Banks, Fintechs and the Changing Landscape

2-8-2021 | treasuryXL | Pieter de Kiewit

My regular blog readers know I like to take the layman perspective on what amazes me in (Corporate) Treasury. I have my personal archive with relevant news we use to discuss every second week in team meetings. What currently amazes me most are the completely unpredictable developments in what used to be the banking market. Just some recent news:

  • Wise, formerly known as Transferwise does a direct listing in London and is valued at $11 billion. They will invest in further facilitating cross border payments thus offering a bank service substitute; read more
  • The competition of Wise, Revolut receives further investments and is valued at GBP 21 billion. They will establish full banking services building direct competition; read more
  • Mollie, a miniature Adyen, explicitly states that they will beat banks at their game; read more
  • One can also see banks creating their own new brands and services. ABN started Aymz, entering the niche market where RNHB and others are financing real estate in not too big tickets: read more
  • And Niels van Daatselaar, CEO of TreasurUp writes about banks and fintechs working together: read more
  • My final example is Ebury being taken over by Santander: the old world takes over the new contender: read more

A few years ago, the Traditional banks had the upper hand and would buy all parties that threatened them. By now, many Fintechs have a much higher valuation than banks. The extreme liquidity in the markets and willingness to invest leads to a situation that predicting what will be next is hard. I think that future winners find a right balance between applying newest technology, understanding potential clients, choose a clear strategy and move forward at highest speed. Many markets are winner takes all, making the game extra exciting.

I have not found a journalist or researcher who was able to solve this market equation and predict which of the various “eat or being eaten” scenarios will occur. The constant flow of new market entrants will continue. My expectations are that Apple, Microsoft, Google or Amazon entering this market with very substantial investments might be the next game changer. But why would I know?

What do you think will happen?

 

 

Pieter de Kiewit

Owner at Treasurer Search

 

 

 

Press release | Kantox joins the treasuryXL community as Premium Partner

28-07-2021 | treasuryXL | Kantox

treasuryXL announces partnership with Kantox to strengthen dissemination of the latest trends about currency management automation technology

VENLO, The Netherlands, July 28, 2021 – treasuryXL, the community platform for everyone who is active in the world of treasury, and Kantox, the global leader in currency management automation software, today announced the signature of a premium partnership.

This partnership will create a new content resource for the treasuryXL community. Treasurers will now have access to a regular stream of insightful and practical content on currency management automation. This partnership includes:

● Collaboration on messaging, content production, and visibility
● Mutual distribution on select items of interest
● Collaboration on larger themes: event promotion, speaking and experts contribution, publications

Through this partnership, treasuryXL and Kantox are striving to ensure that treasurers are always up to date with the latest news and events in their field.

About treasuryXL

treasuryXL started in 2016 as a community platform for everyone who is active in the world of treasury. Their extensive and highly qualified network consists of experienced and aspiring treasurers. treasuryXL keeps their network updated with daily news, events and the latest treasury vacancies.

treasuryXL brings the treasury function to a higher level, both for the inner circle: corporate treasurers, bankers & consultants, as well as others that might benefit: CFO’s, business owners, other people from the CFO Team and educators.

treasuryXL offers:

● professionals the chance to publish their expertise, opinions, success stories, distribute these and stimulate dialogue.
● a labour market platform by creating an overview of vacancies, events and treasury education.
● a variety of consultancy services in collaboration with qualified treasurers.
● a broad network of highly valued partners and experts.

About Kantox

Kantox is a leader in Currency Management Automation software that enables corporates to effectively manage their FX workflow and leverage currencies for growth. Since 2011, Kantox’s expertise and solutions have allowed businesses to collect FX exposure data and automate their hedging, pricing, payment and collection processes.

The company is headquartered in London and authorised by the Financial Conduct Authority (reference number 580343) and Kantox European Union, S.L. is based in Barcelona and authorised by the Bank of Spain (reference number 6890) For more information, visit www.kantox.com, @Kantox LinkedIn.

