• 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: March 11, 2014 by: mardle0312

    Overtrading? Then request more cash?

    With certain sectors and areas of the UK economy growing quite rapidly many businesses will be attempting to satisfy a growing order book without having the financial resources to do so.

    This will result in overtrading as their working capital becomes so stretched that eventually part of the financial supply chain will collapse leaving customers without their goods and services, suppliers without their cash and therefore liquidation could soon be the next course of action.

    So what can you identify in the financial supply chain that acts as an early indicator that cash is becoming scarce?

    Firstly payments of expenses/wages/salaries increase quite rapidly. This can lead to more orders being ‘won’ however to satisfy those orders one might need to commit to placing large supply orders on suppliers who themselves duly ramp up their ordering.

    Because of the terms and conditions of sale and purchase not being ‘measured, monitored or managed’ one might find that payments to suppliers are required before cash is received from customers.

    Then as services deteriorate or goods do not arrive, customers start to withhold payments.

    This is the cash conversion cycle at its ‘breaking point’ and when faced with such scenarios attempting to go to the bank, investors to obtain new funding arrangements could be a recipe for disaster.

    The solutions are numerous and it will be depend upon timing re seasonal markets, possible sector scenarios, attempting to negotiate earlier payment terms from customers, extending payment terms to suppliers, requesting more investment etc.

    Posted on: March 6, 2014 by: mardle0312

    Which finance provider should I use?

    A frequently asked question and one that requires a very lengthy solution although the following is a distillation of 8 years’ experience  and its simplicity never fails to surprise me as few ‘advisers’ undertake each category with the granularity and due diligence needed to deliver a reasonable conclusion.

    What is the organisations strategy and how does it relate to cash flow?

    Review sector, the market, aspirations of trading abroad, growth- organic and through diversification. Does ‘segmentation’ really mirror cash flows?

    What does the business model/operational plan reveal by way of cash ‘streams’ and the cash conversion cycle i.e. monthly DD, quarterly invoicing , contractual milestone payments, performance costs and revenues?

    What is the underlying performance of cash and how is it driven by KPI’s? Is working capital optimised and the interdependency of the demand/supply/inventory and investment chains fully understood and appreciated? Are people driven metrics linked to cash flow?

    What is the ‘risk appetite’ of the Board? Is it sustainable? Have external drivers been factored in via probability, scenario planning and risk mitigation?


    Once the above has been undertaken what sort of finance is required?

    Short Term – possibly reflecting efficiency or otherwise in the CCC

    Medium Term – is the operational plan reflecting the 4 ‘interdependent chains’ of WCO?

    Long Term – Is the strategy ‘wrong or right’?

    Narrative around the ‘providers of finance’ can now begin as one will understand ‘timing’ issues, it will identify whether opex, capex or M & A/Divestment  is required and the whole financial supply chain is now being, measured, monitored and managed.

    Posted on: February 21, 2014 by: mardle0312

    Credit Management and the DSO lagging indicator

    Recently, several credit agencies have elected to reflect their own and quite subjective view on whether a company has a good credit history and by taking other factors into account like suppliers scores they have generated ratings that portray, for example, good or very good credit worthiness.

    The DSO metric assists in an understanding of the tracking of debtors but does it really help to understand the organisations ability to pay its bills or support its customers on a sustainable basis?

    I suggest that one requires a narrative that explains how sales are generated, why cash may fluctuate and a fuller appreciation of the commercial terms of the business.

    Why Working Capital Metrics are calculated differently by credit rating agencies and organisations alike.

    Q1 of any new year sees a huge volume of organisations publish their annual reports. The narrative normally eludes to various cash metrics and in particular to working capital.

    However when one reads through these reports to establish a common but significant KPI like DSO, DPO or even DIO, they are not often found and instead other forms of cash metric are used but rarely explained as to why an alternative measure is being used, its relevance to the business its impact – maybe on bonus, maybe on remuneration or maybe on investment decisions.

    The likes of Marston Plc. suggest CROCCE, ITV profit to cash and Nestlé FCCF and yet none are ‘recognised’ by the usual credit agencies.

    Furthermore the agencies then compute DSO, DPO and DIO that does not conform to the usual accounting scenarios and rarely give a reason as to why?

    So when attempting to understand the cash conversion cycle or any working capital metrics one has to be very careful. As providers of such information we establish with the management team how to measure the real changes in working capital through the use of Performance Indicators (PIs) that are a subset of financial KPIs and are owned, measured, monitored and managed by operations.


    Posted on: December 16, 2013 by: mardle0312

    How do you keep the cash flowing throughout the organisation?

    Investment, whether it is director’s cash, debt or equity in all their guises needs to be managed such that plenty of time is allowed to renew, curtail or extend the existing arrangements. If new funding avenues are being explored then even more due diligence and therefore more time is required.

    Looking at the Demand Chain (Customers- new, current and old/debtors/Potential markets) one needs to appreciate when cash will come to fruition from the existing backlog and how much is the pipeline for the next 3 months that can be classified as ‘low, medium, high risk.’ Asset backed lending via factoring or other avenues may need to be considered.

    Review of the Supply chain will reveal core suppliers and how to possibly take advantage of Supply Chain Finance, dynamic discounting and maybe even purchase of suppliers’ assets.

    The inventory (stock, work in process and reverse supply) chain is where cash can become a very subjective issue. How much is WIP really worth when it has not been invoiced for over 6 months or when stock has sat on shelves for over 12 months? In fact due to deterioration, stock holding and disposal costs it could be a cash outflow!

    Finally the Capex/R &D chain needs to be analysed to appreciate the tranches of cash required as these are normally driven by milestones.

    These 5 cash cycles form the cash conversion cycle and a full analysis will identify whether cash will be needed at any point in the cycle and at any particular point in time.

    Posted on: November 18, 2013 by: mardle0312

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

    The statement above requires only 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? 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.

    Course Content for  Financial and Non- Financial Managers where interface between functions is critical to explaining cash efficiency.

    Who would benefit:

    Operations, manufacturing, Q & A, Sales, Marketing, Purchasing Managers  to name but a few

    Cash Conversion Cycle- 2 Hours include 2No. 15 minute workshops or 1 Hour Lunch and Learn

    What is it?

    A) Customers and Terms and Conditions of Sale

    i)                    Payment Terms- What, When, Why

    ii)                   Conditions that impact cash including returns, credit notes- analysis

    iii)                 Invoice Raising –timeliness, accuracy, dating, format, layout

    B) Suppliers and Terms and conditions of Supply

    i) Invoices in prescribed format, legally compliant

    ii) Conditions of payment agreed with latest purchase orders/ contracts

    iii) Payment by certain methods

    iv) Reverse supply chain costs/revenue and cash streams

    c) Inventories

    i) Stock – valuations, reserves, disposal costs, legal ownership, risk profiling

    ii) JIT/Kanban  other methods to reduce inventory and improve cash

    iii) Work in Progress- valuation, systems billing- write off, accuracy of costs

    Overall Food for Thought:

    re debtors/creditors are we compliant with Single European Payments Area (SEPA) ?

    re inventory- why have any stock at all? Work in Progress how managed?

    Cash Conversion Cycle Graphic (Copyright CapCut™) will be used throughout the Course.