Virtual CFO for NBFC

Small firms can now obtain virtual support that wasn’t before conceivable with the introduction of the idea of the Virtual CFO. Small and medium-sized enterprises can now take advantage of the expertise in the systematic management of the growth of NBFCs thanks to the service of a Virtual CFO for NBFS. Depending on the necessity and requirement, the CFO’s services vary from one organization to another. Nonetheless, certain services are commonplace and frequently provided to any NBFC wanting to hire a Virtual CFO for NBFC:

• It performs all of the responsibilities of a regular NBFC CFO, although part-time.
• keeps an eye on the financial situation using cloud-based applications.
• Give the company advice and financial expertise on topics relating to finances.
• Offer businesses back-office duties, such as controlling account ledgers, based on the client and their requirements.

Companies that cannot afford an internal CFO frequently opt for a virtual CFO. Every day, organizations face numerous issues related to management, accounting, growth, and financial elements. It becomes necessary to hire a Virtual CFO to manage tasks like financial reporting, record keeping, and managing the company’s financial risks in order to address such difficulties. By providing the management with financial and professional assistance, analysis, and support, the virtual CFO aids in efficiently overcoming those problems.

Why is a virtual CFO required for NBFCs?

The role of the CFO in an organization is frequently seen as the most important since they do tasks beyond compliance and quality control, such as business planning and process improvements, and they work as a strategic partner with an NBFC. As they may be recruited at any stage of the organization and have a substantial impact on the corporate plan for growth, the services of a virtual CFO can be a godsend for developing enterprises and new ventures.

The administration of the NBFCs lending strategy is developed, put into action, and overseen by virtual chief financial officers. The Virtual CFO for NBFC is in charge of maximizing return on investment while making cost-effective use of the financial resources.

Important Role of Virtual CFO for NBFC

The following list of key duties and roles of the virtual CFO for NBFC includes:

Risk Reduction and Management

Risk management is one of a CFO’s main tasks; a Virtual CFO develops a series of protocols for resilient defense mechanisms and has full control over managing risks and neutralizing them before they cause any possible harm. Expanding regulatory compliance has raised the number of risks and can have an influence on the development of an NBFC as a result of dynamic and fast-paced digital developments.

Virtual CFOs are active in risk management for any NBFC in the following areas:

Monetary risk

There are risks involved in every aspect of running a business; these risks cannot be eliminated. There is a compliance risk because NBFC must meet Reserve Bank of India instructions released in text and spirit as well as tax and corporate law requirements. Since NBFCs play a leading role, which puts them at risk of producing non-performing assets due to a larger number of defaults, financial risk also covers a variety of debt risks. By controlling the frequent cash flow problems, the virtual CFO for NBFC prevents businesses from failing due to liquidity crises. The crucial virtual CFO also examines contracts and assesses the risk associated with mergers and acquisitions

Risk Operational

An organization is not immune to the risk associated with the NBFCs’ operational functions. Risks are associated with corporate company growth, supply chain management, data security, and labor quality. In light of the current market conditions, the virtual CFO also participates in conversations and decision-making relating to hiring staff. To ensure smooth operation, the required regulatory compliances must be put in place.

Information Technology Risk

Organizational security protocols are often breached, which harms the company’s reputation in the marketplace. Most businesses outsource their IT operations because they cannot afford the high infrastructure costs. By collaborating with IT specialists, the Virtual CFO plays a crucial role in protecting the data of clients and business partners and closing security vulnerabilities.

Additional Unrelated Hazards

Geopolitical and catastrophic risks must be minimized for the organizations’ smooth operation if they are not effectively identified or controlled. Since they are responsible for managing and mitigating risk, neither the CFO nor the Virtual CFO should work independently from the rest of the organization.

Monitoring and Planning

According to the analyses and requirements of the NBFC, the virtual CFO provides financial guidance. A sound financial plan creates opportunities for business expansion. With this, management can focus on the important areas without worrying about financial concerns.

Administrations of the Virtual CFO have adopted a common budgeting process. The purpose of budgeting is to maintain a record of all corporate operations. In order to make adjustments to reach the final goal, spending should be examined monthly or every three months.

The virtual CFO provides audit help from beginning to end by answering the auditors’ questions.

Debt Planning – A virtual CFO creates a typical debt plan with the intention of achieving the desired goal. In order to fulfill the obligation, careful debt planning is essential.

Year-End Accounts Closing and Filing-Virtual CFO ensure that financial statements are prepared and filed on time. Additionally, it ensures the submission of GST returns, Income Tax Returns (ITRs), and other associated compliances.

Compliance with Different Acts: Under this, the virtual CFO would provide a start-to-finish solution in accordance with the Companies Act 2013, FEMA, Income Tax Act 1961, Contract Act 1882, GST Act 2017, IPR regulations, etc.

