Fiscal Cliff Action Plan

What plans have you put in to place to prepare for a potential negative impact from the “fiscal cliff” volley ball game in Washington D.C.?  

ImageIn a recent 2012 survey by Financial Executives International, only 13 percent of CFOs believed that the U.S. economy would recover in 2013.  Additionally, 76% of CFOs expect that the U.S. economic growth will be impacted by tax increases and potential sequestration.

With the high likelihood of stormy weather ahead, most CFOs are holding on to cash and minimizing investments.  What investments can a CFO take that have almost immediate payback and can help them drive through a tough economic period?

  1. Increase Spend Visibility
  2. Capture greater early payment discounts
  3. Release cash trapped in Accounts Payable

All of these steps can quickly and easily be implemented within 10-12 weeks without a major issue with your IT staff and their workload demands.  How can this be done so quickly?  Embrace the adoption of Software-as-a-Service technology that typically has a lower total cost of ownership than traditional ERP technology solutions and can be implemented in weeks, not months.

Spend Visibility –  the old adage that “you can’t control what you can’t see” is very true here.  Surprisingly most Fortune 1000 companies still have “Maverick Spend” of 40-60% on total spending of a corporation.  “Maverick Spending” refers to spending that does not go through a preferred vendor contract and misses on the pre-negotiated savings that purchasing works so hard to negotiate.  Why is this percentage so high?  Because most accounting/purchasing ERP technologies are still so user un-friendly, that most employees prefer to go around the system to make their purchase requests.  Other times, the preferred vendor commodities are just not readily known or visible to the employee when they need to place an order.  However, new advances in SaaS technologies can bring very user friendly tools to bear so that employees can easily shop and buy from their company’s e-Procurement technology, just like they shop at home on or  If they like to use the system and it is easy to use, then more spending will be visible and thus, increase the influence that purchasing can make on cost savings.

Capture Greater Early Payment Discounts – surprisingly, most companies that I visit either don’t take advantage of early payment discounts or less than 20% of the suppliers utilize the opportunity.  Many companies fail to capture these profits because they want to hold on to their cash.  But at what cost?  What APR % rate are you getting on your cash investments today?  Almost nothing.  Yet, when companies utilize dynamic discounting, it is easy to capture early payment discount profits of 12% APR or more.  Don’t believe that this is only for companies that have a lot of troubled suppliers.  Think about it this way, if a company is factoring their invoices to manage working capital better or if their credit rating is below your own company’s credit rating, then your supplier can improve their financing costs by simply getting paid early via offering a 1-2% discount.  Almost every company has a list of suppliers that would qualify for these simple scenarios.

Release Cash Trapped in Accounts Payable – if a CFO takes advantage of SaaS based eProcurement technology and Dynamic Discounting technology to improve their internal operations, then there is one more step that can be taken that will pay for both initiatives.  The third step that can be quickly taken is to analyze your mix of supply chain payment terms.  By strategically evaluating the potential of extending payment terms to select supplier groups, it is possible to free-up significant amounts of cash trapped in Accounts Payable .  By moving payment terms out for a select group of suppliers from 30 to 60 days or 60 to 90 days…or more, a company   can increase your cash from operations to help manage through the difficult economic times.  Why have companies traditionally avoided this?  The primary reason is that the supply chain team was typically concerned about supplier push-back.  However, if your company provides a SaaS mechanism where suppliers can see when their approved invoices are scheduled to be paid, they can also easily accelerate their payment and get paid typically within 48 hours after the invoice is approved.  Suppliers can achieve this early payment by offering to discount their invoice via the dynamic discounting technology.

If a corporation is not already including these three safe tools in their financial toolbox, then they are missing significant savings opportunities that are readily available today.

Action Steps to Take:

  • Move your company’s Maverick Spending from 40-60% to +90% benchmark levels
  • Capture untapped profits by embracing early payment discounting via dynamic discounting
  • Free-up cash from Accounts Payable through extended payment terms linked with dynamic discounting

Do you have a better set of self-funding, fast financial payback options?

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