Cash Flow Forecasting: Best Practices - Tabs Webinar

Hey everyone, thank you so much for joining us. You've got Ali here, CEO and founder of Tabs, that is building the first AR platform to take your contracts to cash and put them on autopilot. We're super excited to have Alan here joining us. Alan, before we start, you've had a great career building finance teams and being a finance leader. Would love if you can just start by introducing yourself and some of the experiences you've had today to just lead some of the best finance teams. How's the day going so far?

So far so good. Yeah, it's actually a nice sunny day here in the Bay Area. We don't always get those, so it's good.

It's phenomenal. It's a good Monday to start the week. I mean, you're getting a lot more sun than we are here in New York, so we'll take it. But, um, no, sincerely, really appreciate you taking the time, especially in October. I think, uh, a lot of finance leaders like yourself have, uh, both the job to finish, uh, 2023, but start to plan for 2024. And just Amongst our broader finance CFO, head of finance network, there's been a lot of questions around, okay, what are ways and best practices to think about as it relates to forecasting cash, particularly given some of the uncertain times? I think a lot of folks started to feel this at the end of last year, but this year really thinking a lot about cash forecasting. And there's been a lot of questions around how do really experienced finance leaders like yourself think about this. So before we begin, I'll, I'll give a quick introduction on myself and Alan, give you plenty of time to introduce yourself to the audience. But then we have some interesting questions to kind of kick off the dialogue.

Great.

Just quick background. Thank you everyone for joining. My name is Ali Hussain. I'm the founder, chief executive officer of Tabs, which is a tech company that is kind of rethinking the accounts receivable space. And our product is helping a ton of B2B finance leaders finally put the entire order to cash or contract to cash process on autopilot through very modern AI-enabled software to really automate the workflow and take out a lot of the manual tasks to do the job. So really, really timely, the topic today. Alan, before I kick off some questions that I know you've been a very accomplished and multi-time finance leader, CFO, head of finance, would love to just, if you don't mind, just introduce yourself, your background, and some of the types of companies you've worked at in, in the tech space.

Sounds good. Well, thanks so much, Ali. I really appreciate the introduction and the chance to speak with you. I'm Alan Federman. I'm the VP of Finance for a company called Canvas Construction. We're a construction robotics company. But I've worked for a number of startups throughout my career, including ClassPass, HowAboutWe, company called MyTime, a company called Kitchen Surfing. And then early in my career, I started off when there were 8 big accounting firms at Arthur Andersen and spent a good deal of time with some really big companies, Pfizer and Viacom are probably paramount amongst those, but really have enjoyed the startup and tech space over the last, say, 15 years or so. And a lot of what we're talking about is really timely to what we're going through at Canvas right now.

Phenomenal. No, that's great, Alan. And I'm really excited for the group to kind of learn some of the best practices you've deployed in the past or thinking about in this Q4. I think just to kind of get the audience a little acquainted, would you mind just spending maybe a minute or two just giving us an overview of kind of your finance process overall, like kind of how do you think about your system stack generally and kind of what are the different processes you work with from a finance standpoint?

Sure, sure. And before getting into the details of that, I'd say the overarching principle of all of this is reducing friction. So when I think about the way we align finance, whether it's at Canvas or whether it's Patreon, another company that I worked for whose business model was slightly different, is how do we make the process and is as smooth as possible. And ultimately, with finance, it all sort of revolves around cash. It's either the cash coming in, which we'll talk about in billing, or cash going out, whether it's within— in a lot of startups, it's primarily headcount or the other operating expenses. And at Canvas, where we build robots, our cost of sales, our bill of materials for the robots themselves. So over the years that I've done finance, I've seen tremendous progress in the technology available. So we typically have one source of truth, the general ledger. That could be something as basic as QuickBooks or Xero. Or something more sophisticated like a NetSuite or an Intact. We use a system called Foundation at Canvas, and it's how the various pieces fit into that. So the more that we can create interfaces and direct links between the software, say bill.com is one that I've used quite a bit in how we pay our, our bills or billing, which we'll talk about how we bill our customers. The less friction in the process, the better it all seems to move.

Phenomenal. No, I, I love the friction term. Just to bring that to life a little bit is when you think about reducing friction, is it more within finance and kind of the finance team? Is it cross-functional? Is it with the customer? Is it with different vendors? Like, and I'm sure it's all of the above, but especially for folks here who are really trying to figure out where to prioritize that principle, in your experience, where's that been most meaningful?

