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3 Posts authored by: Beverly Dunn

Getting Buy In For Your Project Means Understanding Who Is Holding The Cash!

 

Companies are hoarding cash because interest is at historic lows. This has created a liquidity problem and risk in the supply chain. Suppliers have liquidity problems due to tight credit markets, which introduces significant risk.

 

  • 80% of invoices are paper
  • 23 days to approve an invoice
  • 70% of discount opportunities are missed
  • 30% of invoices have exceptions costing $600K for every 100K invoices
  • Low interest and tight credit supply chain risk

 

 

How are other companies benefitiing?

Benefits

  • Manage payables, cash, and DPO with greater precision, control, and visibility
  • Maximize returns and reduce investment risks on your short-term capital
  • Enforce pre-negotiated contracts and discount terms established by procurement
  • Optimize discount penetration across targeted suppliers, spend, and invoices
  • Strengthen supplier relationships and their financial stability with innovative tools offering greater cash visibility and liquidity

Results
With Ariba Working Capital Management Solutions, the world’s largest sports equipment company:

  • Increased early payment discount capture from 35% to > 90%
  • Increased supplier discount participation by 20% and average discount to 1.5% (24% APR)
  • Captured dynamic discounts on 4% of targeted spend

 

What is your companies Working Capital Strategy?
During the downturn, most CFOs and treasurers followed the playbook: they accelerated cash collections, extended payments, and unloaded inventory as fast as possible.

 

As a result, cash levels of the S&P 500 soared. Many CFOs found themselves hard‐pressed to explain to their boards how they planned to aim those hoards of cash at growth opportunities. Others wanted to use their cash piles to pay off debt, but because they continued to worry about future economic shocks, they hesitated. Meanwhile, with money markets paying only 25 to 50 basis points for parked cash, the pressure intensified.

 

Looking internally, three out of four CFOs and treasurers told us they did not trust their cash flow forecasts. Some had only a loose grip on impending cash commitments. Others were uncertain how much default risk and slow payment risk lurked in their receivables portfolios. Some voiced private concerns that they could not completely rely on banks to fund sales and operations.


A stark lesson was delivered: Cash is a cushion in times of turmoil, but its value is limited when you don’t have reliable information about cash flow drivers or plans to use that cash in economically efficient ways.
Source: White Paper - Working Capital Management: New Strategies for Maintaining Financial Strength through Economic Cycles

 

Reasons for Missed Discounts
Q: On a scale of 1 to 5, where 1 is the lowest and 5 the highest, rank the reasons for your organization’s late payments and missed discounts.

4-18-2011 9-30-35 AM.png

Source: Electronic Invoicing Benchmarking 2010

 

With these Ariba’s innovative working capital solutions, you gain valuable business advantages that include:

 

Increased Efficiency, Greater Accuracy, and Lower Costs

Automation eliminates slow, error-prone manual processes, accelerating the entire capital management cycle and saving time and money for you and your suppliers.

 

Greater Liquidity and Higher-Yield Returns on Short-Term Cash

By automating your payables and setting up early payment discount programs with your suppliers, you realize a much higher return on cash compared to extending payables and earning interest on the float.

 

Reduced Supply Chain Risk

Ariba Working Capital Management solutions provide many ways to remove high borrowing costs and significantly reduce risk in your supply chain.

 

High Supplier Adoption

Convenient self-service features and a simple user interface make Ariba Working Capital Management solutions easy for suppliers to use, maximizing their participation and incentive to transact with you over the Ariba Network.

 

Previous: Working Capital Management, Why Your CFO Cares! (Pt.1)

 

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Beverly Dunn is a Customer Success Manager with Ariba. All customers are invited to join the private Customer Success group on Ariba Exchange, where you can access the Customer Success   Spotlights, Lunch 'n Learn Webinar calendar and replays, and the Ariba    Knowledge Nuggets.

Traditional working capital management strategies can strain trading partner relationships. As buyers focus on maintaining or extending Days Payable Outstanding (DPO) and increasing cash returns, suppliers often face extended Days Sales Outstanding (DSO) and cash flow pressure. Ariba Working Capital Management solutions provide new and collaborative approaches that serve the needs of both buyers and suppliers. While providing you with the controls you need to optimize cash use and to realize high-yield, risk-free returns on your payables, Ariba Working Capital Management also provides your suppliers with the visibility and control over their receivables to better manage their cash flow. These features help suppliers get early payment at much lower rates than traditional market resources without incurring debt—and provide greater leverage for you to extend payment terms or negotiate reduced prices.


Do any of these topics creep into conversations where your CFO or finance teams are involved?

