• Cash jingles, cheques fold but credit/debit cards snap and mobile payments ‘crack up’

    One of the many challenges for credit controllers is to understand how customers are going to pay for goods and services.

    Gone are the days when coins and notes were passed across counters or fed into machines that generated anything from fizzy drinks to packets of cigarettes (although some do still exist)

    Cheques became fashionable and then unfashionable due to efficiency issues both in writing, checking and then en-cashing them. Although cheque imaging may help them avoid the ‘guillotine’

    Credit cards became all the rage but as the term implied one needed a credit rating and this took time and in many cases did not prevent you ‘losing’ your payment as the card was declined so debit cards were introduced that allowed instant transfer of funds.

    Today the 8th July the news is that UK in branch banking transactions are down 10% year on year as mobile transactions take off, and the internet comes of age. However we have seen how banks legacy systems are somewhat ‘flaky’ and as the cracks appear one can foresee cash being lost down the gaps in technology.

    Credit controllers need to be savvy technologists in understanding the best way invoices/bills are to be paid.

    Do you have a strategy that embraces and delivers positive and constructive solutions to the above issues?

    Credit, credibility and credit ability in funding and managing working capital

    The perception is that credit is becoming dearer as banks raise their interest charges and their costs of servicing of any sort of credit and especially with regard to funding working capital.

    Why? Working capital can be manipulated by accounting techniques and is often not recorded accurately enough at the level of granularity required to satisfy lending/funding criteria

    The issue however is one of credibility. If one researches and reviews how credit is ‘scored’ and ratings arrived at one will find all manner of algorithm’s and so called justifications based on ‘hard choices’ namely numbers that supposedly portray your level of credit that is ‘acceptable’

    However the real level of credit should be based on ‘soft choices’, namely one’s ability to be able to regularly pay the required amounts for a sustainable period of time.


    Several steps should be taken by any business/organisation if applying for funding of working capital namely:

    a)      Understand the exact requirements of each funding amount i.e., is it to fund capex, Mergers  Acquisitions, disposals, restructuring, efficiency savings via technology spends, or to cover amounts of VAT, Tax or a bad debt etc.

    b)      One should arrive at a real DSO/DPO/DIO through analysing the trade debtors/creditors/inventory in great detail and applying any reserves in a logical and dynamic manner.

    c)       Deliver a strategy for Working Capital that embraces learning and development needs for all functions across the organisation/business to deliver cash.

    In conclusion one should be able to produce a document highlighting the above, so that the ability of the organisation/business to fund its obligations in a sustainable manner is clear for all to see.


    Posted on: June 17, 2014 by: mardle0312

    Cash, Credit, Capex and Culture via Communication

    Q1 2014 has seen the first reduction in the corporate cash mountains that have grown since the 2008 crisis. The reduction is due to large dividend payments, share buy-back programmes and indeed a significant amount of CAPEX (Including M & A) as the need for innovation and growth is now required to meet stakeholder expectations.

    Credit has played its part in this scenario as the credit agencies are duly increasing their credit ratings and credit limits for many of the corporates who are embarking upon the above journey, especially if they have paid back expensive debt too.

    However, how does one communicate this through the corporate organisation and to your customers, suppliers, investors, employees and other interested parties?

    Also how does the culture- the functions- in the organisation that were once ‘starved’ of cash and reducing costs now turn on the tap to create demand from customers, suppliers and investors?

    If the lines of communication are not balanced then one could soon see ‘overtrading’ occurring as profit outstrips available cash. In some organisations the demand chain will become out of sync with the supply and inventory chains which again could impact the investment chain when need for liquidity occurs.

    Cash forecasting becomes key, as this is normally the ‘communication’ tool however this tool is at the end of the ‘financial supply chain’ process.

    One needs to be agile and proactive by being immersed in the sales/procurement/operational and treasury teams to ensure that ‘checklists and balances’ are in order and that the culture of cash interdependence is upheld throughout the organisation. Early warning metrics are needed.

    In real terms this means communication lines between sales/procurement/operations and treasury being made strong but flexible. This is accomplished by salient KPI’s and metrics that support the cash conversion cycle of DSO, DPO, DIO and ‘allows’ for the capex(M &A)  scenario(s) mentioned at the outset of this post.

    Posted on: June 12, 2014 by: mardle0312

    Working Capital Strategy checklist published in Treasury Insights 12th June 2014

    Ensuring working capital is being used in an efficient way can transform a business. But it is important to make a distinction between working capital optimisation and merely releasing working capital. We look at some of the best ways for the treasury function to devise an effective working capital optimisation strategy.

    Earlier this month, research published in the UK put the spotlight on how some businesses try to fund their working capital. In ‘Charting the Trade Credit Gap’, the Credit Management Research Centre at Leeds University’s Professor Nick Wilson, and credit research group Taulia claim that the £327 billion of trade credit between non-financial companies is now the biggest source of credit in the UK economy. This makes it 20% greater than outstanding bank credit.

    According to the report’s authors, struggling companies often try to finance their working capital by paying suppliers more slowly.