 

GO TO PARTNER PROFILE

E-Book: ERP Migration | How to Simplify and Accelerate Bank Integration

14-07-2021 | treasuryXL | Kyriba |

ERP cloud migration is a costly and time-consuming undertaking, particularly where IT is concerned – and for many corporations, the bank integration exercise can be among the most daunting aspects of the project.

The good news is that companies can simplify and accelerate the bank integration component of ERP migration, and reduce payment connectivity and format costs by up to 80%.

In this latest ebook, you will learn about the IT challenges involved in the bank integration element of ERP cloud migration, including:

  • Following banks’ schedules
  • Navigating geographical variations
  • SWIFT certification
  • Resourcing challenges

You’ll also find out how you can reduce the need for IT resources while minimizing costs, reducing complexity and accelerating the bank integration project.

Fill out this form to get your copy of the comprehensive eBook.

 

 

How a Treasurer can really add Value

28-06-2021 | treasuryXL | Kyriba |

”The pandemic has boosted automation in treasury departments and led to big increases in productivity. But that is only the start. The big prize is the value that treasury teams can generate with the man-hours that automation frees up”, says Bob Stark, Head of Marketing Strategy at Kyriba.

The Post-Pandemic Treasurer

The post-pandemic world will not be a return to the previous status quo. In treasury we can look at this in three ways – people, process and technology.

In terms of people, a recent survey showed that 61% of CFOs expect their teams to be working out of the office at least a day a week in future (source: fortune.com 2020). In some ways the combination of working from home and in the office will pose its own problems, with different opportunities for fraud and mistakes. At least working from home all the time provided some consistency! Furthermore, many of the changes that treasury teams had to make suddenly last year will now become permanent.

Now let’s look at processes. Fully 78% of CFOs have changed inefficient workflows during the pandemic, and 82% intend to keep the changes that they have made in terms of automation and digitisation (source: MasterCard 2020). These changes involve the standardisation, automation and streamlining of multiple processes.

Thirdly, treasurers need to digitise and have an enterprise-wide cloud platform; to leverage analytics to assess and improve decision-making; and then to innovate through Artificial Intelligence and Machine Learning to make treasury a better business partner.

There has also been a change in the role of treasury within companies over the past 15 months. During the pandemic, treasury’s involvement in other areas of the business has increased. A treasurer’s objectives often now include more strategic aims, and the remit is likely to expand still further. In many cases this will involve increased shared responsibilities, for example reverse factoring.

Treasurers are progressing from a simple focus on productivity to making liquidity visible and then participating in strategic decisions that really add value. All of which in turn elevates the value of treasurers within their organisations.

How Treasury can add Value

We can all agree that treasurers have the ability to add value. We regularly see our clients make significant productivity gains in terms of man-hours as they automate residual manual functions. In many cases, automating processes can save over 80% of the man-hours involved (source: Hackett Group).

But that is only part of the story. The real value comes from what the treasury team can do with all those freed-up hours. The extra time gained through improvements in productivity allows them to analyse risks (such as counterparty, liquidity and FX risk) and make better, informed decisions, based on real insight and business intelligence. Or perhaps the extra time that automation has made available can reduce the opportunity for fraud. The common aim is to leverage liquidity to drive business growth and turn treasury into a strategic business partner.

Digitisation plays a big role here, especially in areas like payments, which have remained partially manual, for example in sanctions screening. Smart contracts are also increasing, which makes for other savings.

Measuring the impact

In any such analysis it is essential to be able to measure what you are achieving. That starts with liquidity itself: how much do we have? How far forward can I forecast liquidity? How confident can I be in the accuracy of those forecasts? After all, you can only use the “excess” liquidity within your company when you are confident that you aren’t going to need it!

Digitisation is the way to improve the visibility of your liquidity. You can then test the accuracy of your information and decide how to use that asset. You can do this with a scorecard to measure your company against industry peers and assess your level of maturity, from Ad hoc, through Emerging and Standardising to Strategic. You can then highlight the opportunities for improvement

Many of our clients have done just that. For one client, an 88% improvement in cash management and forecasting – thanks to automation – saved over £1m in net interest by unlocking cash that had been lying idle. It also helped the same client to save over £100K in bank fees.

