Tag Archive for: cash management

Blockchain and Supply Chain Finance: the missing link!

| 19-5-2017 | Carlo de Meijer | treasuryXL |

Our expert Carlo de Meijer is our blockchain specialist and publishes his articles on a regular basis. We present his latest article about blockchain and supply chain finance in a shorter version.
Carlo writes: Whereas the focus on the use of blockchain long time has been on payments and securities, an important but still undervalued use case has been supply chain finance. But that is changing. The complexity and scale of existing supply chain finance solutions has posed major challenges in ensuring adequate funding and efficient operations. According to some blockchain technology has the potential to be a game-changer for supply-chain finance. Let’s have a look.

Present state

Supply chain finance (SCF) is a generic term for a wide variety of financing instruments, used to finance various parties in a supply chain. SCF refers to the use of short-term credit to balance working capital between a buyer and a seller, thus minimising aggregate supply chain cost. Businesses can use supply chain financing to build stronger relationships with suppliers, decrease currency risk and ultimately improve liquidity.

Financial institutions offer supply chain financing solutions aimed at improving the purchaser’s working capital, and the supplier’s liquidity, by providing an efficient payables platform to streamline the payment process. Compared to the “old-fashioned” Letter of Credit, SCF now also encompasses new trade finance instruments including factoring, reverse factoring, payables financing, and dynamic discounting. Reverse factoring is the most popular and most widely used supply chain finance instrument. In reverse factoring, receivables are sold to a bank at a discount as soon as they are approved by the buyer. The bank then commits to pay the company’s invoices to the suppliers.

It is important to understand that supply chains are complex by nature; various parties are involved from raw goods supplier, producer and distributor all the way up to the consumer. This has posed major challenges in ensuring adequate funding and efficient operations.

Blockchain and supply chain finance

The question is: what can blockchain mean for supply chain finance and how could it be applied?

A blockchain-based supply chain finance solution more specific via so-called smart contracts will essentially enable all parties in a supply chain finance solution to act on a single shared ledger. A supplier and manufacturer, along with every other participant, will solely update their parts of the transaction, enabling efficiency and an “unprecedented” level of trust and transparency on a ledger record that is immutable.

“If you talk to supply chain experts, their three primary areas of pain are visibility, process optimization, and demand management. Blockchain provides a system of trusted records that addresses all three.” Brigid McDermott, vice president, Blockchain Business Development & Ecosystem, at IBM

Blockchain technology can offer great potential for both corporates and banks in terms of increased control, speed and reliability of their supply chain and at a fraction of the cost of their current infrastructure. Payments made via this digital system can be monitored by both parties, meaning that suppliers are no longer at a disadvantaged positon in the buying process while they wait for processing. Blockchain will speed up the process, giving the two companies more control, and in the long-term would ultimately create more robust supply chains.

Because the bank can see both the original contract as well as the order placed with “Company B by Company A”, it can verify both authenticity and provenance. Further, if the contract tracks manufacturing or transportation events, the bank can also know the state of fulfilment at any given time. What should be quite clear is that the visibility and auditability that are main characteristics of blockchain technology allow financial collaboration across supply chain echelons, not just bilaterally.

The time required from initiation to payment can therefore be dramatically reduced. In addition to the reduced transaction time, other benefits for importers and exporters include reduced bank fees (due to less manual activity on the part of the banks), reduced time for loan approval, and reduced risk of fraud. This way of financing a supply chain is radically cheaper and more efficient than the current way of doing business.

Blockchain: the missing link

Using blockchain may provide a simple system of secure record keeping that allows the bank redeeming CFS “to ensure that the CFS presented by the holders has been used to finance appropriate supply chain smart contracts”. At the same time suppliers using the blockchain system may retain the privacy that is need in their financial transactions with their sub-suppliers.

There are still challenges to be dealt with, too, such as the need to implement paperless trade, issues of data privacy, and how to get all members of a supply chain to participate. If global supply chains are to gain the full benefit of this technology for managing payments and related data, all parties that play a role in global trade must be involved!

By providing this missing piece of the information and supply chain management puzzle, blockchain may become the missing link!

Blockchain SCF projects

Since early this year the number of blockchain projects to improve supply chain finance is growing firmly. Especially IBM is very active in this area and partnered with companies in China and India to work on new blockchain-based solutions. IBM also teamed with Danish logistic and transport company Maersk Line, to create a new solution to digitize the global, cross-border supply chain using blockchain technology. Start-ups are at the same time popping up to help bridge the gap to this new technology, such as blockchain-based financial operating network Fluent, which aims to streamline supply chain finance.
“Blockchains built into supply chains can offer trust and accountability, as well as compliance with government regulations and internal rules and processes, resulting in reductions in costs and time delays, improved quality, and reduced risks,”Arvind Krishna, IBM Research Senior Vice President and Director Yijian Blockchain Technology Application System

 

Carlo de Meijer

Economist and researcher

 

 


You can read more about the different SCF projects in the complete article of Carlo de Meijer on LinkedIn.

