Finance executives at tech companies often find their responsibilities growing along with the business. While keeping day-to-day finance operations flowing and closing the books monthly are core duties, it’s also important to take on some elements of risk management for your company. Understanding and managing risks can help you prepare, pivot and minimize potential negative impacts.
Review this list of risks to identify areas in which your company may be vulnerable.
Managing liquidity risk means anticipating your cash position weeks and months from now. Good cash management allows you to more easily pounce on new investments — and raises your business’s credit scores so you can more easily get financing when you want it.
Start by making sure you are using complete, up-to-date data from both receivables and payables. Look ahead to upcoming projects or other expenses, and build those events into your forecasts. Then, take it a step further by adding some what-if scenarios to your forecasts to assess how well you could handle events that may stress liquidity, such as the loss of a key account or a spike in costs. Stay prepared for such events by maintaining good lines of communication with production, sales and customer service — unhappy customers may pay slowly or take their money elsewhere. Depending on how you’re funded, line up a source of short-term capital before you need it so you can smoothly overcome potential cash crunches.
2. Credit Risk
You can protect your own financial position by making sure you’re extending only as much credit as your customers can afford. Head off any late payments or bad debt write-offs by creating consistent procedures for vetting your customers carefully.
Run a credit check before you offer terms, and make sure the terms are part of a written agreement that includes penalties for late payments. Watch for red flags, like customers who miss payments. Have other departments alert you if a customer stops responding to phone calls or emails. When that happens, ramp up your contact with the customer immediately to discuss the situation or come up with a contingency plan. Make credit checks part of your sales and business development process, too. That way, the sales team won’t waste time pursuing high-risk accounts. Work with sales and marketing to include some kind of financial profile in their lead-development efforts.
A culture that values processes and controls doesn’t always come naturally to companies that have grown from scrappy startups, but both are essential to limit your exposure to fraud. Analyze your vulnerabilities from both inside and outside your organization.
Shore up processes that ensure
segregation of duties, where different employees handle each step of a process. For example, the person who initiates a payment should never be the one to approve it, and someone who executes a transaction shouldn’t be the same person who records it. To guard against payment fraud,
electronic payment methods such as commercial credit cards are less vulnerable than checks. Look into using
virtual card numbers (VCNs) as well. These are unique card numbers generated only for a specific transaction or set of transactions. They’re easier to track and control.
4. Data Security Breaches
Customer payment data and internal financial information are often the prime targets of cyberthieves, but establishing solid protections can wall off that data.
Even tech-savvy businesses may be missing some security protocols, so look into resources such as ISACA’s
cybersecurity guidance documents to better understand the risks. Additionally, if you take credit cards, you’re required to follow the
Payment Card Industry Data Security Standard, which lays out security best practices to
protect customer data. Data security threats are constantly evolving, so make it a point to stay current with industry publications for news and updates.
Running afoul of
business regulations and laws can be an expensive problem, so make sure you have solid legal advice. If you intend on taking a private company public, you’ll need to understand the requirements of Sarbanes-Oxley and work to institute necessary processes well in advance.
For example, document your internal fraud controls and look into the requirements for reporting on transactional data. Using VCNs for payments can be helpful here, as the transactional data is more easily recorded and organized.
Creating policies for travel expenses and employee credit card use is also a good idea.
No business can protect itself completely from every risk. But creating awareness, procedures to mitigate the dangers, and plans for handling worst-case scenarios are the first steps toward minimizing your exposure to unwanted contingencies.
Learn more about SVB’s treasury management best practices by contacting your SVB Global Treasury and Payments Advisor.
Read more about how to optimize your company's treasury management tools and processes on
SVB's Treasury Management Trends & Insights page.
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