So it's really in, I would say, two, two places. It's with the customers and how we bill them and collect and with our vendors and how we pay them. Though payroll and headcount tends to be a big cost driver in a lot of companies, the systems that we use are pretty— there aren't a whole lot out there and they all work pretty much the same. And it's a fairly routinized and commoditized process. We get paid the same amount each, whether it's every 2 weeks, every whatever that, that process might be. So it's really how we interact with the vendors and how customer— with, with our customers and how vendors interact with us. And they're very intertwined because the better billing that we get from our vendors, the smoother it is for us to pay and record those costs. And then the sooner that we can get our bills out to our customers, the quicker we can get paid. And a lot of that is driven by— it starts with the contract that our sales team is generating with our customers. So the more clarity there is and the more detail there is in that contract, then the easier it is for us to bill. And then the, the likelihood and the speed of getting, of collecting that, that invoice increases significantly.

Got it. No, that makes a lot of sense. When you think about, I mean, just to get the, our, our viewers today kind of acquainted, when you think about cash forecasting, what are the major workflows that are most relevant or the highest priority within kind of the finance workflow stack, like, which domains are most relevant that you think deliver the biggest impact from a cash forecasting standpoint?

Well, it's really sales because ultimately that's, that's what's, that's what's bringing the cash in. You look at cash out and there's certain fixed points in time, payroll, interest payments, things like that. And then the operating expenses, we can always work with that. But really the key driver is how we bring that cash in in terms of the speed and in terms of the accuracy that we can get that money from our customers because that's really driving everything because obviously as we grow as a company and we, we scale, that's gonna impact all the other decisions, how quickly we can hire, what types of expansion that we can do, how we can scale. So it really all starts and ends with the revenue that's, that's being driven from the, from the business.

Got it. And that is something we're hearing a lot right now. Obviously, I think in the, call it 5 years ago to 2022 market, like that was an input, but a lot of folks and kind of with the bigger balance sheets, we're thinking about that as an afterthought. But I think right now, particularly, I think folks started to feel it early this year in particular, but are certainly feeling it as there's a lot of uncertainty going into 2024. Kind of translating that piece of sales and where it's most relevant around finance, which, which I'm assuming a lot of it's around accounts receivable. Would love to just kind of, in your experience, what have been some of the best practices that you have followed or you always advise finance teams to just like think about the optimal AR process?

So this is sometimes counterintuitive to the finance mindset, but get to know everybody in the company because it's really important that you understand what's driving the sales team. I mean, aside from obviously increasing sales, but understand what's going into the contract and really what's— when you talk— when I talk to salespeople, I really want to understand what's going on with the customer because that's what they're trying to solve as well. And so that That helps understand, I would say, the flow of revenue, the complexity of revenue. And then where finance can then add value in that process is things like how are we thinking about pricing, how are we thinking about putting the deals together? Because when we think of cash flow, we try to think not just, hey, if I bill $100, $1,000 a month, I'm going to get $1,000 in 30 days and then we're all done with that. But it's, wait a minute, can I bill $10,000 today even though it's going to cover several months? Like, what are some of the challenges? What are some of the the things that finance can do to work with the sales team to help them drive the business forward. So that is things like the types of contracts that we can do, the terms that we can extend to our potential customers. Are there opportunities where maybe if we give a discount and get more upfront? So there's a lot of creativity that I think finance can do when it comes to working with the sales team and driving the revenue. It also helps with the forecasting too. I think more and more the sort of the generic model of we bill the same amount each month and it kind of recurs and that's that. I think that model is changing both from the customer's perspective and from the business perspective because we're all looking for an edge, right, as we manage our cash flow. Because it's not just us as a company that's billing a customer that's worried about cash flow, but of course it's our customers that are focused on that as well. So really understanding how sales thinks about that and how customers think about it is what will drive that forward.

Amazing. And have you found, Alan, just, I'd love to park on that just for a sec. Have you found in that deeper discussion with sales, just looking at the contracts, the business terms, there are some unlocks in the terms that sales doesn't typically think about that both remove friction in getting deals done, but are also types of terms or deal dials that are things that finance can actually easily work with that are often missed?

I think it's the way we parse out the product. Oftentimes sales will think of, I'm selling X. In finance, especially with sort of the quirky world of ASC 606 and how we divide a contract, we're not just selling X, we're selling XYZ and some other things too. So if there are ways that we can kind of start to separate some of those elements. So for example, you know, at Canvas, we sell hardware and to a certain extent we sell hardware and software. The robot doesn't operate by itself. It has software elements as well. And we have training, and there are other things that are involved. So if there are ways that we can think about putting that deal together that have different components, that helps the customer because it helps them think about their, their operating expenses a little differently. It helps us think about how we forecast sales and then how we can drive cash collection as well.