 

 

Better Decisions through real-time Reporting: Business Intelligence about Cash Flows & Cash Positions

|17-5-2017 | Joerg Wiemer | TIS | Sponsored content |

How do strategic professionals decide on the best path to success for their company? The key is in transparency and real-time reporting. If it comes to the responsibility of the treasurer or financial professional this means deciding about company-wide cash flow and liquidity levels, bank, customer and supplier relations and working capital.

When cash flow visibility is the lifeblood of your company, you want full control and knowledge. Direct access to insights on profitability and potential business risks allow users to drive better decisions based on solid business intelligence, accessible anytime and anywhere.

 SCENARIO

Better decisions: Companies now have the power of the Business Discovery Manager – a business intelligence module within the TIS cloud platform. Supplier, salary and treasury payments can be easily analyzed along with cash flows, liquidity and working capital via easy-to-use dashboards and reports. The tool, enhanced through state-of-the-art BI technology, enables users to access all strategic insights in a single, flexible, web-based and multi-bank, multi-ERP capable platform available 24 hours a day from anywhere in the world.

 

Source: TIS Treasury Intelligence Solutions GmbH

Challenges

You can’t manage what you don’t measure

  • A lack of visibility over liquidity, working capital and cash flows at the C-level, in treasury, controlling, accounting, Sales and
    purchasing departments.
  • No transparency regarding bank relationships, liquidity positions and account turnover
  • No transparency regarding customer and supplier relationships, as well as incoming and outgoing cash flow

TIS Business Discovery Manager

Company-wide unified automated analysis of cash flow, liquidity and working capital in various departments of Corporate headquarters and in local subsidiaries

  • Multi-bank capable
  • SAP ERP integration via certified plug-in; connection to any ERP, HR and treasury system
  • State-of-the-art BI technology and functionality in a single SaaS solution
  • Support of customer-specific BI tools; support of self-service BI functionality
  • Business Intelligence as a Service: Ready for use throughout the company within seconds without any complex IT projects
  • No changes to bank or system landscape required; the solution is flexible and easily adaptable
  • ISO 27001 certified for data security

 Customer value

  • Better decisions based on complete visibility of liquidity, working capital and cash flows
  • Ability to quickly answer essential questions without the need for any extensive IT projects

Your benefits

C-Level executives:

  • Instant reports about cash flow performances (total of all inflows and payments) of the various local subsidiaries compared to one another over a specific time period
  • Identification of corporate risks and value-adding activities to drive future growth
  • Tangible insights to support internal and external audits
  • Power and data to provide strategic advice to sales and procurement departments

Treasury and controlling teams:

  • Answers to key questions, such as: How much liquidity is available at which bank? What is the net cash flow for a specific currency over a specific time period for a group of companies (natural hedge)? How much working capital does a local subsidiary require in a specific time period?
  • Increased compliance, transparency, and more efficient processes paired with reduced costs

Accounting teams:

  • Visibility of when a supplier was paid, or when a customer paid a local subsidiary over a certain time period
  • Insight into the value of inflows made by customers via various bank accounts and ERP systems over a specific time period

Sales teams:

  • Insight into the value of inflows made by customers and the overall payment behavior of the customer base

Purchasing teams:

  • Transparency across values of overall payments to a supplier via various bank accounts and ERP systems over a specific time period

Source: TIS Treasury Intelligence Solutions GmbH

Business Discovery Manager: never struggle to answer any of these business-critical questions again

 

joerg wiemer

Joerg Wiemer

CSO and Co-Founder of TIS

 

The Euro from a treasury perspective

| 10-4-2017 | Hans de Vries |

In a perfect world, one currency is the ultimate dream for every Treasurer. The introduction of the Euro has been a major leap forward in that direction. However, current anti-euro sentiments boosted by populist movements all over Europe, seriously threaten to hamper this unique and visionary European accomplishment.  This article focusses on what impact the introduction of the Euro had for the corporate treasurers and what will happen if the Euro gets skipped.

Let’s start with the beginning. One must be aware that the introduction of the Euro is the world’s largest economic policy experiment so far with heavy repercussions on the autonomy of the countries involved with regard to their monetary regimes.  So naturally this expedition has met a lot of criticism ever since the beginning, the creation of the European Monetary System (EMS) on March 13,1979.

