to burn some cash for a period of time, depending on your investor set and depending on the growth target you’re trying to hit. But as you move up the chain, you become this full blown public enterprise. Especially think of all of the companies out there, legacy companies that are replacing ERPs. I mean, I mentioned earlier, we did it. There’s a lot of companies out there that are migrating on prem ERP deployments to in the cloud. These things are massive changes, and they really change and disrupt what you do. From an AR perspective, I know we’ve learned over the last year, we went live on s4 Hana February of last year, and we’ve learned things that have impacted our AR processes. I’ll give you, I’ll give you a real example, March of this year, my DSO was eight days lower than it was March a year ago. And as I said, I deployed ERP in February. So from from February to the end of the quarter, it really disrupted my AR my working capital, everything I had to do, and we had to spend the next year really getting crisper on our processes, better on our visibility, tighter on everything that worked inside the new system. And so the life cycle of the company, to me, really matters to I think some of your focus area, and I think people need to be mindful. They may be a highly established public company that’s rocking and rolling, but these ERP, these moments of disruption, can really challenge things. You have to be mindful that at any given time you got to be ready to manage your AR and other aspects of working capital very differently.

Craig Jeffery  14:26

That almost sounds like another, another podcast about the moments of disruption. You know, a lot of times you think about ERPs, it’s like, okay, it’s just a cost overrun to put it in, not the disruption and change management and impact on things like, like, AR.

Chip Zint  14:43

Yeah, don’t invite me to that one, please.

Craig Jeffery  14:44

Yeah, there’ll be a there’ll be a counseling session. Chip, you know, you’re the CFO. You’re also a company who’s a vendor. But you know, what do you look for in a vendor?

Chip Zint  14:57

Yeah? I mean, I’m looking for a vendor with the right technology, the right solution, but they need to be able to deploy the full end to end solution. For me, it’s not just about the technology, the investment they put in it, it’s how they onboard it, the customer service behind it, how it works for me, and ultimately, the efficiency and the return I get from it. It’s the whole package. I’m not really looking for a vendor. I’m looking for a partner.

Craig Jeffery  15:18

The next area that I wanted to talk about was about monitoring and managing. You may think about what matters to the CFO, about accounts receivable, about liquidity, they’re related. Monitoring and managing are very much related. What do you want to know and see you already talked about the daily cash report. What else do you want to know and see?

Chip Zint  15:41

At the core as the CFO, your credibility matters above everything else. So four times a year I get out there and I publicly say what free cash flow is going to be, what I expect my leverage ratio to be. I indicate a lot around cash flow and debt. And so I have to make sure my credibility stays true and that we deliver what we achieve. So beyond just my ability to forecast free cash flow, you know, really, when I get into the nuts and bolts of it, right, you really think about it’s just managing your inflows and outflows. That’s all it is. So managing outflows is easier. You can you can always work on your AP, you work on your payment terms. How you manage your inflows, is a little tougher, right? And so for me, seeing the daily collections trend, and knowing kind of what’s going on, understanding DSOs at points in time. And then for me personally, when the rubber starts to hit the road, and I’m about at this point in a quarter, and this is being recorded kind of day five of the last month of a quarter, I really start to look at what are the large receivables that are coming due. I need to know the large things that need to be collected between now and me and the quarter. And quite frankly, I want to know some juicy, strategic things that are on the early side of the next quarter that I can maybe call in a favor and see if I can’t pull it left a little bit. And so understanding my AR aging, understanding my DSO trend, and then having data at my fingertips through my ERP system to go get those customer level information is super important for me to be able to do that.

Craig Jeffery  17:14

You know, pulling levers can make a difference in the financial performance. What levers Do you see matter and which levers are, perhaps longer and shorter. You had mentioned your AR. Securitization is one potential lever. What are some of the other levers that you look at?