Amazing. No, that's super helpful. Now just say that now the sales get done and, Alan, you're a great partner to your CRO and we grow the business internally. Like when you think about just ways you've run your AR process both in the past and in the present, any just general best practices or process flows or anything that you would advise the audience on that are just optimal for running a kind of a mature AR process or the type that you think is really good, especially for businesses that are fastly growing and are, are still pretty nascent in their maturity curve?

Yeah, it's a great, it's a great question. And, a couple things come to mind, but they revolve around the same thing. I actually worked for a public relations firm, called Brunswick Group years ago. And, but we, we, we built a lot of our client base were, large Fortune 500 companies, and we build them on a project-by-project basis. And, The most important thing for our billing team was, and I always said this, know that contract as well as a salesperson knows that contract. So that means read it really carefully, understand it. There's always going to be nuances in it. They're never very exciting to read. That's true. But really understand that. And then at Canvas, as we, when we first started the company, we were actually a union subcontractor. So we were billing general contractors and construction billing is very nuanced. There are certain formats that you have to follow. And same thing, understand that contract. What are the milestones that drive billing? What are the, you know, because oftentimes Oftentimes with construction contracts, it's not so much based on timing, but it's based on milestones. It might be the amount of square footage that you get done will then unlock another billing. And really the key to all of this, regardless of the industries, is know the contract and to understand the elements to that. And that will help quite a bit. And I would say that's probably the first thing I always say to a billing team is read that contract and know it as well as anybody.

Phenomenal. Really interesting. And often I think, I mean, in my own operating history, that often I think got missed by a lot of finance teams. I mean, it's a very front of center thing for the RevOps and sales team that's sending the contract because they're expecting red lines and often for the legal team. Do you think the contract piece, like any best practices beyond just telling accounting teams to read the contract, like how have you worked with finance teams that are like, either codifying it or just like really making sure they can understand it given contracts get signed and often disappear in DocuSign or Dropbox. Like what are some ways that your teams have like kept that knowledge like tribal and passed around within finance and really kept as a current throughout the company?

We could do a whole session. I got another great question because we could do a whole session on ASC 606. And how it's helped the business and how it's hurt us. But one of the things that's actually is, is kind of forced us as finance teams to do is to really look at the details of the contract. So what are— I keep using the word elements, and I think that's the accounting term, but what are the different pieces of that contract? So what, what is the customer really buying? And that's— we set up templates for each contract, and we make sure that we understand what those elements are, what the costs of those elements are, and then contingencies and renewals. So those are the other things I think that are really important. What could trigger something to either increase. So contract comes up and now you're gonna automatically renew, or if you hit a certain milestone, do you then unlock a new product? So with, with Canvas, we, we have contracts for 5. They start with 5. They typically are 5 robot contracts, but the customer will start with 1. Then we'll have certain things that will happen. They'll get their 2nd, 3rd, etc. So what are those things that will then unlock that next stage of the contract? And then one of the things that could happen that could claw it back? What are the contingencies? If we don't hit certain milestones, what happens? So I think it all starts with the 606 template, which is actually quite a good framework to look at and using that as the driver to sort of move forward along both the contract tracking and then the billing process as well.

Amazing.

Okay.

That makes a lot of sense on the contract side. Now, another big piece that we've heard is super important for both cash forecasting and just accuracy to avoid Back to your point earlier, friction is then translating that data to creating an accurate invoice. Any, any best practices or anything you guide the team on what you have done in your career to make sure your team is accurately transcribing that to an invoice and just making sure not a lot of friction gets created between that invoice getting created and ultimately get paid by the end customer.

There's an old expression, I'll get it wrong, but what is it? An ounce of prevention is worth a ton of cure or something like that. But But the point being is before that contract even goes to the customer, make sure that there's a good internal review process on that contract because there's nothing that will slow payment up faster than an incorrect contract.

Okay.