The Euro skeptics mostly feared that the wide-spread adoption of the Euro would deteriorate the economies of countries that accepted this currency and was in favor of the larger countries, like France and Germany, that now could easily manipulate the Euro’s puppet strings. Main belief was that the Euro would weaken instead of strengthen the European economy.

 As from the start, Euro stronger than expected

Although the Euro met quite some negative public attention, looking at more than 15 years of Euro, the track record has not been that bad at all. As the graph shows, after a relatively weak position against the USD at the beginning of this century, the Euro has held a strong position against the USD as from 2003 on, although weakening after 2014 in the aftermath of the banking and economic crisis that followed it. However, the predicted downfall of the Euro never took place. Remarkable phenomenon was that when the value of the dollar was higher, it was regarded in the media as a sign of weakness of the Euro against a “strong” Dollar and when the value of the Euro was stronger than the USD it was regarded by the analysts as a sign of weakness of the Dollar.

More important is that the introduction of the Euro as per January 1, 1999 has indeed brought the predicted transparency to the European market but also to the global market. This transparency has contributed to the substantial growth (5-40% according to Bun and Klaassens) of the internal trade flows within the EU countries due to the fact that the Euro has lowered the fixed and/or variable costs of exports. Prices can be compared across the whole Eurozone, allowing companies to choose the most price-competitive suppliers. The newly exported goods are of lower unit values than those previously exported because the Euro has made exporting them profitable, particularly for small exporters. Don’t forget that with 28 member states in 2014 Europe was the strongest economic player on global level taking care of 17,1% of the World GDP whereas the USA had a share of 15,9% and Russia 3,3%.
From a more monetary viewpoint the Euro brought price stability. Inflation in the Eurozone has been around 2-2.5% for most of the time since its creation.
A strong Euro mitigated the impact of the volatility of dollar-denominated commodity prices.This advantage was particularly visible before the beginning of the financial and economic crisis, when the oil price and the price of some other important food commodities reached unprecedented peaks. Due to the Strong Euro or weak USD, the consequences for the European market were relatively minor.

Euro leads to transparent treasury operations and substantial cost reductions

In today´s Euro environment, most Treasurers in Europe only have to deal with the USD, GBP and sometimes CHF and the Nordic Currencies. This makes live quite overseeable and has substantially enhanced their risk portfolio. The same applies for the Treasurers outside the Euro zone, who are now freed from the hassle of the past European currency palette.

Although a number of Euro critics pointed their finger at the Euro as direct cause for the Banking crisis a few years ago, it is almost impossible to imagine the consequences of the crisis in and outside Europe if every European country had been dealing with their own currencies. This would have resulted in a pandemonium of devaluations and revaluations with even more severe consequences for the values of all national and international operating companies and even more bank bankruptcies. Not to mention the impact this might have had on pension funds and other investment vehicles on short and longer terms.

From a corporate perspective, the benefits of the introduction of the Euro are therefore quite clear.

But also the consumers more and more are sharing the benefits of the common Euro market. Not only during travels abroad but also internet shopping becomes more and more international with new initiatives on the way to support payments like the Fast Payment project.

Looking at all these benefits, the current anti Euro sentiment in a number of European member states is from an economic point of view hard to understand and might pose a serious threat on the future European economic development.

Consequences of a Euro exit from a treasury and cash management perspective

Imagine getting back to the world without the Euro. This means an enormous rise of the operational costs considering:

  • The daily currency shifts that influence directly the position of the corporate’s accounts receivable/ and accounts payable and therefore the short time profit/loss situation. To minimize the impact substantial investment in systems and manpower will be needed;
  • The monetary developments as result of the internal economic/ political situation per country resulting in overnight currency devaluation/ revaluation and it’s inter currency reaction’s. (The recent takeover of Opel by Peugeot was merely a result of the strong decline of the GBP against the Euro which had severe consequences on the UK based Vauxhall subsidiary and shows the impact of the monetary developments on the corporate world.)
  • The banking costs involved in setting up swaps/ hedges/ Long term deposits etc.
  • The banking costs involved in buying and selling the various currencies;
  • The impact on money transfers which will be treated as international payments again with different clearing systems, correspondent banks, local payment instruments and formats etc. resulting in delayed payments and receipts and therefore threatening the growth of the economies.
  • The impact on international trade that will strongly diminish due to the lack of transparency of the international markets, the rise of costs and the loss of trust.
  • Re-opening of local accounts to support local business

Banking industry as sole winner

The only party that will benefit from this skip of the Euro development is the banking industry, because of the margin to be made on currency exchange, swaps and other derivates, and the backshift to a Non-Sepa/ international payments environment with substantial higher transaction costs. Looking at the public opinion on banks in general ever since the bank crisis, it’s hard to believe that the populist movements in Europe are in favour of this development.