Another client reduced costs by 85% and used the newly spare man-hours to avoid £1.2m in fraud-related costs. They also accelerated ERP migration by 80%. Other savings might include generating free cashflow or protecting the business against financial loss. But all these achievements start with productivity gains that free up treasury staff to do something more valuable within their organisations.

I will leave you with three thoughts: automation and digitisation are here to stay; productivity is an opportunity, not just a saving; and if you are going to add value as a treasurer, you need to be able to measure that saving.

Digital Currencies | Not Ready for Corporate Treasury

15-06-2021 | treasuryXL | Kyriba |

Bitcoin and several cryptocurrencies dropped more than $1 trillion in market value, forcing influencers and investors to walk back their advice on using private digital currencies as a reliable store of value. Kyriba’s Wolfgang Koester discussed what was driving this cryptocurrency volatility with Maria Bartiromo’s “Mornings with Maria” on Fox Business Network on May 24th. “We’re seeing increased rhetoric from the Chinese around a Central Bank Digital Currency and the United States are developing their own digital currency,” said Koester.

Big price swings for Bitcoin, Ethereum, and most recently Dogecoin are nothing new. CFOs and Treasurers have always had little appetite for cryptocurrencies, which is why examples like Tesla investing over $1 Billion USD in Bitcoin made such waves in finance circles. And while Tesla reported a quarterly net income boost of over $100 Million USD on their Bitcoin holdings, their social media savvy CEO has since suggested they will move on from their investment. This reinforces for many why cryptocurrencies are a blip on the radar screen and a bad idea for corporations to be involved with. But…are cryptos really that bad for corporates?

First, it’s more a matter of being “not ready” than bad. Cryptocurrencies such as Bitcoin behave like commodities due to their limited supply; the price volatility is fully explained by the supply/demand imbalance. For example, there is a hard cap of 21 Million Bitcoins and these days there is a lot of demand for Bitcoin! Demand for Bitcoin and other cryptos is driven by everything from social media to a fear of missing out (FOMO) that we are similarly seeing play out in other markets, such as residential real estate or in many tech stocks. Corporates, on the other hand, shy away from volatile assets as they require liquidity for their investments and cryptocurrencies just aren’t there yet. Selling several hundred million (or more) dollars worth of bitcoin or ethereum is a market moving transaction and is difficult to manage through the digital wallets and exchanges that are generally more designed for individuals. So, between the liquidity barriers and the unstable values, corporates still can’t rely on privately issued altcoins like Bitcoin, Ethereum, Litecoin and others until these challenges are overcome.

State-sponsored digital currencies potentially have something to offer, however. As Kyriba’s Wolfgang Koester discussed on Fox Business Network’s “Mornings with Maria”, China has made significant advancements in the rollout of the digital yuan, which has further prompted other nation states to accelerate their own digital currency programs. In theory, government-backed digital currencies are expected to offer a striking advantage over the privately issued cryptocurrencies – and that is utility. To have utility, the digital currency must be widely accessible – and be fast and secure. And this is where the Bitcoins of the world are not ready for mainstream use. They aren’t widely accessible, the blockchain “networks” supporting them remain unproven for high transaction volumes, and the value is uncertain and could easily change between the time a seller accepts a cryptocurrency and when they choose to use or exchange them.