If you think about it, when that invoice— and I think about when I get invoices myself, they go into some sort of payment system, whether it's bill.com or NetSuite. And especially today, the AI within those systems is gonna pick up all the pieces. And if those pieces aren't right, then that invoice automatically gets thrown to the bottom of the pile because trust me, I'm not gonna call up a vendor and say, hey, your invoice is wrong. I'll wait till they call me to say, why haven't I gotten paid? I'll say, well, because your invoice is wrong. So it's really important before that goes out that there's a good internal check. And to the extent that a system can do that is even better. So again, having that internal checklist here, the key elements of the contract, the amounts, the quantities, and making sure that's 100% correct before that goes out. And then the next step is a good follow-up process as well. Okay.

I want— I'd love to learn more about the follow-up process in just a sec. One, just other things. Is there any best practices or any controls you've like embedded in your own process, your team's process to just make sure as good as NetSuite and bill.com and other internal tools are to just make sure we get it right? Like, is there like any human element or, uh, uh, point you usually have that just gut checks it one more time to make sure it's 101% accurate?

I think one of the things that's probably as old as accounting itself is, is the batch control. So I know before I do a billing run, I know that I'm going to bill $1 million worth of invoices. So when all those invoices get added up, it better equal $1 million. And it's amazing how many times that will catch an incorrect invoice. So starting off is in, you know, sometimes I've, I've worked with teams of billing folks, and that makes it easier because you can kind of separate by person. So one person kind of doing the high level and then another person doing the input and then having that. But, but sometimes I don't have that. I've been the only person doing it. So it's creating that batch up front and then running the invoices as a first pass and making sure that they all tie out. The second thing is, look, the 80/20 rule is also as old as accounting itself.

Yeah.

Making sure that Hey, look, when I do a, a run of, of invoices, I would say probably 80% of those invoices are 20% of our customers. So making sure that those are right. So a really thorough review. And so sometimes it's really kind of, I'll, I'll say ranking contracts. So we know, you know, going back to my, my PR firm days, we had some customers that were just a straight retainer. So those were easy. They just kept going. But some were very project specific, and we had expenses we had to bill, and there were certain elements within those particular projects. So making sure that those were right. And just like with anything, garbage in, garbage out. So make sure, making sure that when a contract is set up in the system, it's set up correctly. That will also catch a lot of issues.

Got it. Okay. So contract accuracy and how it's set up, batch controls, all of that makes a lot of sense. Is there anything, I mean, just like something more qualitative, like setting aside a certain time of the month, a week, collating them all together, even if it misses by a day or two, but just having that time to really think about it versus feeling like you're doing it reactively or ad hoc.

Yeah, well, absolutely. That, that almost goes without saying. Exactly. So there's always, you know, I always try to have a consistent time of month when I bill. So it's usually right around the first week of the month. And it's also good for the customers too, because then they kind of have that expectation. Okay, the canvas bill always comes on the 10th of the month. Just as I have vendors that send me the bills, like, okay, I know I'm going to get this one. So making sure that those— it's part of the close process for me. It's part of that reconciling the prior month billing and then also making sure I get the subsequent month billing teed up and ready to go. So usually the reconciliation is usually day 2 or day 3 of the close. And so that means I make sure everything that went out the prior month was fine. And then the current month billing is always, say, day 5 or day 6 of the close, knowing that this is going to get out before I start to get into say the next round of routine within the month.

Yeah, makes a lot of sense. Um, I cut— you were just about to jump into follow-up and having a good follow-up and, uh, um, effectively like auto— like not auto, but, um, gunning process. Like any, any guidance there on any best practices, like when to, when to feel anxious, when to follow up, any, any proactive tips as well to try to get a little bit more control on the on the cash?

Yeah, yeah. Going back to the first comment, know your customers. So understanding, understanding what your customers are going through, understand, you know, in construction, it's just a really big project. So if I know I'm one of 50 subcontractors on a project, I know that they're not going to pay me right away. So I don't want to sort of create ill will with a customer by following up too quickly. I also don't want to wait too long either. So it's understanding, I'd say, the underlying transaction, understanding the customer. And what their, um, their relation to all of this is. And then, um, this is a little silly, but just being kind, um, because more often than not, lack of payment isn't due to lack of funds, it's due to an oversight, it's due to an overworked department. So usually when we start a new customer, um, on our billing, I'll usually, after I send out the first bill, I'll just find out who their contact is and just send them a quick note. Hey, I'm Alan, just introduce myself, um, you'll be getting the invoices from me, let me know if you have any questions. Not asking them for money, but just kind of them know my name and that I am sort of watching that. And that's really helpful.

Yeah.