Take the loss or start a counter movement?

This leaves us with the question, what benefits are there to gain by consumers and businesses alike by leaving Europe and the Euro? Looking at the economic development of the Euro countries today and all the benefits the Euro has brought the corporates and consumers,  there is no clue why we should not stick to the current status quo and enhance it in any possible way.

It is therefore high time to start advocating the true merits a United Europe has been gaining thanks to the pan European ideals: a unprecedented war free community already lasting for more than seventy years combined with an enormous economic and cultural development.

Hans de Vries

Treasury/ Cash Management Consultant

How can payments improve your working capital? Part I

| 6-4-2017 | Olivier Werlingshoff |

Working Capital is the term for the operating liquidity of a company that can be used and is needed to continue the day to day business. To calculate the working capital you have to deduct the current liabilities from the current assets. By managing your account receivables, accounts payables and inventory you can fluctuate your cash position and optimize your working capital so that the cash “trapped” in the company can be lowered to a minimum while you are still able to meet your payment agreements.

The way you are making or receiving payments can have influence on the trapped cash and therefore can influence your working capital.In a few articles we will dive into the world of payments and explain the influence on working capital. In this first article we will discuss the wire transfers within the EU and cross border.

Wire Transfer

SEPA
With SEPA all payments in the EU are considered as a local payment. To minimize your banking process time with bank transfers you don’t need to open local bank accounts in the different countries in the EU anymore. If you have a customer in, let’s assume Spain and you agreed on a payment term of 30 days, you send your invoice by mail as soon as the  client signed the contract. At that moment your working capital will increase with the amount until the moment the amount is paid into your bank account.

You can mention on your invoice that payments can be done by transfer to your IBAN number in The Netherlands. The maximum processing time will be one banking business day if you send the payment instruction before the cut off time of your bank. This means that if the client is doing the payment on Friday before the cut off time, mostly 3.30 PM, the amount will be on your account on Monday. Otherwise you will receive it on Tuesday.

Risk of non-payment
With wire transfers you still have the risk of nonpayment by you customer. Within the SEPA area you can also use Direct Debits. With this type of payment you can be the one who initiates the payment and if your client accepts, your money could be on your account after the agreed payment term of 30 days. Furthermore Direct debits can’t be reversed by your client when you use the Business variant.

Cross border
If you have a client in the US, you will also send him the invoice by mail to skip the postage process. You can ask him to transfer the amount to your IBAN number. The client will probably convert the amount in his own currency and make an international transfer. With a cross border transfer you will have different costs: the outgoing transfer cost, the incoming transfer cost and also even sometimes correspondent bank costs. Besides the high costs, payments can even take a week before reaching your bank account.

What is the effect on your working capital? Because it takes a long time before you get paid, your accounts payables will increase and the “days sales outstanding” will be longer than the 30 days you agreed on.
When you have a lot of international clients in one specific country you can make a calculation whether opening a local account in the country of your clients could be profitable for you. To avoid correspondent cost you can choose a bank that has connections with your main bank.
After receiving the money on your local account there are some instruments you can use to sweep the balance to your main account in The Netherlands, those products are called pooling techniques.

In the next articles we will focus on payments by internet, credit – and debit cards but also payment on delay and trade products.

Olivier Werlingshoff - editor treasuryXL
Olivier Werlingshoff

Owner of WERFIAD

 

 

 

More articles from this author:

Managing cash across borders

How to improve cash awareness without targets

 

 

Instant payments for treasurers

| 31-03-2017 | Alessandro Longoni |

Building on the ideas shared in a previous article about Cash Conversion Cycle on treasuryXL, this piece focuses on the developments that new European laws will bring in the areas of Instant Payments and how this will affect Treasury.

As part of further standardization within the union, European regulators mandated the industry to develop an “instant payments” product aimed to making the funds available on the receiving side “within a maximum execution time of ten seconds”. The SCT Inst scheme has been developed to allow for consumer payments (C2C, C2B) in Euro for the SEPA and will be an optional scheme – meaning that PSPs and Banks are not obliged to join.