Of course there are solutions to each of these individual problems – e.g. the use of stable coins (that are pegged to the price of a fiat currency) instead of altcoins. But each of the requirements – value, liquidity, utility, transactability – must all be met before corporates can expect to safely use crypto/digital currencies on a daily basis. This doesn’t preclude organizations wading into the cryptocurrency landscape as a means of reaching new markets or differentiating against competitors. In fact, more and more online retailers and marketplaces are accepting cryptocurrencies for payment. You can even buy a Tesla with bitcoins. Yet when it comes to corporate treasury and finance teams, they are converting holdings to fiat currencies as quickly as possible so they can still meet cash forecast projections and free cash flow targets. State-sponsored digital currencies may well offer a lifeline to transform digital currencies for mainstream use – or maybe privately issued cryptocurrencies will still rise to the opportunity – and when that day comes it will be fascinating for daily cash management nevermind cross-border payments, global cash pooling, and multilateral netting. I think all of us in treasury look forward to that!

Why CFOs Should Foster Stronger Relationships with Banks

01-06-2021 | treasuryXL | Kyriba |

CFOs are the custodians of financial growth for enterprise business, and a key part of that role is to build and foster mutually beneficial relationships with banks and funding partners. Since banking relationships are built upon the provision of services; whether those are lines of credit, daylight overdrafts, bank account reporting, payments, foreign exchange or concentration / pooling structures, CFOs can and should maximise the value derived from partner financial institutions.

One of the first mistakes a CFO or finance professional can make is in selecting or expanding a relationship with a bank ill-equipped to handle the global nature of their business and geographic footprint.

For example, banking relationships have implications across borders as many strong financial institutions are partnered with local banks or their own local branches providing much needed local expertise. Navigating difficult tax and reporting requirements, local format and regulatory requirements or unique depository scenarios all call upon strong relationships with banks familiar with your localisation needs.

Automating your banking interactions and reporting with technology is an area of concern.

In this scenario, CFOs are not able to take advantage of the full range of banking services since lapses and gaps in technology solutions do not provide for straight-through processing of payments or the automatic posting of cash and transactional details from bank-provided daily bank statements. Banks have evolved their services to provide much more flexibility and sophistication with regards to intraday bank statements, high levels of detail within bank statements and the frequency of sharing this information up to 4 to 5 times per day. Without the right technology solution to handle cash and liquidity forecasting, CFOs are leaving value on the “proverbial table” in the form of lost opportunities to invest, grow the business, or mitigate risk. Meanwhile, the lack of finance and treasury tools and automation associated with technology solutions, keeps staff tied to daily, tactical tasks versus a focus on strategic support and projects.

How well do CFOs understand the full potential of their banking relationships?

CFOs must be involved in understanding the health of the banking relationship and managing, or at least receiving updates on banking scorecards and other metrics to ensure the bank relationship is being leveraged to its full potential. For instance, more than ever, banks often provide or are partners in enabling Supply Chain Financing or Discounting scenarios to help both sides of the financial supply chain achieve their objectives. CFOs, again, must leverage their banking relationships while coupling them to technology options such as a solution with Dynamic Discounting or Supply Chain Finance to maximise bank services.

Additionally, visibility to liquidity in near or real-time is a must-have for CFOs.

Liquidity planning is critical for CFOs in good times and in bad. Historical market drops have highlighted the importance of having real-time access to information about your total liquidity position, understanding what level of cash is flowing through all systems, and what level of liquidity can be allocated to invest in growth opportunities or simply pay employees. CFOs in many cases can partner with banks to develop a mutually beneficial relationship. At the end of the day, Treasurers provide the CFO with the assurance that assets are safeguarded and the organisation has the liquidity required to meet obligations and fund strategic decisions. This is only possible if they too have immediate visibility into their positions.

Finally, there is risk in having all of your eggs in one basket.

CFOs should have a backup plan – having your liquidity, services and debt instruments with one bank can prove to be risky. When financial crises strike from internal or external factors (like margin calls, bankruptcies, etc.), these financial risks are mitigated when the CFO has a back-stop and other banking partner options to keep the lights on and the supply chain flowing. Having major and minor banking relationships can help keep banks competitively working for you while giving your organization financial and liquidity options to keep operations moving.

Should corporate treasurers stop ignoring bitcoins and other crypto currencies?