And, you know, I'll just— I would say like a lot of life, just building up good relationships with the people on the other side of the transaction will go so far. And as far as dunning, kind of have a— there's nothing— I'll say what not to do is send out a form email every month on the same day. There's nothing that is going to aggravate somebody more than that. So it's just making sure there's a personal element to it. It takes a little more time, but again, It's your cash coming in, so it's probably worth that extra time.

Yeah. No, I think both points are excellent. On the first one, I think it might be a, it might be just the way some finance teams have scaled up so quickly and like, yeah, believe sales and customer success are the relationship side of the house and finance is just here to translate the contract and collect cash. It seems like you're a big believer in just like the behavioral relationship side also being owned by finance, like spending the time upfront to get to know your counterpart on the accounts payable on the client side and not taking that for granted, like investing some early on, especially for your largest accounts to build the relationship. So it moves from more of an AR@company.com to AP@company.com, but to two humans that really know each other and can call in favors or be able to like really figure out what's going on quickly versus it being very sterile and distant.

Well, that's exactly right. That's a really good point. It's always from Alan at Canvas. It's never AI because that just— you're right. You want a name and a face because you're right. At some point a company may say, hey, look, this is a tough month for us. Construction is again, great example because our general contractors are waiting to get paid as well. So if their payments delayed, you know, will be delayed. And working at Viacom in the media business, it's notorious for that because, you know, you're waiting for an agency, the advertiser paying agency. So there's— you're sort of a little further down the chain. So just understanding that when the customer's like, hey, look, I haven't gotten paid by the advertiser yet, we're gonna be a little bit late. Like, okay, no problem. And, and so that, that really just helps. It helps in a number of ways.

Amazing. No, that's super great. On your second point, obviously a lot of, I mean, making sure the emails are personal and building off that relationship. Just, just outta curiosity, how often do you find that even with the relationship, things can get resolved via email? And how often do you have to go kind of omnichannel, either give them a phone call or ping someone else on the team? Like just in terms of people who are doing this for the first time or have been at one place and kind of felt the idiosyncrasy, like how often should folks just expect to move off email and have to do something else to kind of get payment? And what should folks be willing to do to make sure happens versus just kind of sit on their hands and hope that the partner or the customer is going to just magically open the email and make payment?

That won't happen. I'll say, I'll say this, and I'm always a little hesitant to say because it shows my age a little bit, but it's true, is that a phone call goes so much further than an email because we are inundated with emails all day. Everybody is. And so it will get lost in the shuffle. So a phone call, and oftentimes, look, that's not perfect either. But to the extent that you can augment the email, what I always do is when I send an email, say, hey, I'm also going to give you a call as well. Yeah, they, they can expect it and they hopefully will answer the call. But it really depends on what's driving the nonpayment. And that again goes back to understanding the customer and the underlying transactions behind that. And it also goes back to understanding and working with the sales team. Because the first— before I even send an email or call, I'll go to the salesperson and say, hey, look, customer X is being really slow. What's going on? And they may say, all right, okay, here's what happened. So, um, look, sometimes salespeople may say to the customer, don't worry about 30 days, let's just say 45 days. No, but it does happen. And so it's just really better to, to start with who initiated that transaction.

Yeah.

And once you understand that, then you can start to call, and then you can— in— or you may learn that, oh, that's right, they just had a turnover in their finance. I just spoke to my counterpart over there and somebody left. Okay, that happens. So, you know, just understanding as much as you can about what's going on in the company, what's going on with the deal, and that will go a long way. And I'll say the last thing is to— I probably should have said this beginning— is accurate reporting from your system. Because I know for myself, I've gotten calls, hey, why haven't you paid me? And sometimes they've been not very nice calls. Like, wait a minute, here's the canceled check, or here's the transaction from the bank. And then, you know, so just make sure you're starting from the right place.

No, I love that. Okay. One just very tactical one beyond, is there anything from like an invoice format or data clarity that you have found beyond accuracy? Like either like making your banking information very large on the invoice or call to action, like any other tricks from like a formatting and information standpoint that you would say has helped you a lot in your career that we could share with the audience?

Yeah, it's, you know, it's, it's, I'll say bill.com is I've used that more than probably any other payment processor. A lot out there and they all work and operate more or less the same. But clarity is really important in the invoice. So the system picks up the invoice number because most systems will be able to filter out duplicate invoice numbers. So when that happened, the invoice gets sent by the, you know, and I don't want my invoice to then be lost because the numbering kind of got lost in the scheme. So making sure it specifically says invoice number and has the number. Again, it's amazing how many times it's just a number, but, and then if there's a customer number and then I'll say a contract number or some other identifier, that will help. The more data points that you have in that invoice, the more likely it's going to get coded immediately to the right place in handled sooner.

