Only 5 days left until the International Treasury Management Virtual Week 2020

| 16-09-2020 | Eurofinance | treasuryXL |

Don’t miss the Treasury Event of the Year! If you haven’t signed up already, here is a reminder to join this great virtual event with incredible speakers and live sessions.

Virtual Event

Now more than ever, we need to learn and engage with other treasury professionals around the world, so that we can navigate and overcome the unprecedented challenges we are facing.

As the current situation unfolds, the role of the corporate treasurer is evolving and becoming more strategic than ever before. The complexities and function of treasury within the business is changing even more rapidly. The question is: What does the future of treasury look like and how will this affect my team? And where can I turn for world-class advice on building resiliency, supporting the business and addressing future challenges?

Look no further than EuroFinance’s International Treasury Management Virtual Week taking place 21-25 September. It will see world-leading treasurers and economists come together to address these issues, deliver big picture global insights and share the essential granular knowledge you and your team need for the path ahead. In the spotlight will be the latest on cash flow forecasting, supply chain finance, tech, liquidity and FX and payments plus much more.

Speakers and Live Sessions

The line-up of speakers is impressive with the likes of Shell, Alibaba Group, HP Inc., eBay, Finnair, Microsoft, Intel Corporation, Schlumberger, Booking Holdings Inc. and Rio Tinto holding centre stage in one of the 75+ live sessions. But don’t worry if you miss a session, they will be available on-demand for you to watch at a time that suits you.

The custom-built virtual conference platform will bring the experience of a live event to life in a virtual world. It offers plenty of opportunities to network and learn from your global peers, plus a smart calendar to build your schedule.

Free Registration

The great news is, the 2020 event comes without a price tag! It is free for corporate treasurers. So, you can get all the world-class expert knowledge and insights you expect from the leading treasury event without the costs of registration, flights, accommodation or even expenses.

What are you waiting for? Set your treasury team up to thrive not just to survive.

Register for free today!

 

EuroFinance International Treasury Management Virtual Week 21-25 September 2020

| 25-08-2020 | Eurofinance | treasuryXL |

The pandemic sent shockwaves through global financial markets and confronted businesses with extreme scenarios.

Virtual Event

Now more than ever, we need to learn and engage with other treasury professionals around the world, so that we can navigate and overcome the unprecedented challenges we are facing.

As the current situation unfolds, the role of the corporate treasurer is evolving and becoming more strategic than ever before. The complexities and function of treasury within the business is changing even more rapidly. The question is: What does the future of treasury look like and how will this affect my team? And where can I turn for world-class advice on building resiliency, supporting the business and addressing future challenges?

Look no further than EuroFinance’s International Treasury Management Virtual Week taking place 21-25 September. It will see world-leading treasurers and economists come together to address these issues, deliver big picture global insights and share the essential granular knowledge you and your team need for the path ahead. In the spotlight will be the latest on cash flow forecasting, supply chain finance, tech, liquidity and FX and payments plus much more.

Speakers and Live Sessions

The line-up of speakers is impressive with the likes of Shell, Alibaba Group, HP Inc., eBay, Finnair, Microsoft, Intel Corporation, Schlumberger, Booking Holdings Inc. and Rio Tinto holding centre stage in one of the 75+ live sessions. But don’t worry if you miss a session, they will be available on-demand for you to watch at a time that suits you.

The custom-built virtual conference platform will bring the experience of a live event to life in a virtual world. It offers plenty of opportunities to network and learn from your global peers, plus a smart calendar to build your schedule.

Free Registration

The great news is, the 2020 event comes without a price tag! It is free for corporate treasurers. So, you can get all the world-class expert knowledge and insights you expect from the leading treasury event without the costs of registration, flights, accommodation or even expenses.

What are you waiting for? Set your treasury team up to thrive not just to survive.

Register for free today!

 

Working capital management : Some practical advice on the optimization of the Order to Cash Cycle

| 27-2-2017 | François de Witte |

 

As mentioned in my article “Treasury : proposed “to do” list for 2017”, working capital management will remain a hot topic throughout the year. The first priority is to reduce the working capital needs and financial expenses by optimizing the Order to Cash cycle. In this article, we will develop a plan of approach and propose some concrete actions enabling to generate tangible savings.