26-5-2021 | treasuryXL | Pieter de Kiewit

This is a blog by someone who does not own bitcoins or other crypto currencies and does not intend to purchase any soon. Someone who is not a subject matter expert. Someone who told his colleagues not to consider the topic relevant for corporate treasury for a long time. Someone who thought bitcoins are only relevant for extortionists or those who speculate, gamble and hope to get rich quickly. You understand, that someone would be me.

Slowly I am getting this “One wrong-way driver? I see dozens!”-feeling. Newspapers are filling up with blockchain news. Pension funds start seeing crypto currencies as a relevant asset class. Auction houses start accepting payments (Tesla stopped again) and in countries with hyperinflation in South America, people are fleeing into cryptocurrencies, especially stable coins. After a first attempt with the Libra, Facebook is introducing a stable coin with the so-called Diem that seems to be connected to the US dollar.

My main objection always was that I did not see the underlying value. Real estate is bricks, shares are a piece of ownership, bonds should be paid back and with fiat currencies you can buy in a store. I cannot live in bitcoins and my baker does not accept them as payment. But with gold I cannot buy bread either. It has some practical use as a metal but that does not justify its current value. So why measure bitcoins in practical use and underlying value?

The core discussion is about speculation and trust. There used to be times we knew a dollar or gulden could be exchanged for gold, so we trusted our money. But the gold standard is not so standard anymore. Of course the prices of dogecoins, ethereum and bitcoins are extremely volatile but how about the rates of Argentine Pesos, Venezuelan Bolivars, Turkish Liras or pre WOII German Deutschmarks? When you cannot stand the heat, stay out of the crypto currency kitchen but I do not consider volatility a reason to disqualify the asset class.

As to myself, perhaps I just have to accept that I am a laggard or at best member of the late majority in accepting the technology/solution. As to corporate treasurers, the survey shows they have the ambition to educate themselves better on the topic. Of course to be able to answer questions from their colleagues and perhaps to initiate some form of a practical application of crypto currencies. I hope that, next to the Tesla example, in further blogs we can inform you about relevant business cases. About successful implementation but of course also about the bottlenecks like taxation and reporting. There will be enough happening for many future blogs. And I will be someone who communicates differently about crypto currencies.

PS You might enjoy the slides of a recent presentation by Tristan Verhagen, recent Register Treasurer graduate, a great introduction into Bitcoins with provoking insights. See link.

Take care, Pieter

 

 

Pieter de Kiewit

Owner at Treasurer Search

 

 

 

International Treasury Management Virtual Week | Celebrating 30 years as the world’s leading treasury event

| 19-05-2021 | Eurofinance | treasuryXL |

International Treasury Management is the annual meeting place for 1000s of the World’s most senior treasurers to learn and share experiences in valuable peer to peer discussions. With a reputation for ground-breaking sessions and world-class speakers, our 30th anniversary event will explore the boundaries of the profession, take a glimpse into the future of business, treasury and working life as well as offer the practical case studies on the treasurer’s top agenda items.

Only one treasury event can deliver the comprehensive mix of big picture global insight and granular treasury knowledge you need to make the right choices for the future.


Back to the future, again

Over the past 30 years since EuroFinance’s inaugural conference on International Cash and Treasury Management, much has changed. Treasurers have firmly become business partners, technology experts, risk managers and opportunity spotters. They often lead fundamental change within the company as markets, business models and technology shifts.

What next? This event will delve into how treasury operations can gear up for the future, having learned the lessons from the past. Where, who, what and how will the corporate be in the coming years and what is treasury’s role?

Keynote sessions will offer big-picture insight alongside themed streams including:

  • Payments revisited
  • Risks and Rewards
  • Digital strategies
  • Practical solutions to day-to-day Treasury challenges
  • The power of partnership

What makes International Treasury Management the must-attend event of the year?