Practical Use Cases

From a cash management perspective, Instant Payments open an array of new possibilities for merchants, especially for those operating eCommerce operations. Currently if a customer places an order on a friday late afternoon, the funds are made available (earliest) on monday evening, while the order is most likely processed and delivered by Saturday afternoon. With SCT Inst, if the order is placed on friday at 21:00, the funds will be received (maximum) at 21:00:10 and already available to pay suppliers if needed.

From a treasury perspective, Instant Payments will also allow for more transparency on transactions and easier reconciliation, but time needs to be devoted to update the current tools to facilitate for this. As Instant Payments will gain customer adoption, the incoming payments cash account will be filled with hundreds or thousands of transactions per day, as opposed to one per day coming from your Payment Service Provider. Having direct access and insight in each single transaction will make it easier to reconcile it with the relative order, check the amount and book it in the general ledger, but the sheer number of lines in the system requires current tools to be updated to cope with the increased volume and speed.

Pros and Cons

There are several benefits this new payment method brings to the table, including a strong reduction of working capital trapped to fund operations, however, in order to extract all the benefits, ERP systems need to be updated to check the status of transactions in real-time instead of intervals. Without investing in developing the current tools further, companies risk missing out on the new opportunities to deliver better customer service and create additional efficiencies in cash management.

 

Alessandro Longoni 

Managing Consultant at Proferus

 

 

Flex Treasurer – Besparing na een treasury quick scan: Nog meer praktijkvoorbeelden

| 22-3-2017 | François de Witte | Patrick Kunz |

Als je ondernemer bent of als financiële professional werkt in een kleine of middelgrote organisatie die geen treasurer of cash manager in dienst heeft, vraag je je wellicht af of je alle treasury taken wel goed geregeld hebt. Iemand aannemen voor deze taken gaat misschien een stap te ver. Maar dat betekent niet dat je geen kosten zou willen besparen of dat er geen mogelijkheden zijn voor bijvoorbeeld funding. Wij hebben jullie al eerder kennis laten maken met onze Flex Treasurers en de Treasury Quick Scan die zij kunnen uitvoeren in een onderneming. In een eerder artikel hebben wij al praktijkvoorbeelden gepresenteerd. In dit artikel nog twee voorbeelden, waaruit blijkt dat een Treasury Quick Scan grote besparingen kan opleveren.

Onderneming C: Internationaal Handelshuis in voedselproducten

Omzet ca 1 miljard Euro

  • C is handelaar in voedselproducten in de B2B markt. Wereldleider in zijn segment en op alle continenten actief. Producten worden standaard in USD geprijsd. C heeft geen treasurer in dienst, de finance managers deden dit erbij.
  • Een treasury scan in 1 dag liet zien dat een besparingspotentieel op treasury processen mogelijk was van minstens EUR 200.000 per jaar (oplopende tot EUR 1.000.000 op jaarbasis)
  • Door optimalisatie van cash management processen en heronderhandeling van transactiekosten is binnen een maand EUR 300.000 jaarlijkse besparing gerealiseerd
  • Door optimalisatie van interne processen en toevoegen van extra banken en een online handelsplatform is op FX hedging een verdere besparing van EUR 100.000 gerealiseerd. Verder is het proces verbeterd waardoor er minder tijd wordt besteed aan de processen.
  • C heeft inmiddels een eigen treasurer, treasury afdeling en treasury management systeem. De flex treasurer is nog steeds betrokken bij projecten.

Onderneming D: vastgoedbedrijf

Omzet ca 125 miljoen Euro.

  • D had een treasurer in dienst welke met pensioen ging op korte termijn. Een flex treasurer is aangenomen om kritsch te kijken naar de treasury processen welke intern en extern gedaan werden
  • Alle terugkerende treasury activiteiten zijn naar intern gehaald. Dit zorgde voor een besparing van ca EUR 50.000 per jaar.
  • Een treasury rapportage werd opgezet zodat (senior) management en lijn management beter geïnformeerd zijn over treasury activiteiten
  • Cash Management en cash flow forecasting is geoptimaliseerd welke het renteresultaat verbeterde. Besparing ca. EUR 10.000 per jaar.
  • Corporate finance activiteiten werden verbeterd waardoor er zeer scherp in de mark geleend kon worden.
  • Treasury kon uiteindelijk afgebouwd worden van 36 uur naar 8 uur per week. Besparing ca EUR 60.000 per jaar.

 

Herken je een of meer situaties uit je eigen organisatie? Heb je een vraag? Onze experts zijn gaarne bereid om met jou in gesprek te gaan. Zij werken als Flex Treasurer en helpen jou graag verder. Overigens ook als je bijvoorbeeld na een treasury quick scan behoefte hebt, om tijdelijk een (flex) treasurer in dienst te nemen.