  • Driving Systems Improvements
  • Desire to outsource non-competitive operations
  • Extension of Days Payable Outstanding or Reduction of Days Sales Outstanding
  • Fraud
  • Audit and Compliance
  • Corporate Reporting
  • Controls
  • Controlling Employee Expenses

 

 

One of the biggest challenges in cash flow management is unpredictability. The other is time. When will a large customer settle what they owe? When will Sales bring in a large new account — and how quickly can this account be up and generating revenue. Working capital management can create tension between buyers and suppliers. While you prefer to hold on to your cash, your suppliers would like to get paid sooner to improve their cash flow. You can resolve the tension by routinely taking advantage of suppliers' early-payment discounts. But those opportunities are often lost in a sea of paper invoices, or bypassed when prevailing cash management strategies call for delaying payment to earn interest on cash balances. Meanwhile, the conflicting priorities can put cash-flow pressure on your suppliers.


Your business growth relies on the free-flow of cash. Yet too much working capital can get clogged up in receivables and payables up and down your supply chain. That can create risks you don't want, for you and your trading partners. Of course, there are ways to collaborate with your cash-strapped partners to set it free, like dynamic discounting or receivables financing. But too many companies rely on sluggish, paperbased finance management processes, making it impossible to get the visibility and communications you'd both need to make fast, informed decisions and achieve consistent results.

 

Ariba is the leading provider of collaborative business commerce solutions to:

  • control costs
  • increase sales
  • minimize risk
  • manage cash


Delivered as a Cloud-based service…just plug in and tap the resources you need when you need them.


Through Collaborative Finance Management, buyers and suppliers improve the financial flows between
them through automated invoice, payment, and working capital management. Improved efficiency,
enhanced visibility, and optimized liquidity while
mitigating supply chain risk.


Through Sales Acceleration Management, sellers can better differentiate themselves in the marketplace,
attract qualified buyers, drive revenue growth, and optimize sales process efficiencies. Collaborative
and efficient market-to-cash processes result in stronger relationships with both new and
existing customers.

 

Next: Working Capital Management, Why Your CFO Cares! (Pt.2)

 

_________________________________________________________________

 

Beverly Dunn is a Customer Success Manager with Ariba. All customers are invited to join the private Customer Success group on Ariba Exchange, where you can access the Customer Success  Spotlights, Lunch 'n Learn Webinar calendar and replays, and the Ariba   Knowledge Nuggets.

Ariba Knowledge Nuggets

 

The invoice to payment cycle is typically the most laborious, time-consuming, and error-prone process in the cash management cycle.

 

  • Majority of invoices are paper with no consistent format
  • Manual workflow process and rules for invoice approval, differing by invoice type, supplier, goods or services and countless other factors
  • Ongoing challenge for AP to manage suppliers and resolve discrepancies without have ownership of the original order

 

 

For the Median Organization this can translate to $2 to $3 million in End-to-EndProcess Cost Savings

Top Performing Customers.gif

The Hackett Group Procurement and Accounts Payable Benchmarks, 2008

 

MessyDesk.jpgRelying on paper-based processes to handle inbound invoices drives up costs in more ways than one. Think about all the time and resources your AP team spends manually inputting invoice information, validating and matching invoices with purchase orders, handling supplier inquiries, and dealing with blocked invoices from ERP systems.

 

 

 

 

 

 

Cycle Times.gif

 

  1. While process cost reduction is important so are improvements to cycle time and effectiveness
  2. World-Class organizations process transactions significantly faster than others and have much higher rates of success when it comes to matching invoices and paying vendors on time
  3. The advantage of being more productive at transactional activities goes beyond just process cost savings through FTE/Full Time Employee reductions.  It allows world-class organizations to reallocate resources to higher ROI type activities and take advantage of things like early pay discount

 

 

Why should we care about best practices in AP?

     For the same reason legendary bank robber Willy Sutton targeted banks: It’s where the money is. As the department in charge of all disbursements (except payroll), AP is the gatekeeper of the organization’s funds. Without AP best practices, there’s a risk of "leakage" of those funds—through duplicate or erroneous payments, missed invoice discounts, late-payment penalties, misuse of funds, and outright fraud. This represents very hard dollars that come right out of the organization’s bottom line. Plus, there is the productivity issue. Best practices help an AP department to be more efficient, allowing it to do more with less. And then there are tax and regulatory issues. Everyone’s nightmare is to have the Internal Revenue Service or state auditor come knocking on the door due to inadvertent noncompliance with federal tax, state sales and use tax, unclaimed property, or other regulatory requirement. Last, but not least, the Sarbanes-Oxley Act has put increased pressure on AP to tighten up internal controls.

     So whether it’s handling invoices, payments, master vendor file issues, employee expense reimbursements, p-cards, cash management, technology issues, regulatory requirements, organizational strategies, or staff relations, this guide can help you build a coherent set of best practices that are tailor-made for your AP department.

 

Source:

IOMA’s Complete Guide to AP Best Practices

 

 

For more information and informative webinars, visit the Ariba Resource Library

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