A holistic approach to achieve your working capital targets
Where the cost of cash is increasing, working capital can be a life saviour. But switching from external to internal sources of funding requires not only an efficient treasury but also the technology to improve visibility, accelerate the cash flow process and reduce costs. New technologies and payment methods are enabling treasurers to combine solutions that streamline both receivables and payables. This is revolutionising the way you can influence different levers, at different times, to improve liquidity and price of funding, including off balance sheet structures. We hear how this company implemented a programme that has helped to change the organisational culture, free cash and improve balance sheet metrics.
Cash forecasts have traditionally been based on past behaviour and often influenced by the intuition of individuals in charge. However, the advent of AI enables the analysis of large volumes of internal and external data (from sales, purchases and customers’ payment behaviour to macroeconomic indicators, industry trends, FX, credit risk, key suppliers, etc). This means more effective, data driven forecasts that retro-aliment themselves, improving accuracy as data increases. These predictions can help improve decision making and expand the reach of financial solutions. In this session, hear what Artificial Intelligence and data analytics can bring to the table to support the WC agenda.
The ABC of a successful SCF programme
SCF programmes are long term implementations. Before embarking on such initiatives it is important to evaluate the costs and benefits. For big companies the project will compete with others and will require a considerable investment in people, time and cash. In the interest of efficiency, treasury has to have done its homework. Standard and centralised processes, including documentation and technology to comply with accounting and legal requirements are key. We present a step by step guide to ensure implementing a SCF programme is a success. We look at the stake holders and how to manage them, the partners and technologies available. We analyse proprietary vs multibank solutions, the fintech offer, how to structure the documentation and the intricacies of the on boarding process.
Should you stick to bilateral bank relations or separate processing from funding?
When choosing a SCF platform provider, there are several issues to consider. Can your partner operate in the countries and currencies where you need them? Can they grow with you? Another question is whether all suppliers can be included in the programme or if size is a restriction. And finally, if you go for a fintech, where does the funding come from and what guarantees do you have that there will be no shortage or change of risk appetite on the part of the funding provider? When banks partner with fintechs, your power to negotiate is diminished. Can you have control over the investors you want to bring on board? How do you manage KYC data when using a non-bank platform? We look at how the market is configured and what are investors are looking for.
Technology integration: the key to success
The advantages of implementing factoring and reverse factoring are clear and the technology to accelerate cash flow is available. However, transactions involve a large number of participants and systems which means that the execution can be inefficient if goods, data and finance are disconnected. How can you achieve total visibility? What are the main issues to consider when implementing a platform to ensure a smooth technology integration? In this session we learn what to look out for when choosing your technology partner and the internal processes and KPIs to have in place.
How can virtual cards improve your Working Capital agenda?
Virtual cards can help increase visibility, security, and efficiency whilst lowering costs. Additionally, paying with a credit card on a company´s preferred date can allow extending terms to suppliers. However, the number of virtual card providers has grown exponentially and these have become quite commoditised. What are differentiating factors? What are the fees? Hear how companies are using them to improve working capital.
Dynamic discounting: What is the cost benefit ratio?
You might be generating a lot of cash but if low interest rates result in low returns, a dynamic discount programme might be a solution while simultaneously financing your suppliers. However, Dynamic Discounting can work against free cash flow targets. How do you balance that? Arbitraging with IR? Going to the overnight market? How easy is it to switch from Dynamic Discounting to Supply Chain Finance? Additionally, depending on the markets, there can be tax and accounting implications to consider. Furthermore, there is a disparity between DD and hedging. If you are operating in a non functional currency and you hedge to counter the FX risk, the cost might outweigh the benefits of DD. Overall, what is the cost benefit ratio of DD? What is the supplier´ uptake and what strategies work best to ensure on boarding?
The final onboarding check list
Implementing a SCF or DD programme does not guarantee that suppliers will use it, not even if they sign up. The process of onboarding can be long and costly and you need to consider which suppliers to offer it to. What are the main selling points for those that don´t need the funding? Who should be in charge of the negotiations? If you are doing a mass marketing campaign to promote dynamic discounting, how do you make sure that the message gets to the right person? KYC checks that banks demand can also be an issue. This company with a very global presence implemented SCF and Dynamic Discounting. They faced all the issues above as well as having to train local employees in the subsidiaries, translating bank contracts into local languages and tax issues. They share lessons learnt.
Accounting matters
Accounting treatment of factoring and SCF programmes has always been controversial. Rating agencies seem to be increasingly inclined to consider them as debt. This means that even if the programmes might appear as off balance sheet and still help with liquidity and funding, they no longer help with debt levels. How do you reposition it with your rating agency? What is the accountants view?
The final hurdle: taking inventory off balance sheet
Accounting rules can promote building high levels of stock, counter manufacturing companies’ need for efficiency. Reducing inventory frees up cash and helps cut associated costs such as insurance and staff to manage it. What are the options to take inventory off the balance sheet whilst ensuring that the operation is not classified as financial debt? Location of stock, risk transfer, the existence of a secondary market and insurance are some of the issues to consider. Wording in contracts is crucial. Banks are restricted in their ability to take these risks but new players are entering the market. Join this session to find out about the ways to overcome these issues and new solutions available. How do they compare with other funding options? Are they competitive?
A holistic approach to achieve your working capital targets