Chip Zint  17:31

I guess I’m going to focus on the topic of optimizing your AR and running as efficiently as you can. So first of all, there’s automation. There’s tools like Deluxe’s R360+ platform or other AR automation tools that are meant to help make your life easier. All of those things help drive automation process efficiency. But I can’t really talk about automation and process efficiency without thinking about there still is the ability to outsource right and leverage partners in an outsource way. And the AR space is ripe for this. And from my experience, it’s something people have done through shared services for a long period of time, but it’s not really a game of labor arbitrage anymore. You know, yes, there’s labor arbitrage, but in today’s day when you outsource, you can also outsource with a promise of automation and process efficiency as part of that. So using my own products, I’m partnering with a outsource provider, and I’m also looking at these outsource providers and saying, Help show me over the next three to five years how you can bring your costs down for me and bring Gen AI or other process efficiency or automation into my portfolio to help make me more efficient. And so I’m kind of tackling all things that way. So the tools are there, the partnerships are there, the new system, the tools, the ERPs, the data, the information, the visibility is there, your ability to bolt all that into a dashboard. I’ve rattled off all kinds of metrics already today, like my ability to wake up, open up my daily dashboard and see how I’m trending. Just the insights you get at your fingertips is so, so fantastic. So shorter term, that’s all easy to deploy. Longer term, it’s all about the change management, right? How you go through find the capacity to adopt these things actually put work in play. I mean, talk about an ERP that’s massive change management. Massive capacities suck, massive adoption. That’s a big scale example. But even small ones, even deploying a small solution or doing a small out circuit engagement. Takes change management, it takes adoption, and it takes thinking through all your processes and working through kind of some SME type level documentation and transfer of responsibilities that can be really difficult. And so I think there’s tons of levers out there in this space. I think some are easy. Easier and shorter than others, but getting change management across everybody is the toughest part of that.

Craig Jeffery  20:07

So there was a labor arbitrage, outsourcing automation, new automation with AI, but it getting that adoption through change management such a key area that’s a great point chip. The other area, advisory relationships, third party advisors like, you know, firms like Deluxe, or consulting firms like Strategic Treasurer, or anybody, what. What are some of your thoughts about that opportunity?

Chip Zint  20:33

Yeah, well, thank you for the sales pitch. For both me and you, Deluxe is here to help. We’re always here to help. But for me, personally, you know, I have the blessing and the benefits sometimes a curse, of having 4000 bank partners, which means there’s a lot of really great companies and partners that lend us money. So we have a very large Bank Group, which is great because I have a lot of third party advisors who are willing to provide me insights, forward thinking, help, and anytime I’m trying to think through a challenge or present something to my board of directors, whatever it may be, I’ll go lean on my bank group as a really good first place to get some insight and advice about anything advisory, whether it’s in the space of working capital, transformation, you name it, I lean there. But there’s tons of people out there, like yourselves and like Deluxe that are here to to help.

Craig Jeffery  21:27

This idea of I know we’ve collaborated on research. We, we, we did a webinar with your your team yesterday, just a lot of great things to talk about in the area of monitoring and managing and chip as we bring this discussion to a close about what matters to the CFO about accounts receivable. Just want to give you an opportunity for any final comments or thoughts you have that you want to leave with the audience.

Chip Zint  21:51

We’re all looking to solve the same problem, right? We’re all in this together. We’re not alone. It’s a common problem, as we’ve touched on throughout today. It’s common problem everybody’s dealing with. No matter what industry you’re in, how old or new your business is. You’re all in different stages of dealing with the issue. But visibility to your AR, visibility to your cash flows, how you deploy the cash to keep your debt balances down, how you work, run your working capital efficiently. It’s all the same for everybody. And so I think that’s kind of a key message that I always try to keep in mind. So when you’re talking about leveraging advisors or people inside your network, we’re all dealing with the same thing. And so there’s tons of insight out there to gain from just talking to people and network and see what people are doing and stealing their ideas and using the playbook that works.

Craig Jeffery  22:40

Excellent. Thanks so much, Chip.

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