Taulia CEO is right on that we need to re-visit dynamic discounting for our supply chain companies. This is the way to support a growing economy and create jobs.
Based upon interviews and observations in 2012, here are five real areas of improvement that every CFO should have on their 2013 action list:
- Real-Time Visibility
- Increase Organizational Speed
- Invest more time with Business Partners
- Reduce IT Complexity
- Engage with Procurement to Attack Savings
These are all valuable priorities for all CFOs to embrace now so that 2013 can be a strong year of performance.
With so many uncertainties in front of us like a fog hindering the vision as we drive down the highway, we need to find new ways to improve our vision of what is happening right now so that we can steer the organization in the right way. CFOs should use the uncertainties, like the “Fiscal Cliff”, European Recession, growing healthcare costs, Tax Increases and greater regulations to become the rally point for more accelerated transformation.
The one thing that is now available to a CFO as the catalyst to this change is cloud-based SaaS technologies. There are several, well regarded SaaS technologies that are transformational in their capabilities. The truly transformational SaaS technologies all are built around these tenets:
- Faster to Deploy
- Require No New IT Infrastructure
- Demand Minimal IT Resources to Support
- Achieve Faster Financial Payback Due to Low Up-front Investment
- Dramatically lower Total Cost of Ownership
Where are the typical opportunities for savings?
It is hard for many CFOs to understand after investing millions in ERP technologies that most purchasing organizations continue to experience maverick spending of 40-60% off contract from preferred vendors. You can’t negotiate better pricing if you don’t control the spend visibility!
Most CFOs don’t realize that despite investing in traditional ERP sourcing tools, most purchasing teams utilization of e-Sourcing techniques are limited to a surprisingly low 30% of total spending. Think of the savings if 90% of all spend were e-Sourced!
Many organizations continue to negotiate early payment terms into their supplier contracts, but fail to take advantage of those achievable profits. Very typically, we see only 25% of early payment opportunities taken advantage of within a corporate supply chain. Don’t you want higher ARP returns on your cash?
AP processes can be streamlined by 3-5x to reduce supplier inquiries, increase e-Invoicing volume, shorten invoice-processing times and allow AP employees to focus more on the exceptions. Many suppliers will readily work with companies to automate these tasks if they can use a user-friendly SaaS technology and avoid hard to learn ERP technologies. Think of the organizational efficiencies if you could eliminate paper invoices, faxes and scanning to achieve + 90% electronic invoicing?
Time To Act
These are some of the easy to uncover cost savings opportunities that every CFO and Controller should attack in 2013. The costs are low to adopt SaaS technologies. The time to deploy is measured in weeks, not months. The paybacks are ridiculously good. Most importantly, you can accomplish all of this without disrupting your IT staff that is already stretched.
Have you created your SaaS Savings Attack Plan for 2013 yet?
Based upon recently released data from The Thomson Reuters/PayNet Small Business Lending Index, Small Businesses in the U.S. experienced the lowest level of lending/financing in September. This likely reflects poorly on the upcoming next 3-6 months for growth.
This means that smaller suppliers in a company’s supply chain will continue to experience greater pressure to manage their working capital, whether that is to make payroll, finance growth or withstand delays in invoice payments from their customers.
Most Fortune 500 customers that I work fail to see the impact on their supply chain until there is a crisis with a supplier. No supplier ever wants to raise their hand and inform their customer’s purchasing department that why they need their payments on time.
Secondly, suppliers may have a short-term issue with another customer that could impact their cash flow overall, requiring the supplier to seek out temporary credit to manage their working capital.
CFOs would be smart to use their existing short-term cash reserves and positively improve their supply chain loyalty by offering early payment discounting. I am amazed at how few companies take advantage of this opportunity to increase profits. We typically see only 20-30% of companies taking advantage of early payment discounting. Potential profits from dynamic discounting can be as much as $5 million dollars in profits for every $1 Billion dollars in AP spending that are available for early payments.
Have you added a dynamic discounting strategy for your 2013 profit improvement plans?
“The problem for corporate CFOs and Treasurers is that idle cash earns very little APR percentage returns and yet they must hold on to cash in case the economy gets worse.”
Why now is the time for CFOs to embrace dynamic discounting?
- Lower Risk on cash flow planning
- Lower Cost through cloud-based technologies
- Higher Impact on Profits for business and cash for suppliers
- Higher Impact the supply chain to finance jobs and investments.