Background

The purpose of the Order to Cash optimization is to improve the whole cycle from the moment of the ordering of the goods or services, until the final payment, with the aim to:

  • reduce operational inefficiencies and risks such as delays between goods or service delivery and invoicing, credit management issues, unapproved discounts and deductions, data quality issues, etc.).
  • improve a number of processes such as the invoicing, the dispute management, the credit management and credit control
  • assess the current the tools, build business case for the improvement thereof, and implement them.

Plan of Approach

When starting such a project, I recommend to have at first a quick scan of the overall Order to Cash process so as to identify the critical areas and to assess the business case. Based hereupon, one can then subdivide the project in a number of streams.

In such a project, typically the following processes should be covered:

Ordering processes:
It is important to have a client acceptance process (for me a must in the B2B) and a clear policy on the way orders are accepted. I recommend to only accept written orders. For nonstandard goods, we also need to examine if a prepayment is required before an order is accepted, so mitigate the risk in case that the client does not execute this obligations. It is also useful to check beforehand if the exposure on the client will not exceed the existing credit limits.

Current invoicing processes:
Ideally the sending of the invoice should coincides with the delivery of the goods or services. Furthermore it is important to have the invoices sent timely. These actions enable to reduce the “hidden DSO”. Quite a lot of companies lose several days of easy working capital by neglecting this.
A good customer database is key, and in combination with the ERP, this  enables an automation of the invoicing process.  I recommend to use as much as possible e-invoicing, so as to reduce the costs and the postal delays.

Current credit management processes:
A formalized credit policy is a prerequisite. A number of solution providers offer solutions for the scorings of your clients, so as enable you  to define the credit limits in function hereof. In some sectors this information can be enriched by market information. Of course, one need to ensure that sales staff comply with this and check beforehand that the  credit terms have been duly approved. The credit manager needs to work hand in hand with the sales staff.

Current dispute management processes:
Prevention is important. For this reason, when ordering nonstandard goods, it is recommended to check beforehand the availability of the goods and the timing of the delivery, so as to manage the expectations of your clients. Throughout the process (from the order acceptance to the delivery and the invoicing) one should apply thee “first time right” so as to avoid disputes and litigation afterwards. Check also if some services and repairs are to be done under a maintenance contract or warranty, in which case they should be invoiced to other parties.

Current collection and credit control processes
It is important to have a well-organized credit control process enabling to send reminders quite soon after the due date (if possible the first reminder after 15 days). It can help to send to send to your clients some days before a gentle reminder of the forthcoming due invoices. Once the 2nd reminder has been sent, and provided that there is no dispute, it can be useful to block the delivery of goods and services to your client, so as to have an additional leverage, and to have  the credit collectors should calling the clients to see why they do not pay, and agree with them on an action plan.
When the classic reminder and call actions do not succeed, involve also the sales department and consider first a final call  by another person, before sending your clients to the debt recovery service or to the debt collection agency.
It is important to also ensure an automation of the processes, in particular if one has to address high volumes. If you cannot do it with your current systems, there exist good solutions in the market.

Reconciliation and allocation of incoming payments:
This is a big challenge for many companies. Make sure that your clients use the right payment instruments and payment messages, so as to facilitate the reconciliation process. Within the accounting department, incoming payments are not always allocated promptly, distorting the real accounts receivable outstanding. As a result, reminders can be sent unduly, leading to client dissatisfaction.

KPI’s and Dashboards:
It is important to foresee KPI’s for all the involved stakeholders, as well as incentives to ensure that everybody play the game. Dashboards should enable to remain in control and to monitor regularly a number of key indicators. An area of attention are the overdue receivables. A too high percentage of overdue receivables/total portfolio might be an indicator of possible uncollectable receivables and the need for write-offs.