  • networking on a global scale – a significant rise in attendees in 2020 boosted the value networking with banks, providers and potential clients… all in one place
  • strategic insights and best practices – get solutions to the challenges you face from treasury and economic experts during keynotes, practical case studies, fireside chats, analytical panels and more
  • future trends – delve into the latest innovations and new technology driving change in treasury, and their practical applications
  • live Q&A with world-class treasurers – enjoy borderless networking and live Q&As with high-profile speakers directly after each session
  • cost and time-efficiency – tune in form anywhere in the world, at the click of a button with no long distance travel or accommodation costs
  • continued learning – catch up on any missed sessions and re-watch your highlights, on demand for up 2 months after the event
  • unite your international teams – as a free event, it offers an opportunity for your whole treasury team to attend. Perfect for encouraging learning and development at all levels

September 27th – October 1st | Virtual

Register Now for Free!

 

 

Global Treasury Americas | Planning the post-pandemic Treasury

| 12-05-2021 | Eurofinance | treasuryXL |

The leading virtual event defining today’s corporate treasury agenda

For the past year, treasurers have sweated the core stuff: securing short-term liquidity and longer-term credit; enhancing risk monitoring and hedging processes; and dealing with the implications of remote working. But in the complex and uncertain transition to a new ‘normal’, finance functions will have to resume the search for growth. Can treasury help identify where growth is most likely to come from and which parts of the business are most threatened by digital disruption? And can they do better – can they help build the business strategies needed to prosper as we emerge into the next phase of the pandemic.

This event will explore the practical steps treasurers can take to make enterprise and treasury digitalization a reality and look at varied case studies of transformation in the treasury. The event will look in-depth at new technologies in action as well as more strategic concepts including the sustainability agenda. We look at how treasury can make a difference. Finally, we look at what it takes to transform treasury wherever you are in your journey in order to increase efficiencies, protect the business and make a difference to the bottom-line.

Global Treasury Americas: Planning the post-pandemic treasury

2 days of actionable insights, plus real world case studies tackling the key issues facing treasurers in the region. Topics include:

  • The Great Bounce-back
  • Practical steps on the path to automated Treasury
  • Why sustainability matters for Treasury
  • Name that threat: What’s next
  • Building a true cash culture
  • Payments evolution – the Treasurer’s view

What makes Global Treasury Americas your must-attend event of the year?

  • Understand the practical steps towards making enterprise and treasury digitalization a reality
  • Gain actionable solutions and best practices from varied real-world case studies
  • Network with an unrivalled audience of 800+ senior treasury professionals across the Americas
  • Benchmark your operations against the regions most forward-thinking treasury teams
  • Explore how to support business growth whilst balancing the traditional role of treasury

June 9-10 | Virtual

Register Now

 

 

Liquidity Benefits From Dynamic Discounting in Supply Chain Financing

10-05-2021 | treasuryXL | Kyriba |

It might not always be obvious where business can learn lessons from somewhere like yacht racing, particularly in more specialist fields like Supply Chain Finance and Dynamic Discounting. But there are often uncanny parallels from this sport and finance, when both seek to deploy serious sums of money and leading-edge technology to deliver the marginal gains that can mean the difference between winning and losing.

I thought this was particularly evident in the recent America’s Cup yacht racing challenges in New Zealand. Those AC75 mono-hull super yachts that raced around the bays off Auckland often travelled at a logic-defying 40-50 knots, twice as fast as the winds that powered them and seemingly in defiance of both gravity and conventional sailing speed barriers.

Liquidity Made Good

The key to having one AC75 go faster than an almost identical competitor is the ability to analyse masses of data points in real-time to make the required adjustments to sails, rudders, weights and foils in order to attack the optimum route to the finish at maximum speed. It’s a concept called Velocity Made Good, with VMG now the go-to acronym that defines winners in America’s Cup racing. Perfecting VMG was the reason the New Zealand boat successfully beat its global challengers – again.

I was particularly struck by how this VMG-led transformation of yacht racing, now cascading down from the pinnacle of the sport to the club level, is not dissimilar to how a focus on technology-led cash and liquidity management is liberating corporate balance sheets. We could even refer to it as Liquidity Made Good, where, by the way, velocity also matters.