Accounting Principles and Techniques

Functions of Accounting

A methodology called accounting services can be used to assess an NBFC’s financial bookkeeping situation. An accounting health check in this context denotes a thorough assessment of the association’s budgetary and accounting functions. For this, a well-known group of administration specialists must establish a thorough framework for identifying the bookkeeping procedures, such as information planning and other accounting regulations.

A standard account check is necessary to execute important ideas and plan various procedures. This process involves examining and evaluating legal advice related to annual turnover, benefits, operational and bookkeeping systems, and key performance indicators. The accounting health check also takes into account the firm structure, tax knowledge, and future development.

Predicting cash flow and controlling costs

In NBFCs, virtual CFOs project cash flows. A better understanding of cash flows is necessary for an NBFC to make decisions and fulfill future obligations. Making decisions regarding the need for funds is aided by it.

Cost management is a process where a Virtual CFO makes a justifiable effort to keep the company’s expenses to a minimum. The virtual CFO aids in raising production levels. In order to manage a variable expense, the virtual CFO breaks it down.

A carefully developed and properly maintained set of accounting policies helps improve the organization’s accountability and consistency for a broad internal control structure. Planning and implementing well-defined accounting and management inside the organization is aided by accounting rules and methods.

AI Inclusion: Cloud computing is replacing outdated accounting practices and, in general, lowering the base cost of financial accounting services. Businesses that effectively manage their finance and accounting departments utilizing cloud technology tend to be more effective and productive.

A Virtual CFO is in charge of timely reporting of correct data linked to the NBFCs budgetary health in MIS (Management Information System) reports.

Internal Control: A streamlined internal control framework aids in maintaining the association’s unshakable quality and is a realistic direction for the development of organizations. Making the internal control framework more viable requires accurate and suitable bookkeeping records that influence financial decisions.

Development of Novel Products

The chief financial officers (CFOs) of an NBFC can make the difference between success and failure in a fiercely competitive market. Making decisions on enrollment and the efficiency of the NBFCs New Product Development process requires the help of a virtual CFO.

Strategy for Expansion and Growth

According to the requirements of an NBFC, virtual CFOs can remotely create a successful finance, lending, and accounting team thanks to their knowledge and leadership abilities. Choosing an AML Compliance Officer with clear tasks and responsibilities is one example. Organic expansion and ongoing growth are possible, as are Mergers & Acquisitions and effective financial management of NBFCs. Finding viable investment opportunities and effectively using NBFC funds are both assisted by a virtual CFO.

Advantages for NBFC of Virtual CFO

The following are some advantages of using Virtual CFO for NBFC services:

• Virtual CFO uses a team-based methodology to provide services to its clients.
• Each customer receives help and solutions from a dedicated and experienced CFO consultant thanks to Virtual CFO.
• The expertise of our whole team of resources is delivered to customers by virtual CFOs.
• The knowledge best practices and best-in-class solutions created and shared by the whole Virtual CFO team are frequently advantageous to our customers.
• In a similar vein, our accounting team model benefits Virtual CFO for NBFCs by enabling access to resources with potentially lower billing rates (such as Consultant Controllers, Assistant Controllers, Financial Analysts, or Staff Accountants)
• NBFCs will benefit from specialized and flexible levels of experience and assistance for comprehensive management through Virtual CFO’s team-based services strategy. NBFCs should only be paying for the period when services are necessary at a blended, cost-effective rate.

Risk and resilience help you keep your NBFC plan on track by giving you insight into the related variables that are posing problems for your NBFC. This allows you to get ready to reduce any vulnerabilities and threats to your NBFC’s resilience.

Frequently Asked Questions

Can NBFCs charge their client’s excessive interest rates? Is there a cap on the interest rates that the NBFCs can charge?

The RBI has deregulated the interest rates that financial institutions can charge borrowers (other than NBFC- Micro Finance). The terms and circumstances of the loan arrangement between the borrower and the NBFCs regulate the rate of interest to be charged by the NBFCs. However, the NBFCs must be open and honest about the methods used to determine the rate of interest for the various categories of borrowers, and they must provide this information to the borrower in the application form and through other means of communication, such as the sanction letter.

Should the loan-to-value ratio for loans made with shares as collateral be calculated at the portfolio level?

The portfolio level or scrip level would be used to calculate the loan-to-value ratio.

Can a non-banking finance company pay up its investors’ deposits in advance?

A mutual agreement between an NBFC and its depositors allows it to take public deposits. The RBI has established regulations for such a situation in the NBFC Acceptance of Public Deposits (Reserve Bank) Directions, 1998, which state that NBFCs cannot make a loan against a public deposit or prematurely repay a deposit within a window of three months (referred to as the “lock-in period”) following the date of its acceptance. However, the firm may, even during the lock-in period, reimburse the deposit at the request of the nominee/legal heir/joint holders with a survivor clause only after submitting the necessary documentation to the company.