Attention points

An Order to Cash optimization program is complex and we need to address a number of issues such as :

  • The resistance to change: people will come up with several reasons to keep on with the current processes. Overwork or client dissatisfaction will be used as excuse for deviations with the processes. Hence involve all the stakeholders, take time to listen to them and to make sure that they buy in the change. If the change is well explained, people will tend to accept the changed processes. The support of the senior management is key to address this resistance.
  • The limitation of the systems such as e.g. the ERP or the accounting package: Quite a lot of companies miss opportunities because they do not understand the capacities of their ERP. Involve from the start system experts and examine with them possible workarounds.
  • The standardization of processes throughout the organization : This can be an issue, in particular when working on multiple locations. Processes should be well documented. Once this is done, one can look for the automation.
  • The information and training of the stakeholders: Make sure that process documentation is easily accessible, and consider organizing training sessions for the involved staff.
  • The time and effort needed to implement external solutions: This requires a good business case, including all the aspects. Do not underestimate the cost, the effort and time to implement the tool.
  • The determination of the KPI’s and incentives: this should not only involve finance, but also other Sales, sales administration, the production department and the other involved stakeholders. Build in incentives to ensure that everybody play the game. Make sure that the KPI’s are monitored regularly so as to be able to take corrective action in case of divergences

Conclusion

By managing better the order to Cash Cycle, you can generate a lot of savings. This requires a global approach involving all the stakeholders. To be successful, an optimization requires a number of concrete process improvements, but also the buy-in of all parties involved. A good change management should ensure that the improvements are embedded in the organization, and smart dashboards will enable to monitor that one remains on track.
Technology can help to automate the processes, but do build first a business case and to not underestimate the effort.

It can be a long journey, but in the end, it is worth the effort.

 

 

François de Witte

Senior Consultant at FDW Consult

 

 

More articles of the author:

PSD 2: A lot of opportunities but also big challenges (Part I)

PSD 2: The implementation of PSD 2: A lot of opportunities but also big challenges (Part II)

Treasury: Proposed “to do” list for 2017

Working capital management – not just a finance issue

 

How can Cash Management improve your Cash Conversion Cycle part III

| 07-10-2016 | Olivier Werlingshoff |

credit-card-851502_960_720This week an article about the underestimation of cash management on LinkedIn caught my attention. 50% of the companies even doesn’t see the added value of a good cash flow forecast! This does not surprise me and therefore gave me a reason to pick up the pen and write another article on how to improve your cash conversion cycle!

In my two previous articles I gave some examples of how cash management could improve the DSO and the DIO but, what about the DPO? The DPO is an efficiency ratio that measures the average number of days a company takes to pay its suppliers. The more days, the better your cash conversion cycle will be.

Extend payment terms

The first action that can be taken is to extend your payment terms. In the payments barometer from Atradius of 2016 you can find an overview of all payment terms and average DSO for all countries in Western Europe. The reasons why payments are delayed are also mentioned.

The average given payment term to B2B customers in The Netherlands is 27 days, the average DSO is 42 days! Most of the time the first action that is taken when companies have liquidity problems is to extend their payments. The negative aspects of this action can be major. The first aspect is the impact this action has on your supplier, because he has to wait to receive his money. He will then have to look for alternative borrow possibilities. Besides the negative relationships, the extra costs will probably be include in his next price. Suppliers can also decide only to send you the goods when paid in advance.

As you can read this action can have a boomerang effect.

Reverse factoring

A possibility to extend your payment term without all negative effects is to use reverse factoring. With reverse factoring you give the possibility to your supplier to receive more favorable financial terms than they would have otherwise received for a loan.

The effect could be that the relationship between you and the supplier can be improved and you still can extend your payments.

Single payment solution

Another solution is to decrease your banking transfer time of a payment. If you have a lot of foreign suppliers, transfer times can easily be extended, especially when you need to use correspondent banks.

Using banks with an international presence as well as a single payment solution will facilitate you to follow your payment and use the fastest transfer method. By doing so, you can delay the moment of payment and still pay on time.

Within the EU you can make direct payments as a SEPA payment, because there are no borders anymore for money transfers. You don’t need local accounts anymore to facilitate and accelerate your payments.

 

Olivier Werlingshoff - editor treasuryXL

 

 

Olivier Werlingshoff

Owner of WERFIAD

 

How to improve your Cash Conversion Cycle part II

| 14-09-2016 | Olivier Werlingshoff |

credit-card-851502_960_720In my earlier article I wrote about how cash management can improve your cash conversion cycle and more specific the DSO. In this article I will focus on the DIO (Days Inventory Outstanding). This week I heard on the radio that successful retailers have a better DIO than other retailers. The trend to have your product made at low cost in the far East is changing. Companies tried to buy all their trade goods as cheap as possible and to reach this goal buying large quantities at a time was the best option.