Yeah, got it. No, that's super helpful. Let's now transition a little bit to the actual cash forecasting side, right? Like, I think a lot of folks are feeling really finding this part to be very difficult. And I think part of it is just like now with so much scrutiny from boards and others to just really understand like what's happening and being able to have a lot more from just general operating plan metrics to actually really understanding cash is like top of mind. Before we jump into some of your best practices from like an operating plan and like predicting cash, just for the viewers to just generally feel like they know where they stand relative to benchmarks and like what to expect, in your experience as like a multi-time finance leader, How realistic is it to just believe that most of your invoices will be paid on time versus like just as a rule of thumb, is there any kind of forecasting cushion or just good like metrics you use to just make sure you leave a little bit of room for error just given the realities of what's most likely to happen for most businesses?

Sure. So first point, they will never be paid on time. So just have to kind of start with that. And that's not, that's not meant to be disparaging. And it kind of goes back to what we talked about accuracy of invoicing. Silly as it sounds, make sure that invoice date is right because net, you set up net 30 terms. Well, is net 30 from when they get the invoice? Is it net 30 from the date of the invoice? So I may send them my invoice on, on October 10th, but the invoice date, it's October 15th because that's the cycle. So then it becomes all of a sudden it's now November 15th instead of November 10th. So that convention is really, really important. But, but look, especially with larger companies with large AP departments, it's going to take a few days till it gets to the right place. So it's not as if companies are not paying in 30 days. For them, it's 30 days from when I get it into the system. So you can get that into the system. And the other, I would say, piece of advice or best practice is cash flow is a two-sided coin. It's cash coming in and cash going out. So when you're trying to predict and manage that cash flow coming in, you want to be really careful that you're managing that cash flow on the other side as well. And it goes to your point, are we always going to get paid in 30 days? Probably not, because your customer is probably also managing their cash flow. So they're saying, okay, here's who's getting paid in 15 days because that's the terms, and here's who's going to get paid in 35 days because because they're nice people, they're not going to call and yell at me in 30 days. So you always want to kind of, you know, understand that balance of days payable and days receivable outstanding.

Yeah. Any other, like, just as you're managing that, like, what have you found to be the best way to just like process all of that data and feel like you're current as a finance leader? Like, do you do it in Excel? Are there— do you use a tool? Do you like, do you do it in your ERP? Like, what are ways you're just keeping, like, a feel of, like, really keeping your finger on the pulse to know where you stand in any given quarter?

Yeah, in an ideal world, it would be done in, in, um, an ERP, but I've mostly worked with smaller systems that don't have that capacity. So I do a lot of it in Excel, and it all starts with, with the, with the annual budget and then the monthly reforecast. And I always have sort of a monthly cash flow reconciliation. So I have a sense of here's what I'm going to pay and here's what I expect to come in. And so then I go through cash, especially being at startups, I go through cash weekly. And so I want to make sure, okay, hey, here's what's, here's what's slipping a little bit. And so that way it's never because you never want to get so far behind that now you're calling people and it's 2 months past due because, look, customers will figure that out too. And they'll say, wait a minute, Canvas never calls me so I can extend it. So you want to make sure you're on top of it. Bit and say, hey, just checking in on you. But it's really having a good forecast, understanding what the drivers are on both sides. And then, you know, forecast, if you don't reconcile it, then it's just a spreadsheet that sits in some virtual place and never does much. So it's really important that you're on a continual basis reconciling it, analyzing it, and then acting upon it.

Amazing. Okay. And I love that. So even in many cases, you'll do it weekly, just make sure.

Oh yeah, Friday's my cash day.

So I'll always—

Friday. Yep.

Is there any other, um, when you're trying to predict kind of, um, cash forecasting, is there any other metric beyond kind of money in, money out that you usually plug in to just like either sense check it or further make it more accurate? Like, what are any other tactics you'd recommend to the group on, uh, Cash Flow Friday?

From a, I would say from a quantitative perspective, it's fairly straightforward. I sort of, you know, say, hey, here are the fixed payments, then here are the variable payments. So I look at those. But then again, it's, it's, you know, talking to our sales team, maybe it's once a month to kind of check in and say, hey, here are some of the larger deals that you've done, anything that, you know, we should know about. Again, this may sound a little silly, but pay attention to the news. You know, sometimes your customers are in the news. Sometimes there are external economic factors that are important that you kind of are attuned to. You know, for Canvas, because we're in the construction industry and real estate is such a prominent driver of our business, just understanding the macroeconomic factors of the industries that you're in really helps a lot.