With so much uncertainty in the market with the economy and global business risks, why would companies want to use their cash to strengthen the working relationships with it’s supply chain. Times may be changing. Just this week in the UK, Prime Minister Cameron announced a supply chain finance scheme to help increase available credit to suppliers. Cameron said in the statement. “In the current climate, viable businesses can struggle to get the finance they need to grow — this scheme will not only help them secure finance and support cash flow, but will help secure supply chains for some of our biggest companies and protect thousands of jobs.”
Piles of Cash Available
In the U.S., we are still seeing Fortune 500 companies sitting on some of the largest cash reserves in modern times. “Companies aren’t making the capital investments because they don’t see the growth to make the investment,” said Jim Paulsen, chief market strategist at Wells Capital Management in Minneapolis. “They’re not making long-term investments without a feel for sales growth. That’s what’s got to come.”The problem for corporate CFOs and Treasurers is that idle cash earns very little APR percentage returns and yet they must hold on to cash in case the economy gets worse.
Limited Borrowing Choices
Suppliers can be in a more difficult position with their working capital. They have risked their cash building inventories for upcoming production schedules from their customers and are at risk of downward forecast revisions on production that could jeopardize their investments. Supplier CFO’s still have limited options for growth financing, especially for the Tier 2 and 3 suppliers. Either their access to credit is limited still from the banks or their cost of borrowing remains high, making it costly to borrow more.
Better Financing Alternative
One of the best alternatives for suppliers is to avoid costly factoring or look for cheaper working capital financing through early payment discounting with their customers. I am continually amazed at the number of companies that have negotiated early payment discounts into their supplier contracts but fail to take advantage of those discounts.
With multiple choices of cloud-based technologies that offer either dynamic discount management or supply chain financing, corporations can safely use a portion of their cash or third-party financing to provide early payments to their suppliers within typically 48 hours after invoice approval. This provides suppliers with a dependable and secure source of funds…at a much cheaper financing cost.
This is far cheaper than traditional methods to factor invoices for faster cash achievement. For many suppliers, their cost of borrowing is also more expensive than their Fortune 500 customer’s borrowing costs. So securing early payment through your customer on a monthly basis would be a secure, cheaper financing tool that is rarely used.
Maybe it is time for US companies to learn from the UK and embrace the opportunity that is sitting in their laps. Now is the time to use some of that corporate cash and leverage dynamic discounting for profits and jobs.
Where is the risk in embracing early payment discounts to financially strengthen your supply chain?
By: Bruce Culver
Partner, CCP Global
November 2, 2012
 Bloomberg Businessweek, Robert Hutton on October 23, 2012
 CNBC, By Jeff Cox | CNBC – Tue, Oct 23, 2012 2:22 PM EDT
Trick or Treat?
How companies can learn from Halloween and improve their supply chain financing program.
It happens every year, you buy bags of candy and place them in a bowl by the door, waiting for the little hooligans to come and ask for treats. Sometimes on Halloween, we almost run out of candy and other Halloween nights, hardly any “Trick or Treaters” even bother to come by.
For most companies that implement a supply chain financing program or provide dynamic discounting for early payments to suppliers, the same scenario occurs. Every company focuses their attention on estimating the potential, implementing the technology and performing “supplier enablement”, which usually just means supplier registration.
What typically is missed is the opportunity to motivate suppliers to want to choose your early payment discount offer as a better way to finance their business every month, not just make it an ad hoc request for funds only one or two times each year.
Every supplier that is currently blind and unaware of their approved invoice payment status is a candidate for early payment opportunities. Most will gladly pay an early payment discount if they know with certainty when they will get paid. Better yet, every supplier that is currently factoring their invoices can certainly finance their business cheaper through a monthly early payment discounting schedule. Taking it further, how many of your suppliers have borrowing costs that are higher than your company’s borrowing costs? Aren’t these suppliers perfect candidates?
Halloween is a great time to re-evaluate your supply chain financing program. Conduct a new supply chain financing assessment of your performance and re-calibrate how you motivate suppliers. Turn your program around and make it a treat for your suppliers. Your company’s profits and supplier loyalty will win!
By Bruce Culver
Partner, CCP Global
November 1, 2012
Welcome to CFOAdvisor! I started this post to spread the word that CFO’s can be drive greater financial performance in their organizations if they embrace cloud technology. CCP Global is the leading consulting advisor on how to embrace cloud technology for spend management and better cash flow results.
Thank you for reading!