 

François de Witte 
Senior Consultant at FDW Consult

 

 

 

 

Making the most of excess cash: The optimal balance between safety, availability and profitability

| 9-3-2017 | Pieter de Kiewit | TreasuryXL|

We came across this article from our expert Pieter de Kiewit in co-operation with a candidate on De Kiewit Treasurer Search and thought it interesting enough to share it with you.

To get inflation to its target of close to 2%, the ECB has launched an unprecedented package of measures. It cuts borrowing costs, expanded its QE programme and reduced bank deposit rate into negative territory. Interest rates are expected to remain at present low levels for an extended period of time. Great for those who need to borrow money, but depressing for the return on savings or excess cash.

Many commercial banks effectively already charge a negative interest rate on checkable deposits. They charge fees in excess of interest payments (if any). The new Basel rules may involve certain costs or risks, some banks may choose to pass these to their customers. Regulatory shift will have wide-reaching implications on cash pooling, cash deposits (distinction between operating and excess cash deposits) and Money Market Funds (liquidity fee and redemption gates will be imposed). The Basel Committee postponed the meeting scheduled for Jan. 8 on new capital standards. The good news is that it will take some time (2018/2019) before new regulations become fully operational.

Many companies now hold larger cash balances due to their growing sensitivity to the economic cycle and continued need for operational funding. Excess cash is a luxury and isn’t always a problem. However, keeping it on the book is often not the answer for a company’s long term health. Excessive non-earning cash balances create opportunity costs and decrease the rate of return on equity and the firm’s value.

What are your options after minimizing the cash balance in non-interest-bearing accounts? Each business has its own goals and financial outlook. The best thing to do with excess cash is manage it appropriately in line with strategic objectives and for the best risk-adjusted return possible, without sacrificing liquidity. You can sit on it, use it to buy property or assets, or invest it in commercial paper, money market funds, other mutual funds, bonds or stocks—or some combination of these things. Whatever you may choose, the process of investing excess cash should be integrated in overall cash management, with the same fundamental principles of keeping risk low and having the right amount of cash on hand for short-term and long-term needs.
Companies tend to have very low appetites for risk when it comes to investments. It’s not their business. Their primary objective is capital preservation and maintaining liquidity, and yield is third on the priority list.

Are you looking for investment solutions spanning a range of currencies, risk levels and durations, designed to suit specific operating, reserve and strategic cash management needs? Whatever your investment goals may be, a treasurer might be able to assist you in making the right decision with your excess liquidity. If hiring a treasurer is one step to far for your organisation, you might want to consider a Flex Treasurer. TreasuryXL can bring you in contact with treasury professionas of different disciplines.

Pieter de Kiewit

 

 

Pieter de Kiewit

Owner at Treasurer Search

 

De controller in een veranderende omgeving: Budgetteren als hulpmiddel bij cashmanagement

| 28-2-2017 | Olivier Werlingshoff | FM.nl |

 

Op de website FM.nl vonden wij een artikel van Theo van Houten ( 21 februari 2017) die wij graag met jullie willen delen.
Hij schrijft: ‘Zijn de methoden en technieken die controllers tijdens hun studie leerden nog wel relevant nu organisaties in een omgeving werken die inmiddels veel dynamischer en complexer is?’ Het artikel is een onderdeel van een serie en richt de focus op cash managment.

 

Cash Management

Theo van Houten schrijft dat cashmanagement gaat over alle activiteiten die verband houden met de optimalisatie van de kasstromen tussen de organisatie en haar stakeholders, zoals bijvoorbeeld klanten, leveranciers, werknemers en financiers. Een goed kasbeheer is voor een organisatie vaak van doorslaggevend belang. Dat komt mede door de hoge kosten die verbonden zijn aan het aanhouden van liquide middelen en het afwikkelen van ontvangsten en betalingen.

Maar de belangrijkste reden voor een goed cashmanagement is het voorkomen van een faillissement. Het CBS doet jaarlijks onderzoek naar de oorzaken van een faillissement. Daartoe onderzoekt zij gerechtelijke vonnissen om het eerder uitgesproken faillissement te beëindigen, omdat er bijvoorbeeld door de curator een akkoord met de schuldeisers is bereikt of omdat er een gebrek aan baten is. De rechter baseert zich bij die uitspraak op het verslag van de curator die de oorzaak van het faillissement heeft vastgesteld. In december 2016 publiceerde het CBS de cijfers over 2015. In dat jaar werden van 7.602 rechtspersonen (exclusief eenmanszaken) het faillissement beëindigd. Die organisaties waren door de volgende oorzaken failliet gegaan;

