CFO roundtable: Cash Today for Growth Tomorrow
mandag, 15 jun 2015
On Thursday 14 May, my colleagues at Basware and I hosted a group of senior Finance and Procurement leaders at London’s recently opened (and incredibly stunning!) Sky Gardens to discuss the topic ‘Cash Today for Growth Tomorrow’.
Ad van der Poel
Senior Vice President, Financing Services
Alongside a fantastic meal and great wine, the following issues were laid out for discussion amongst the attendees:
- What does working capital optimisation mean for your organisation? Is it managed as a strategic initiative? And how can working capital optimisation be measured and achieved?
- What market developments and legislations are impacting your working capital strategy?
- Do you consider Alternative Financing schemes such as Supply Chain Finance or Early Payment Discounts as an opportunity or a threat?
Kicking off the evening, we were delighted to be joined by Rob Kortman and Ian Morgan from PwC’s Working Capital Management practice who shared some insights from the latest PwC Working Capital Management study – ‘Cash for Growth’. Rob explained that for so many organisations, cash is tied up in processes and that by freeing this up it opens up opportunities for investment (be that through acquisition or in new projects), reducing debt or paying dividends, for example.
He went on to explain that working capital improvements remain the most obvious way to access cash and that PwC believe opportunities are driven from four key levers:
- Commercial terms
- Process optimisation
- Compliance and monitoring
- Cash culture and mind-set change
After giving the audience some food for thought, the discussion around working capital optimisation opened up to the table and I got some interesting takeout’s from this:
No two companies are alike – we all believe that our own company is completely unique, but when it comes to working capital optimisation it seems that they really are. It was very clear that the way it is viewed, managed and prioritised across industries varies massively and that each organisation faces its own unique nuances and challenges. The industries that are really focused on this right now are Retail, Consumer Goods, Industrial, and Utilities & Telco. However, more and more companies are starting to think about how process optimisation can help ‘free up’ trapped cash.
- Technology investment – the level of investment being made in new tools to help address working capital management is still relatively low – with only one of the attendees having started to seriously consider schemes like Supply Chain Finance and Dynamic Discounting. The majority of organisations were still at the stage of automating Accounts Payable functions or implementing e-invoicing.
Interestingly, one of the barriers to e-invoicing (or perceived barriers) amongst the organisations present was the on-boarding of suppliers. My opinion on this is that if early or prompt payment is offered to suppliers as part of the on-boarding process, this could be a real incentive to get them bought in. The more suppliers that go electronic, the better for the process and working capital optimisation for the buyer.
- Payment terms – listening to the companies around the table, many found the concept of paying suppliers early in exchange for discounts very interesting – despite some attendees explaining that paying on time can often be an issue. Interestingly, they explained that many of their suppliers are not only interested in getting paid early but also in knowing for certain WHEN a payment is coming (and this being accurate). Predictability is as important as early.
In conclusion, it seemed that for many of the companies at the table, having a strategy for cash flow and working capital management was important. However, many are at the early stages of implementing process efficiencies and very few are thinking about a top level working capital/cash strategy.
This is not unusual – our work with organisations around the globe has highlighted that there are four stages that organisations evolve through as they adopt more automated functionality for their P2P processes. Only at the fourth and final stage do you find that organisations have worked with their suppliers and customers and are making use of ‘best-fit’ payment programs to optimise working capital in the financial supply chain.
If you are interested in reading more about this, click here to download our ‘Networked P2P Manifesto’. Alternatively if you would like to find out more about the event, drop me an email at: email@example.com.