Supplier Negotiations, Cash-to-Cash Cycles, and More: Insights from The Working Capital Forum’s latest Round Table in Palo Alto
One manufacturer was both offering supplier finance to suppliers and being offered it by customers - but, as he pointed out, for a larger coirpoiration like his, the rates on offer from customers were rarely attractive.
Cash-to-Cash Cycle Focus in the Age of Higher Interest Rates
In the current climate of higher interest rates, the treasurers emphasized a renewed emphasis on the cost of cash and the need to improve the cash-to-cash cycle. Days Payable Outstanding (DPO) varies significantly across sectors, but all treasurers are acutely aware of the necessity to optimize this metric. Payment terms varied dramatically by sector, from 30 days through ‘month end plus 90’ to terms that stretched into the months. Supply chain finance was a recognised tool to help - but only when the rates offered were more attractiuve then could be obtained elsewhere.
The group also discussed the increased use of receivables finance as a valuable financial tool. However, a clear distinction emerged between 'old-fashioned' factoring programs and modern receivables finance solutions. One treasurer at atech firm which had spun out of a larger parent had inherited a receivables finance programme which was poorly priced and difficult to manage, buit others had much better experiences and found it a valuable tool. However, as one treasurer pointed out, receivables finance, ‘Can be like a drug’ - difficult to stop using once you had started.
Supply Chains in flux
Although the supply chain crisis triggered by the pandemic has largely subsided, the impact lingers. Many companies are still stockpiling substantial inventory on a 'just-in-case' basis, moving away from the 'just-in-time' model. For this group, the concept of 'near-shoring' has become a tangible reality, with Mexico overtaking China as the primary manufacturing location for at least one larghe firm around the table. The pandemic has significantly altered supply chain strategies.
For this group, successful working capital optimization now hinges on instilling a cash-focused mindset across the entire organization, not just within the treasury department. One treasurer even shared the practice of delivering a cash presentation at every company 'all-hands' meeting, underlining the importance of involving all employees in the working capital journey.
As the meeting closed, those present were asked to share their thoughts on some of the steps treasurers would take to navigate the changing working capital environment (see box). If there is an upside to higher interest rates, it's that cash and working capita, are once again front of mind - and treasurers can be the 'chief liquidity officers' of their companies.
The Working Capital Forum Palo Alto Round Table was sponsored by SAP Taulia and supported by Deloitte. These topics will be discussed in a free-to-access follow-up webinar open to everyone. Click here to register.
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