Corporate Finance
Corporate finance describes the means and processes for generating, collecting and applying corporate revenues.
Lessons Learned
Service providers have learned many lessons about corporate finance.
- Corporate finance begins with the structure of the payment terms under outsourcing contracts.
- Under long-term contracts, a service provider’s cash flows are inherently subject to interruption by termination for convenience.
- Capital markets may accept the bundling of receivables, but the securities investor’s risks of an early termination reduce the net proceeds.
- Credit risks for customers with long-term service contracts can change, resulting in ongoing duties to provide services even to bankrupt enterprise customers.
- Financial liabilities to employees and subcontractors need to be managed. Risk sharing may be appropriate for subcontractor agreements.
- Hidden costs may arise when the scope of work includes historical costs that were not apparent during due diligence or contract negotiations.
Risk Profiles of Enterprise Customers
The Chief Financial Officer should be fully familiar with the structure and risks associated with the individual contracts. Agreed risk profiles should be defined and communicated to the business development team. Legal and regulatory risks should be specifically identified in this process.
Vicarious Liability for Compliance
If the service provider’s securities are traded on U.S. securities markets, the internal audit and controls required under Section 404 of the Sarbanes-Oxley Act must be satisfied.