What you see nowadays is that the demand of goods is changing very fast. What was “in” a month ago can already have changed. The problem you will have with a large quantity of goods is that it has to be stored and because of the change in demand it will be a problem to sell them for the price your calculations where based on.

This is what happened with a few fashion retailers. A large quantity of fashion products, enormous storing cost and because the production was made in the far East it wasn’t possible to be flexible when de demand of goods changed.

Retailers who are more successful, are looking for possibilities to be very flexible with their sourcing and look for opportunities to buy smaller quantities, which are made closer to their business. By doing so they are better prepared for a demand change. They will have lower storage cost and can change their products more than two times a year.

What is the role of the treasurer in all this?

In my opinion the treasurer has to overview the total cash conversion cycle and has to show the company (sales- and procurement department) what the financial consequences are of enlarging the cycle. A second role is that the treasurer can compare the cash conversion cycle with their competitors and also discuss this information with colleagues and the CFO.

Olivier Werlingshoff - editor treasuryXL

Olivier Werlingshoff

Owner of WERFIAD

 

How can Cash Management influence the Cash Conversion Cycle?

| 27-06-2016 | Olivier Werlingshoff |

credit-card-851502_960_720

How can the Cash Conversion Cycle (CCC) be optimized? The CCC measures the time the money is tied up in the sales and the production process before it’s converted into a cash in from customers. When translated in a formula this will be the DSO + DIO – DPO (Day’s Sales Outstanding + Day’s Inventory Outstanding – Day’s Payables Outstanding).

In this article I will focus on the DSO. Strictly, the DSO is the time it takes for invoices to be paid. I prefer to enlarge this, to the moment you received the order from the customer till the moment the money is on your main bank account.

How can the “enlarged” DSO be shortened with cash management products?

Let’s look at the customer first, how would he prefer to pay?

Card payments:

In the retail sector 50% of the transactions are made by card (credit & debit cards). The other 50% of the transactions are still done by cash. Card transactions are a fast and easy way to receive the money on your bank account. With contactless cards you can even minimize the transaction time, if there is a bottle neck, you can increase your sales by accepting those cards!

The process with cash transactions is more extensive and expensive. You have to save and collect the cash before dropping it at your bank. After a few days the money will appear on your bank account.

Be aware that there are reasons why customers still prefer to make cash payments. Last year I set up a test of 6 weeks of not accepting cash in one retail shop. The total sales dropped with 15%!

Mail with payment link:

When you have the mail addresses from you customers you could consider to send the invoice the same day by mail with a link to the Ideal website. This will encourage your client to choose the payment method you prefer. Furthermore you will save postal costs and paper costs by not sending paper invoices.

Foreign countries:

If you have customers in foreign countries, be aware of the local habits. For example in the US, most of the payments are done by cheques. In the UK and in France cheques are still used as payment instrument. The problem with cheques is that when receiving them, they have to be send back to the original bank before the money will be transferred to your account.

To fasten this process you could consider the possibilities of a local cheque lockbox. With a lockbox your client can send his cheque directly to a local address at a bank and the transactions can be processed immediately. The time that will be saved is the “post time” and the “process time” of the cheque.

International transfer:

If you prefer your customer to make an international transfer, it can be an option to open a local bank account. Depending on the number and the amount of transactions this could save you a lot of transfer costs. To get the money from your local bank account on your main account in The Netherlands there are a lot of cash pool instruments you can use. Jan Meulendijks has written an article last week about how to include foreign bank accounts into your cash pool.

SEPA:

In de SEPA region there are no differences in transfer costs between a national transfer and a transfer between SEPA countries. It is seen as one SEPA region without borders. You can mention your main IBAN number on your invoices and ask your customers to transfer the money direct to your main account.

But even with SEPA it could be an idea to hold a local bank account. In some countries customers still prefer to make transfers to a “national” bank account instead of an IBAN in another country. Some local governments even still oblige you to hold a local bank account for tax payment purposes!

As you can read,besides a good credit management system, there are a lot of cash management instruments that can be used to fasten the payments of your customers.

Olivier Werlingshoff - editor treasuryXL

 

Olivier Werlingshoff

Owner of WERFIAD