    But working capital management is not purely a concern for businesses experiencing solvency issues. Nearly all companies can benefit in some way from optimising their working capital.

    Many people think that releasing working capital is the same as working capital optimisation (WCO). However, releasing trapped working capital is simply reviewing inefficient processes, whereas WCO is more about getting an effective financial supply chain in place. This means being proactive in areas from strategic alliances to delivering efficiencies in the cash conversion cycle.

    WCO checklist

    Treasury Today spoke to John Mardle, Managing Director and Working Capital Facilitator at CashPerform Limited, about how companies can optimise their working capital. Mardle has ten tips for reviewing a strategy to achieve working capital optimisation:

    a) WCO programmes must extend beyond the finance function and engage the company’s entire managerial team. Do not think that all working capital management problems can be addressed by treasury alone. Appoint local working capital strategy leaders or champions across the organisation.

    b)Do not artificially adjust working capital levels through delaying payments to suppliers or indiscriminately stepping up collection activities in order to boost quarter- or year-end performance metrics. In business, as in physics, every action is met with an opposite reaction. Delaying payments to vendors may reduce working capital over the short term, but that improvement is likely to disappear over time as vendors adjust their pricing accordingly. Dynamic discounting is now prevalent.

    c)Incentivise people to achieve their WCO targets by compensating staff accordingly, particularly at managerial level. User-driven key performance and risk indicators should measure the underlying causes of DSO, DPO and DIO. Take steps to monitor and manage these findings.

    d)Make a consistent effort to optimise working capital. It may be tempting to take the focus away from working capital when the company is growing as there may be less immediate need for it. Equally, in times of crisis, attention can be diverted elsewhere. Ignoring working capital could significantly inhibit a company’s ability to grow and meet demand once business rebounds.

    e)Ensure all hopes are not pinned on ERP implementation. Although ERP systems can provide significant benefits in the working capital arena, in the near term they can cause deterioration in working capital performance as key managers and employees are distracted from their daily routines and forced to fine-tune the new ERP system. Mobile applications are proving robust and agile.

    f)Ensuring suppliers and customers are collaborating effectively is now very much to the fore in demand chain management. Connect suppliers and customers across the enterprise to achieve maximum benefits.

    g)Provide added value for your suppliers. Major organisations are now using web portals and the like to deliver seamless accounting transparency for all their suppliers and their financial transactions too, wherever they might be in the world. Supply chain finance is now a major part of suppliers’ funding arrangements.

    h)Do not allow debt to become overdue before identifying and resolving disputes. Contact customers before payments are due to resolve any potential disputes and for delinquent payments, assign collection responsibilities to individuals and escalate the responsibility to more senior employees as invoices become further overdue. Have credit management as part of your strategy at board level.

    i)Develop forecasting techniques that incorporate intelligence from all relevant business segments, including not just sales but manufacturing, distribution and marketing. Evidence from these forecasts will assist in the production of company financial statements to investors in line with the Companies Act  2006, amended in October 2013 (Strategy and Directors’ Report Regulations).

    j)Look holistically at the whole financial supply chain. For example, is there a direct correlation between inventory management methods and the level of customer service that a company can provide? Do not allow one area to suffer as a result of  focusing attention on another.

    The journey

    Obviously there is no one-size-fits-all solution to optimising working capital. A lot will depend on the nature of the business and the profile of the company’s cash flows. But this advice should provide a sound point at which to start along the road to achieving more efficient management of working capital


    ‘Cash/credit are strategy, in that both, are like the life blood of an organisation, as restriction or termination of either can be measured, as the organisation deteriorates, or hopefully, improves.’

    The statement above requires three areas (levels) to be addressed within your organisation.

    The first level is whether you, as a ‘C’ level executive team , have a strategy regarding your financial supply chain and investment/cash/credit chains? If so what does it look like?

    The second level is whether the organisation understands the Working Capital Management and Optimisation criteria? Is implementation a project or a programme of work? If short term then, to measure ROI, the project approach could be very effective. Otherwise a programme may be required.

    The final level is the practical approach through Cash Conversion Cycle efficiency. This is where the physical transactional process needs to be amended to deliver the required savings.

    Posted on: May 27, 2014 by: mardle0312
    • Q)The Forum of Private Business claims that SCF should not be used as a cover for extending payment terms, as “it is a cost”. But wouldn’t receiving payment – through the SCF scheme – within 10 days rather than 60 mitigate, at least to some extent, the cost of that credit?

    A)The challenge for the ‘corporate’ is to identify the ‘critical suppliers’ and then identify a reasonable discount scheme ….but by company or certainly type of supplier i.e. logistics, marketing etc. This is poorly done by most corporates in my view as they do not value or ‘risk review’ suppliers properly.

    To apply a SCF scheme across the board can hurt the corporate and the SME as the margins of many SME’s are so small they cannot absorb a discount of any sort and if ‘included’ in the scheme they then find margins in the future decline and then go bust leaving the corporate without a critical link in the supply chain.


    • Q)Isn’t SCF a good thing for small suppliers, or does it depends on the type of solution and how it is used?