Yeah. Amazing. No, that's helpful. I guess when you see, when you do those reviews on a Friday and you just like, what is the metric? That start, like whether it's your big accounts, your largest customers, like what is the actual metric or metrics you're really looking at? Is it like DSO? Is it days past due? Like just so folks can really understand what matters most from like a cash forecast standpoint. Like what are the 1 or 2 metrics that are the killer metrics?

So exactly, days payable outstanding, days receivable outstanding are the 2 main ones that I look at. I also look at something called average days to billing. So how long does it take me to get that bill out? Because that's going to drive my— so I always look at that as how quickly did we get our invoices out this month? Because if we got them out a few days late, well, then I kind of need to factor that into my days receivable outstanding because it's going to impact that in a negative way or a positive way if we were able to get them out early. So those are the main things that I look at. You know, with construction, we have this, this thing called retainage where customers will hold back 10% till they get paid their final payment. So we want to factor that retainage. That's, I think, kind of a unique to the construction industry, but I would just say, are there any sort of nuances to the industries that you're in that may impact cash flow and make sure you understand what those are as well?

Amazing. And I mean, just for clarification on the tracking when the invoice got out to see if you need a little cushion, I'm assuming you do something similar for customers that have an AP portal like a Coupa or Ariba, like what day did we actually get it processed in the system? Are you also tracking that at this point given the preference?

100%. And those, even though I'm putting those into those portals, and again, that's very common in construction to have those portals. I'm still creating an invoice in my system. So it's all sort of, there's sort of one source of truth. And I kind of think of those portals as just another way to communicate the fact that a customer owes money to me. But, but yeah, it's all done that way.

Phenomenal. Just one really tactical one in terms of where finance teams make mistakes. Like, just curious, why, what do you think is the common reason finance teams don't get invoices out or processed in AP portals on time? Like, is it just like, what, what are some of the reasons that happens? It just seems like such a common sense thing to do, but obviously I don't live in the same finance reality of all the other things going on. Like any—

I'm laughing because I'm going to give you a horrible answer, but it's true because no one likes doing it. It's the least fun thing that we do. So when you start to kind of go through your list of things that you need to do that day, unfortunately it sometimes falls to the bottom. That's that's just a reality. Um, I think part of it is too, and this isn't just finance, this is every team these days, we're all working really hard and so things just come up. So it's really important that you carve out that time. And here's one tactic I use: I block off time on my calendar so no one schedules a meeting. I'm doing billing. So it's making sure you save that time because trust me, every finance person since the beginning of time will start their day with their to-do list and I guarantee they don't get through the first one. On, especially when it's month end, especially if there's— if it's budget season. It's, you know, finance is so time constrained on in a lot of different ways that it's really important that you slot those things into your calendar. Um, and that's probably, aside from my sort of, um, snide remark, that's probably the reason that it does fall through, is it just— it's not slotted in and not committed, and so something else will always take its place.

I, I think you're spot on. We hear the same thing, which is at this point with a lot of GLs and ERP systems, it's such a just menial, tactical, not fun thing to do. People just often put it on the back burner, or often it is even something that is outsourced in some cases to external accountants. And it's the least interesting and missed thing by those firms as well. And though in the beginning of the flow you don't realize the impact of it, the immense impact it can have on your cash forecast and like actually how it plays into your cash on hand can be pretty instrumental. And so though what feels like a very menial upstream effect has a ton of downstream implications from an operating model standpoint.

That's so true. That's so true, especially once you fall behind. You know, we talked earlier about making sure when you get that first contract, invoice one, that's the most important invoice. Because that's gonna set the stage for all the subsequent invoices. Again, assuming it's a kind of a recurring revenue model and not just kind of a one-off thing. Though it's true on that as well. But if you're dealing with recurring revenue, if that invoice one is not gotten done accurately and on time, then the downstream effects are, they increase exponentially over the life of the contract. And it—

Yeah. Yeah. Amazing. One thing I wanted to build on a little bit is you mentioned that it's kind of like there's a correlation, right? When AR is going off track, you have like the ability to obviously use your relationships to try to pull in favors or go back to your partners on the customer side. But you also mentioned you sometimes have to dip into your AP plan and who you're going to pay from your vendor standpoint. Just last comment on what you've done in terms of just triggers to keep things kind of like, obviously, like play into your other cards to make sure you're still on track from a cash standpoint. Like any, any best practices or anything like that?