De belangrijkste oorzaken zijn dus:

  • Economische oorzaken. Denk hierbij aan toegenomen concurrentie, smaakveranderingen bij het publiek en veranderende economische omstandigheden (al dan niet in het buitenland).
  • Mismanagement, waarbij gedacht moet worden aan administratieve problemen, gebrekkig debiteurenbeheer, te hoge of te lage financiering en marketingmissers.
  • Overig. In deze categorie vallen zaken als een kredietstop en dubieuze/frauduleuze handelingen

Volgens The van Houten maakt het overzicht duidelijk dat in verreweg de meeste gevallen de oorzaken direct (krediet-stop, oninbare debiteuren, te lage financiering) of indirect (tegenvallende afzet, administratieve missers, hoge financieringslasten) de liquiditeit van de organisatie aantasten. Het gevolg daarvan is, dat er bijvoorbeeld niet meer kan worden ingekocht op rekening, personeel niet meer betaald kan worden of de te betalen belasting verschuldigd blijft. Een faillissement is dan vaak onafwendbaar.

Budgetteren als hulpmiddel bij cashmanagement

Een van de belangrijkste planningsinstrumenten waar een controller volgens The van Houten mee werkt is het budget. Budgetten zijn taakstellende begrotingen, dus aan financiële grenzen gebonden plannen van actie. Er zijn belangrijke redenen om te budgetteren. Vaak genoemd worden: kostenbeheersing, het verhogen van de slagkracht, coördinatie en communicatie, prestatiemeting en de bijdrage die ze leveren aan het voorspellen van de financiële resultaten van de organisatie.
Ook op het gebied van cashmanagement kunnen budgetten een belangrijke bijdrage leveren. Dat gebeurt via het zogenaamde masterbudget. Hiermee wordt een samenhangend geheel van alle deelbudgetten bedoeld, dat resulteert in een begrote eindbalans, begrote resultatenrekening én een liquiditeitsbegroting.
Om dat masterbudget op te stellen, begint de controller om in samenspraak met degenen die er zicht op hebben (de verkoopafdeling, bijvoorbeeld) een inschatting te maken van de te verwachten omzet voor komend jaar en meestal wordt dat nader gespecificeerd in verkopen per kwartaal, maand of week. Zodra dat bekend is, kan bepaald worden wat er elke periode geproduceerd moet worden, waarbij rekening gehouden wordt met beschikbare en gewenste voorraden eindproducten. Daarna kunnen de inkopen gebudgetteerd worden die noodzakelijk zijn om te kunnen produceren, waarbij ook hier rekening gehouden wordt met beschikbare en gewenste voorraden grondstof.

In veel organisaties start het budgetteringsproces in het najaar met het opstellen van een begroting, waarna voor het einde van het jaar de budgetten van komend jaar worden bepaald die vervolgens vaak een heel jaar ongewijzigd blijven. Deze budgetten zijn niet zelden ook het uitgangspunt waarop het cashmanagement is gebaseerd. De economische omstandigheden veranderen tegenwoordig echter zo snel, dat de budgetten veel minder houvast geven. Dat heeft grote gevolgen voor de mogelijkheid om aan betalingsverplichtingen te voldoen. Gaat het immers plotseling slechter, dan neemt de omzet af en dat heeft al snel veel minder ontvangsten tot gevolg. Als daar qua uitgaven niet op geanticipeerd wordt, ontstaan mogelijk onoverkomelijke betalingsproblemen. Maar ook als het economisch ineens veel beter gaat, dan zijn er potentiële risico’s rond de liquiditeit. De extra inkopen en de eventueel extra personeelsleden die ingezet moeten worden, dienen vaak veel eerder betaald te worden dan het moment waarop de extra ontvangsten worden geïncasseerd.

Taken controller

Theo van Houten : ‘Het bovenstaande maakt budgetteren geen zinloze exercitie voor cashmanagement, integendeel. Nog steeds spelen ze een belangrijke rol bij het inschatten van toekomstige ontvangsten en uitgaven. In mijn vorige column gaf ik echter al aan dat de hoogte en samenstelling van planningsinstrumenten als budgetten beduidend vaker moet worden herzien dan in veel organisaties nu het geval is.
Hiervoor dient de controller veel dichter op de business te zitten en te begrijpen hoe de bedrijfsprocessen werken, zodat de gevolgen voor de geldstromen van veranderingen veel beter en sneller ingeschat kunnen worden. Dat maakt het namelijk mogelijk om te anticiperen en tijdig, voordat de problemen ontstaan, maatregelen te nemen, zoals het uitstellen of vervroegen van investeringen, het maken van afspraken over betaaltermijnen met klanten en leveranciers of het regelen van extra kredietfaciliteiten. Kortom, de controller heeft hier een spilfunctie. Om die goed uit te voeren is het noodzakelijk dat hij of zij in de gesprekken met budgethouders de te verwachten ontvangsten en uitgaven steeds aan de orde stelt.’