New Level Playing Field

The deployment of more powerful technologies can improve decision-making, release resources from previously opaque silos and supply chains, and deliver new competitive advantage. Historically this was only available to those high-tech firms and financial institutions with deep pockets, just like the owners of America’s Cup yachts, because of the almost prohibitive cost of computing power, data storage and analytics.

But cloud-based software platforms, the blossoming of data analytics, ubiquitous access to near-unlimited data storage and the power of connectivity-as-a-service now ensures, like in yachting, that these benefits filter down from the elite to level the playing field.

Greater Flexibility, Visibility

In particular, the once sleepy backwaters of trade finance are now waking up to new opportunities to maximise cash resources in ways that not only strengthen supplier relationships, but also enhance Corporate Social Responsibility credentials. Early Payment Discounting has been around trade finance for many years. But persistent, ultra-low interest rates and expectations of greater flexibility now demand more creative solutions from Treasurers. Answers to which technology can now help to provide.

Dynamic Discounting

Within the broader field of Supply Chain Finance, firms can now use technology to transform early payment schemes into Dynamic Discounting. These can be deployed as an integral part of wider working capital management, where better visibility can optimise liquidity and improve profitability. It might seem just a simple method of paying invoices earlier, particularly for businesses with surplus cash that can benefit both parties involved. But how it is managed becomes critical to the outcome.

Win-Win Solution

For Dynamic Discounting to succeed, it needs to be sufficiently flexible (dynamic) as to how and when suppliers are paid, with payments made prior to due dates at a discount to original invoice values calculated on a sliding scale. This means that the earlier the buyer pays a supplier, the greater the discount. The discount is therefore “dynamic” in relation to the number of days until the invoice due date and avoids the previous “cliff edge” difference between simply either having a discount or not.

Most importantly, suppliers get continuously paid earlier, which improves their liquidity position and which could then allow them to pay their own suppliers earlier, invest more in their business or alternatively just do more business with the buyer.

Funding Flexibility

For a cash-rich buyer operating in a low interest environment, the benefit is obvious. Rather than leaving liquidity in a low-interest account, it can pay large invoices early to receive additional discounts and strengthen profitability. For instance, if a buyer receives a 2% discount for paying a 90-day-net invoice after 30 days, it can invest the amount for 60 days and receive a return. This is the equivalent of a just over 10% annual return on capital that would far outweigh any loss of interest.

The buyer is fully in control of how this program is run, determining how much funding capital to set aside and adjusting that capital as seasonal liquidity fluctuates. Any seasonal liquidity issues could then also be managed by pairing the dynamic discounting program with a traditional SCF program. This would also allow the flexibility for third-party funding to fill any gaps that emerged due to potential, or periodic, lower cash balances available for the original arrangement.

Besides earning a return on excess cash, Dynamic Discounting can also reduce supply chain risks (in that financially more stable suppliers mean reduced supplier risk) and then strengthen supplier relationships. Conversely, on the supplier side it improves cash flow and provides early payment options, both of which save time, puts cash into accounts sooner and increases liquidity visibility. Benefits everywhere!

CSR Benefits – Risk Free Returns

There’s no such thing as a free lunch, but there are other compensating benefits to offset the initial costs of implementing a modern Dynamic Discounting plan, not least of which can be a significant increase in ROI on otherwise dormant cash without increased risk. After all, you are only effectively paying existing suppliers early, who you have to pay anyway, free of any additional counterparty risk.

And, as I mentioned earlier, today’s much more keenly scrutinised CSR credentials can also be significantly burnished by the support provided to often much-smaller suppliers down the food chain. That can then be more widely communicated directly to CSR scoring tables which, in turn, recognise responsible buyers and suppliers.

So, to get the maximum benefit of the wind in your sails and the best performance from your assets, make sure you use the right technology to strengthen decision making. After that, understanding the challenge, minimising the risks and reaping the mutual rewards of Dynamic Discounting will enable much smoother sailing and help you optimise your liquidity!