Yeah. Without giving away too many secrets, it's, it's again, just as you want to know your customers, know your vendors and know them well. And, and know if there's one, you know, the 80/20 rule is what will, what will, what will drive this. So for example, we use a corporate credit card, we use Ramp, but a lot of people use Brex or Amex or any of the other ones. Making sure when you set that up, can you set up the, you know, trying to set up the timing of that payment based on billing because that's typically a large payment. Looking at your service providers, So, for example, you know, we just went through a large fundraiser, so fundraising exercise. So we'll have some big legal bills coming in. So, you know, talking to your law firm and say, look, this is gonna come in a week later.

Yeah.

But it's really important to be proactive because you never— at least I don't want a vendor calling me up and saying you haven't paid me because I just, you know, karma. I'm a firm believer in it. But I think if you do work with somebody, say, look, I know it's due this week, but But we're waiting on a big check from 3 customers. Look, it's gonna be a week late. No vendor is gonna ding you for that. Like, yeah, no problem. And so, yep.

Alan, this has been a really helpful and rich discussion. Would love to just, as we're wrapping up for today, kind of, I think we went through a lot of really helpful plays and how to manage this. Week by week, month to month. Obviously 2024 planning is top of mind for I think most of the folks on the call today. Any like parting words of advice, maybe a couple things that we can all think about in our cash forecasting for 2024 as we're building out our 2024 operating plans? Like what are some best practices we should all take in going into our model creation so that we can just nail it as we start to have to iterate on that with our boards and management in the coming weeks and months.

Yeah, a really good question. You know, one of the things that this kind of touches on a few points of kind of understanding the environment, understanding your customers, working cross-functionally is when there's uncertainty in the economy, a few things happen. One, companies may take on riskier customers. Customers that you may not have wanted to do business with because you weren't sure of their financial wherewithal in really good times, like, you know what, I kind of need to take some chances now and be a little bit more aggressive. So make sure you understand those and build those buffers into your plan is, I think, really important. Really think as long-term as you can because the year is going to bounce up and down. So understand things like seasonality. And how that may impact it, your cash forecast, and build in contingencies across the model because the best laid plans, something will go wrong. That I can guarantee. And so making sure you have those buffers and contingencies. Everybody wants to forecast to the penny. And I would say, please don't do that because, well, you're setting yourself up. So call it what you will. But build in that buffer or that contingency because you will need it. And then at least understand where it comes into play. And then the rest is, you know, a bit of common sense and a little bit of luck.

Yeah. Would you say there's ever enough contingency or more contingency is always like any, like, just parting advice on?

There's a fine line between contingency and sandbagging, and I don't know where that line is. This, and I won't even opine on that. But, um, I think it's— I think when it comes to contingency, it needs to be well thought out. So it shouldn't just be, okay, I'm gonna throw $10,000 in there for contingency. It's, hey, look, we're hoping to get 10 new customers over the next quarter. I'm going to assume we're only— I'm gonna say, I'm gonna assume we're gonna get 8 out of those 10. So a 20% factor, and then you can kind of play with that. So just make sure there's some logic behind that. Because I guarantee there will be one person in the organization that will say, you, we should have no contingency. And then there are some that are going to say you don't have anywhere near enough. So just understand the motivations and the drivers behind that. But, you know, look at, look at past history can always be a good predictor. Look at the industry, the macroeconomic environment. Interest rate rate increases have really changed the complexity of business these days. Highly leveraged companies have had to wrestle with that a little bit. So maybe understand, you know, if that's a driver and how that influences the particular industry that you may be in.

Yeah. Phenomenal. Well, Alan, like, obviously these are all things we hear a lot and are trying to solve a lot for through software and as we try to build the most robust kind of AR solution. But I think there's a lot of wisdom for us all today, both a combination really good process with more frequency than less to check how things are trending, building human relationships. I think often there's no software or team fully like that. That comes through experience. And I think some great advice there. And then obviously just being dynamic and a leader who's thinking in the right way to like not artificially be too hopeful and build in things like contingency and know the plan always has surprises and to not be the finance leader that, especially in this market, takes in too many surprises and has as much predictability and cushion to ensure that they have a really robust 2024.

Yeah, that's a really good point on surprises. Exactly. Aside from my birthday, I never want one. So anyway, we'll keep it to that.

Thank you again, Alan. We really appreciate the time today and look forward to keeping in touch.

Likewise, thank you so much.

Take care.