De hele serie artikelen kunt u lezen op FM.nl

Theo van Houten is hoofddocent management accounting en onderzoeker bij het lectoraat Financial control aan de hogeschool van Arnhem en Nijmegen. Tevens is hij onder meer (mede-)auteur van de boeken ‘Financial control van projecten’ en ‘Bedrijfseconomie in de praktijk’.

 

Zo ver het artikel van Theo van Houten. Wij hebben onze expert Olivier Werlingshoff gevraagd om zijn eigen inzichten hierover met ons te delen. Zijn antwoord:
‘Ik ben het helemaal eens met wat er in het artikel word aangegeven.Wat ik tot nu toe echter heb gemerkt is dat (financial) controllers vaak naar de organisatie kijken vanuit de boekhouding en niet zozeer vanuit geldstromen. Business controllers kijken daarentegen weer meer naar de organisatie-processen. Het zou goed zijn als er ook meer gericht wordt gekeken naar de geldstromen en hoe deze kunnen worden ingeschat en zelfs kunnen worden geoptimaliseerd. Een voorbeeld hiervan is om te kijken naar de cashmanagement mogelijkheden die er bestaan om gelden sneller binnen de organisatie op de gewenste plek te krijgen.
In wat complexere organisaties zou de functie van het opvolgen van de diverse processen met een cash bril beter kunnen worden opgepakt door een toegewijde cashmanager. Een cashmanager is vaak beter dan een controller op de hoogte van de mogelijkheden die er in de markt bestaan om cashstromen te optimaliseren en te beheersen. Een goed combinatie en samenwerking tussen een controller en een cashmanager is naar mijn mening de oplossing om de financiële processen goed in beeld te krijgen, budgetten op te stellen en acties op te zetten om indien nodig bij te sturen.’

Olivier Werlingshoff - editor treasuryXL

 

Olivier Werlingshoff

Managing Consultant at Proferus

 

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

 

Flex Treasurer: The life of an interim treasurer

| 16-2-2017 | Patrick Kunz |

 

An interim treasurer is just like a normal treasurer. The difference is that he has a flexible contract and changes “jobs” more often. Assignments can be to replace the existing treasurer due to leave or sickness. This means that he gets to take an operational role and be part of the normal organization, often until a “permanent” solution is found. I did several of these roles, which often last between 3-6 months and 1 year.

 

Treasury Support

Another option is to provide support to an existing team/treasurer/CFO on a treasury related project. These can be short term or longer projects. Often the projects cannot be filled with the existing capacity of the team and hiring a permanent FTE for this is not an option. Another reason can be to finish the project quicker due to nearing deadlines. These projects are often several weeks to a couple of months. For example I helped a big semi-profit organization from Rotterdam to investigate into embedded derivatives in the firm to comply with new regulation. The project was finished in several weeks and the accountant accepted my conclusions in the annual report. Also I build a RAROC model for one client to periodically rank their banks based on return versus risk adjusted capital. A powerful tool to compare banks and their profitability compared to their lending.

Treasury Expert

An interim/flex treasurer does not have to be a fulltime position. At big corporates and multinationals this is often the case but smaller firms often don’t have fulltime treasurers. Sometimes the controller or the CFO fulfills the treasury position “parttime”. A part time (external) treasurer could potentially add value here. The controller/CFO has extra time for his “normal” activities and an expert is hired for the treasury task. This can be from a couple of hours a day to several days. For example I helped a real estate company with the valuation and (weekly) margin calls on their interest rate derivative portfolio, their cash management optimalisation, treasury reporting and ad hoc work. 8 hours a week.

Treasury Scan

Are you not sure if treasury is optimal at your company? A treasury scan might be a solution. A ‘quick and dirty’ scan is possible in 1 day if treasury data is collected beforehand. The costs of a treasury scan are therefore limited and often earned back from treasury savings which were identified by the scan and later realized by either the flex treasurer or the company itself; often in combination.

Do you recognize one the above situations? Do you want to know more about an (interim) Flex Treasurer?
Please click on this link or visit my expert page on treasuryXL.

 

Patrick Kunz

Treasury, Finance & Risk Consultant/ Owner Pecunia Treasury & Finance BV & Flex Treasurer