by Steve Mason* - Tuesday, 20th May 2008 - (1) comment

I still believe the changing nature of our role as finance directors bears closer attention in light of the increasing concerns about the turbulence in the financial markets – namely, that markets are slowing and the availability of credit is tightening. It is becoming more critical that the finance director becomes an enabler of growth and investment.

I recently read IBM’s Global CFO Study 2008 and it was interesting that the research pinpointed the following priorities for today’s FDs: economies of scale, economies of location, operational effectiveness, technology automation, and value-added services (analytics and reporting, financial supply chain, etc).

Interestingly, the ‘enabler’ role is particularly dependent on the last two priorities identified in this study. Technology (not just IT, but also plant, transport and many other types of equipment) has a disproportionately significant effect on growth and market advantage, relative to its actual cost. Therefore, the real question for the finance director is how to pay for that technology. Therefore, making technology investment affordable is one of the key areas where the FD’s skills fundamentally influence forward strategy and success.

Diversity in credit sources is a sensible risk management policy – first and foremost between several relationship lenders. But this diversity – especially when bank credit policies tighten – needs to embrace alternative financing tools, including asset and asset backed finance.

Leasing, for instance, is based on tangible assets, whose quality and in some cases residual value can be reliably assessed. Contrast this with the highly risky sub-prime mortgage assets which caused the 2007 crisis of confidence in the international derivatives markets.

The role of asset finance is to provide an additional line of credit that releases working capital that may be inefficiently tied up in outright equipment purchase. It also helps manage the budgeting process as payments are usually fixed throughout the financing period (avoiding the impact of market volatility).

In a tightening economic environment, it is also just as important to use financing to make it more affordable for customers to buy the company’s products. So the role of the FD as a strategic enabler is as much to do with sales financing as it is with investment finance.

Bundling products with a financing option can keep sales moving even in a low economic period. The finance application process has to be properly crafted to be both accurate and rapid – and the proposition with the quickest financing decision is the one that will achieve a sale.

Financiers who fundamentally understand the sales process (and are sometimes themselves part of a major technology firm) are often most adept at this application process. They are familiar with the suitability of the technology for the customer, and with sophisticated credit decision models derived from decades of experience and based on a specialised customer ‘book’.

The credit crisis not only poses significant operational financial challenges for finance directors, but also it provides an opportunity for us to move into a firmer seat at the strategy table. The correctly chosen financing techniques can make a valuable contribution to helping the business survive and prosper in the economic dip – both in terms of financial backing and sales.

*Steve Mason is finance director at Siemens Financial Services

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