As guests introduced themselves, it became clear that the group was split into two camps; those just about to engage in a working capital program and extend payment terms, and those who had already started along the road and had experience to share. ?
Some among the first group had resigned themselves to paying suppliers in 30 days while often having to wait 60, 90 or even 120 days to get paid themselves – a problem that was especially prevalent in two companies around the table who were in the advertising and media sector.
?At least one was bridging this gap with revolving credit facilities and all were keen to reduce or remove the need for borrowing.
Those who had already embarked on working capital improvements were able to share some of their insights into how to extend days payable out to 60 days and well beyond. In each case the starting point was to impose discipline on contracts – a global manufacturer had discovered no fewer than 295 separate payment terms across the organisation, but was able to simplify this greatly through a coordinated, company-wide program of rationalization.
One media owner moved from multiple payment terms to two: one, 30 days, offered to those suppliers on contracts and another, 90 days, to those which were not.
Many around the table pointed out that this rationalisation process is made easier when the right technology is in place to accurately monitor and manage the P2P cycle. David Reidy, financial services advisor at Basware, added that, in many cases, the spur to move to better working capital came from having automated the underlying processes and being able to visualise, for the first time, the benefits of working capital optimisation.
The next step in successfully extending payment terms was to educate everyone involved in the procure-to-pay process as to why working capital matters, and to align compensation to these new objectives; in all cases, the strong support of a senior executive was essential in ensuring that minds stayed focussed on working capital. In every case represented at the meeting, this process was initiated and led by the treasury and/or finance function, with the collaboration of procurement an essential ingredient for success.
Putting in place a supplier finance programme was, for some of those further down the pathway to optimised working capital, the logical next step in ensuring that suppliers were not put at financial risk by extended terms. While one major corporation had one of the world’s oldest multi-bank supply chain finance (SCF) solutions already in place, only one other was now considering implementing dynamic discounting and most had yet to start implementing SCF – though all were interested in its possibilities.
As the discussions drew to a close, participants took advantage of the confidential nature of the meeting to exchange information on everything from cash flow forecasting systems to the use of payment cards as a working capital tool. By the time the first ever Working Capital Forum in the United States ended, plans were already being laid for the next one.