    A)Yes, as stated above PLUS credit is becoming scarce and very expensive per latest B of E reports and very little working capital  funding is coming through to small suppliers from banks.

    These small suppliers are now supported by a multitude of unregulated ‘funders’ from pension schemes to platform providers to crowd funders, to family members, to challenger banks to wealth management schemes….the list is endless but so much RISKIER for corporates to understand.


    • Q)Secondly, do you think that negative perceptions surrounding SCF might be hampering wider uptake, making it more difficult for corporates to on-board some suppliers? Are there any other factors at play here?

    A)As you say , wider uptake has ‘stalled’ by the ‘unregulated’ nature of the ‘investors’ to smaller suppliers and corporates are taking risks (hence credit insurance has risen dramatically and is ‘cheap’ compared to pre-crisis 2008.)

    The other factors at play here is the ‘quality of the invoices being used’ for the SCF process. With e-invoicing and other ‘checks’ NOT being implemented by UK business one has to ask the question ‘Is the invoice quality paper or toilet paper?’ In other words can it be validated? Can you ‘risk’ loaning money against it?

    This is reverse factoring abut factoring has specific safeguards that SCF has not yet covered.

    The next cash and credit crisis is just around the corner I am sorry to say as Charlie Bean (deputy Governor of Bank of England) pointed out in his exit speech over the weekend when he forecast interest rates rising sooner rather than later to 3%….six times their current level!!!

    Posted on: May 19, 2014 by: mardle0312

    Working Capital Optimisation Minimizes Operational Risk Through Strategic Governance

    When tackling cash management issues the challenges can be broadly identified into two categories of Governance.

    The first category is rule based Governance. The rules for working capital could be for:

    Suppliers-Pay according to the agreed payment terms

    Debtors- Chase according to their overdue amounts

    Stock- Replenish according to the SKU parameters

    Work in Progress- Incur costs as allowed by systems and invoice according to accounting guidelines i.e. as laid down by SSAP9 Percentage of completion accounting

    The second category is through subjective Governance. The process of establishing working capital could be for:

    Suppliers-Pay according to a dynamic discounting,  supply chain finance programme.

    Debtors – Pre-emptive progressing followed by default analysis

    Stock-value is determined after establishing disposal costs

    Work in Progress- value is driven by establishing actual cash flows

    Both categories of Governance (Rule based and Subjective) require strategies that require C Level buy in however the more adaptable, agile and flexible organisations normally require a subjective approach which in turn requires delegation of the overall strategy to operations and purchasing functions.

    Whereas the rule based Governance of working capital can be delivered by ERP systems the subjective Governance requires management of each ‘link’ in the process of the financial supply chain.

    Let’s take the example of a strategy that calls for suppliers to be paid later therefore increasing Days Purchases Outstanding (DPO) and therefore ensuring cash is held for longer in the customers bank accounts.

    The usual traditional approach would be to instruct the payables function to delay payment runs or reduce amounts to suppliers.

    The new subjective approach is to appreciate and understand the creditors ledger by way of categorising suppliers by ‘value of risk’ associated with not paying them their due amount on the agreed date.

    Posted on: May 6, 2014 by: mardle0312

    A fast growing business requires working capital. However one also needs to satisfy dividends to shareholders, repayment of loans and even large value capex items…..and even consider cash for merger, disposal or acquisition.

    So does one tackle inefficiencies in the financial supply chain or obtain greater loans, extensions to current debt or ask shareholders for more cash to ensure the business can meet its on-going growth strategy?

    This balancing act requires careful management through scenario planning and not paralysis by analysis.

    Posted on: May 1, 2014 by: mardle0312

    Quality paper not toilet paper

    Recent experiences have shown several organisations crunching numbers and attempting to make the year-end revenues ‘fit’ through generation of somewhat suspect invoices.

    I say suspect in that the invoices are rushed out the door only to be returned due to:

    a)      Missing vital purchase order information

    b)      Incorrect bank account numbers entered

    c)       VAT calculated improperly

    d)      Customers address incorrectly stated as taken from the wrong database

    e)      Invoice number sequencing duplicated

    These scenarios not only caused a delay in payment but also damaged the reputation of the sales/credit function. Furthermore it has caused some customers to question the professionalism of the company concerned.

    Another repercussion was that two organisations were using the trading platforms of companies providing supply chain finance so now their lending facility has been adversely affected too.

    Posted on: April 10, 2014 by: mardle0312

    Invoices need to be Quality paper not Toilet paper

    When looking at the supply and demand chains within the both the physical and financial supply chains one can see that the pace of technological advancement in accounting and treasury functions over the past few years has outstripped the processes in pace.

    In other words there is an argument that solutions are now often leagues ahead of what processes can actually achieve.

    Back to basics is required in that the acronym TALC© where T is for timeliness of invoicing, A for accuracy of the invoice re computes correctly, L for Legitimate – in that it meets with all countries legal requirements and C for Compliant – where it reconciles to the good received note, purchase order , milestone criteria should be applied with rigour and in a robust manner.

    An invoice becomes a financial instrument of repute if TALC© is applied throughout the organisation.