Breaking News: Companies are stockpiling cash at record rates! 

 

Ok, so that's not a novel idea.

 

From the persepctive of this close observer of corporate cash, finding a use for idle cash is only growing in importance as companies (esp. Treasurers & CFO's) struggle to find some way to put it to work for their shareholders.  In fact, a few weeks back August the Wall Street Journal noted that Google is turning to car loans to invest their cash, while just last week, yet another article opined on what Chevron would do with more cash on the balance sheet than any other publicly traded energy company.

 

And today, in a thought provoking piece in a Harvard Business Review blog, Andrew Sherman introduced the truly novel idea of companies using their cash as sort of venture capitalists, or "wealthy Uncle Harry or Aunt Sue" to invest in smaller suppliers (presumably in their supply chain), giving those suppliers much needed access to liquidity, while putting their own cash to use for a better return than historically low money market funds or T-bills.  In stating his case for this nontraditional use of corporate cash, Mr. Sherman makes some key points:

 

  • "It is well established that America's largest companies have been stockpiling cash over the past 24 months at alarming rates...But history shows that cash cannot sit idle indefinitely. "
  • "Even as the large companies are hoarding cash, many small and mid-sized enterprises are still facing significant challenges and hurdles gaining access to the credit markets."
  • "These sources of capital [corporate balance sheets] seem untraditional, but the current state of America's credit crunch remains bleak and demands new thinking."
  • "There is a tremendous amount of [uncommitted capital] in the economy, and it represents enormous potential for creating a virtuous cycle of growth, partnership, and co-innovation between companies large and small"

 

I couldn't agree more with Mr. Andrews observations above, but it is his last statement regarding the virtuous cycle opportunity that has me standing up at my desk and applauding! 

 

That's the Networked Economy in action!  This idea that the different parties in the supply chain can collaborate over shared needs (e.g. idle cash meets cash flow need) to produce a win for all involved is particularly relevant when those parties participate in a shared business network.  And this type of Collaborating to Win is desperately needed to meet this challenge of what to do with idle cash and how to meet cash flow needs of suppliers.

 

While a much shorter term use of cash than Mr. Andrews advocates, Dynamic Discounting is another novel approach for using idle cash that targets the issues he highlights.  One such company doing this today is ONEOK, a large energy company that is connecting with their suppliers via the Ariba Network to collaborate over invoice processing and cash flow, to the benefit of all parties.

 

In fact, ONEOK will be presenting with me on a Treasury & Risk educational webinar on september 20th where T.D. Eureste, director of finance and treasury at ONEOK, will explain how cloud computing and electronic invoicing is becoming a foundation technology for Dynamic Discounting that is achieving great returns on their cash and driving bottom line value. Register here for this webinar to hear about how they are using this novel approach to put idle cash to work in their supply chain.

 

There is no doubt, as Mr. Sherman points out, companies are stockpiling cash and are looking for ways to earn more with it in the short term, while many suppliers are looking for sources of cash flow in a difficult credit environment.  And as Mr. Sherman makes clear, new thinking and novel approaches are needed to meet these objectives.