These days, when the economic environment is becoming more unstable, most companies face challenges that they haven’t encountered before.
Every business, no matter big or small, has to take on a lot of responsibilities and decisions in order to make a profit and survive, including deciding how to manage its cash flow correctly. The wrong choice can easily mean financial losses or even bankruptcy, therefore, having a good grasp of one's cash flow and position is crucial.
Today the team at Cybernews sat down with Tuomas Ritola, the CTO of riskrate – a company helping SMEs improve their top line by predicting and optimizing their cash flow.
How did the idea of riskrate originate? What has your journey been like so far?
The idea of riskrate originated from our founder's frustration with the amount of manual work required to build accurate cash flow forecasts, which get outdated as soon as they are completed. The existing solutions for automated cash flow prediction were woefully inadequate. They did not take into account basic things such as customers’ payment behavior.
Our journey hasn’t been easy so far, but it rarely is for any startup, let alone a bootstrapped one. We had a long incubation period with one false start, and we have learned a lot by closely cooperating with our pilot customers. We just came out of private beta with our new cash flow modeling and prediction tool.
Can you introduce us to what you do? What are the main challenges you help navigate?
We help growth-seeking CEOs increase their top line by helping to predict and optimize their cash flow. Current cash forecasting and business intelligence tools use stale accounting data, are too complex to use, and can't predict when customers will pay their invoices. Many SMEs are teetering at the edge of bankruptcy due to difficult market conditions. For them being able to properly manage cash flow means the difference between making payroll or declaring bankruptcy.
Three other important topics in this financial climate are pricing pressure due to inflation, supply chain disruptions of access to and increased expense of financial instruments like invoice factoring. We help companies grappling with those issues by providing tools for optimizing their product pricing and directing dwindling stocks to those customers that pay the most per item. And by accurate cash flow modeling, so they know how much cash they will have available at any given time, reducing and, in some cases, completely eliminating the need for outside financing.
As a concrete example, one of our recent customers from the manufacturing industry took riskrate into use when their invoice factoring provider canceled their agreement with a month’s notice at the worst possible moment. Their competitor was suffering from an extended production outage, and they had just gotten several orders from new customers as a result. They had to halt all purchases of raw materials since they didn’t know if they would have enough cash at the end of the month to meet their obligations. riskrate helped them get an accurate picture of their near-term cash flows, which allowed them to resume buying raw materials again. This gave them some time to shop around for a new financing solution. They ended up reducing their reliance on outside financing significantly thanks to better visibility into their cash flow.
What financial risks do you think new business owners often fail to take into account?
B2B businesses especially are struggling with late payments at the moment. To make things worse, businesses that are just starting out don’t yet have existing relations with their customers, and so they are easily coerced into giving out long payment terms which tie their small operating capital for long periods of time even if the invoice gets paid on time. Small businesses often turn to financial services such as short-term loans, invoice factoring, and financial rating services as a crutch but don't realize their long-term cost or take into account the risk that the financial instrument may be taken away from them at short notice.
Another big one is thinking too small. Boutique businesses are all the rage right now, but bad things like market disruptions are going to happen to any business. They just have a bigger effect on small businesses with small buffers and thin margins. When businesses grow, they can leverage economies of scale to increase their margins and smooth out most of the bumps on the road.
How do you think the recent global events affected your field of work?
When times are tough, it's even more important to stay vigilant about your cash flow. Most companies don’t sit on a vast reserve of cash and bank loans – other financial instruments have become more expensive and more difficult to get. If things really go south like what happened in 2008, those instruments might even become mostly unavailable for a period of time. It is in difficult financial times that solutions like riskrate are needed the most.
Why do you think companies sometimes hesitate to try out new and innovative solutions that would enhance their operations?
Companies are bombarded with a constant stream of offers for new solutions to existing problems, even for those that don’t exist for most companies. Some of it is probably just fatigue, not even bothering to separate the wheat from the chaff.
Another big issue is gatekeeping and the sheer number of people required in a large organization to sign off on a new solution or even a trial thereof. Taking a new solution into use always requires some upfront investment of time and money. If the payoff isn’t clear, it’s easier to forgo trying.
Which security practices do you think are essential for the financial sector to keep both their workforce and their customer data safe?
No more data should be collected than is necessary for getting the job done. All data needs to be encrypted in motion and at rest. Access to data needs to be limited to only those that actually need it to get their job done. Audit logs need to be in place to be able to investigate potential abuses. None of this is financial sector-specific, though. Just basic hygiene while working with customer data.
Employees should also receive training on how to detect attempts of social engineering. A lot of technology exists for automatic scanning of software vulnerabilities and network intrusions, but none exists to foil attempts of social engineering. Only education can do that.
What are some of the worst mistakes companies make when handling large amounts of data?
Data shouldn’t be collected and processed for the sake of vanity metrics. Sometimes companies build data platforms and pipelines at great expense only to find that nobody wants to use them. Unnecessary data processing means the data gets duplicated into more places which increases the risk of data leaks.
What predictions do you have for the future of the financial sector?
I’m not a financial industry analyst, and I hate to speculate but I think with the ongoing market volatility and increasing interest rates, it’s pretty safe to bet that 2023 is going to be a rough ride. In the long term, I think environmentally conscious consumers and the green transition will demand more green investment vehicles like shares on green energy projects. Investment companies offering those should do well.
What does the future hold for riskrate?
riskrate is currently preparing to scale up. We anticipate we will double our team size later this year. We are also considering raising a seed round to speed up our expansion.