• 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?

    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.

    Supply Chain Finance (SCF)

    Corporates support their suppliers with access to early payment, mitigate risk in their supply chains, manage creditor payment days, and enhance return on capital.

    How SCF could work:

    Step 1 Your suppliers deliver goods/services and invoice your company as normal.

     Step 2 Your company approves the invoices.

     Step 3 Your company either sends to Finance Provider:

     a)    a file of all approved invoices, by supplier, with the same settlement date.

     b) Individual invoices when approved.

     Step 4 Finance Provider launches the trade and institutional investors fund the trade.

     Step 5 Finance Provider pays suppliers the day after the trade closes.

     Step 6 On the settlement date, your company simply pays the full amount due to each supplier to Finance Provider, which distributes the funds to the investor base.

     Possible Benefits to Corporates

    A)  Assist suppliers with working capital management thereby helping to stabilise your supply chain.

    B)  Opportunity to negotiate better prices and payment terms.

    C)  Reward key suppliers for service excellence.

    D)  Create access to new supply sources or regions as suppliers may now choose to supply your company safe in the knowledge that invoices can be settled within days, not weeks or months.

    E)   Utilise your company’s favourable credit profile to assist the procurement function.

    F)   Maximise financial stability within your supply chain.

    G)  No costs to your company to implement Supply Chain Finance.

    H)  Enable your suppliers to obtain cash without using your company’s own liquidity, if you don’t want to.

    I)    Opportunity to negotiate better prices, improve payment terms and even extend payment days, thereby enhancing your company’s working capital position and reducing your net interest charge.

    J)    Opportunity for your company to participate as a possible investor if you want to, i.e. your company could invest in its own invoices as an enhanced treasury and liquidity investment.

    K)  No finance costs

    Possible Benefits to Suppliers

    1) Improve operating cycle by turning receivables into cash much more quickly.

    2) Generate the potential for increased sales with your company as quicker cash facilitates quicker trade purchases further down the supply chain.

    3) Pricing is based on your company’s credit profile and not that of your supplier.

    4) Receivables are carried for a shorter period of time.

    5) Increase the advance rate against receivables to 100% for your suppliers who otherwise borrow on a percentage, typically limited to 80% or less.

    6) Mitigate concentration risk in receivables that your suppliers may carry if your company represents a significant percentage of their sales.

    7) Transaction costs are 100% transparent and known up-front, based on the payment term.

    8) Suppliers have complete flexibility and can opt in and opt out on a per invoice basis which means there are no lock-ins, security charges or debentures.

    9) Little or no impact on your credit rating

    10) No loss of control through dilution of equity or increase in debt.

    11) No IT costs

    12) No legal costs


    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.

    So why are corporates/SME’s hoarding billions in cash accounts across the globe?

    Recent evidence suggests that ‘lessons have been learnt’ from the 2008 and the on-going financial crisis re Libor,  FX, PPI miss-selling and in Europe the failure to agree on the way forward re SEPA, EMIR and even bank funding (Germany announcing that the proposals are not ‘legal’

    Cash hoarding continues to occur as trust in banks, the uncertainty of world politics, social unrest in the EMEA area, China’s credit crunch and the US Fiscal Cliff being ‘delayed’ is making businesses prefer this option.

    Furthermore it provides them with the strategic agility to cover shortfalls in operational cash flow that may occur say due to suppliers being affected by natural disaster or where CAPEX may be needed to secure say new premises as the old ones have been affected by say flooding.

    Businesses with cash can also satisfy shareholders demands for dividends, undertake buybacks (Think Apple in the past 6 months) and develop internal growth programmes re R & D or even develop an M & A target without tapping into the banking/financial system (think Facebook’s acquisition of WhatsApp this week)

    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.

    Posted on: December 3, 2013 by: mardle0312

    Yesterday’s crash of the credit card systems belonging to RBS and NatWest reveals a distinct lack of investment in IT systems since the crash in 2008.

    Your working capital could therefore be impacted.

    Lack of cash receipts and payments to suppliers could leave you with excess inventory and production line balancing issues. The redress could be through detailed analysis of your financial supply chain and notifying the relevant authorities whether it is banks, insurance companies and even your accounatnts.

    More importantly, maybe, is to communicate any issues to your own customers, suppliers and investors.

    Posted on: December 2, 2013 by: mardle0312

    Small and medium-sized businesses (SMEs), however, frequently lack access to the capital markets and are therefore more dependent on banks for their external finance. Indicative median interest rates on new credit facilities to SMEs overall have fallen modestly since mid-2012. These rates do not, however, capture the full cost of credit facing SMEs, as they do not include the impact of fees or cashback deals. Furthermore, as lenders become more willing to extend credit to a wider pool of borrowers, falls in interest rates for some SMEs may be offset by banks charging higher interest rates to riskier ones.[5] Surveys of small businesses show more of an improvement in the cost of credit to SMEs: for example, businesses responding to the Federation of Small Businesses (FSB) survey reported that, on average, their cost of credit fell between mid-2012 and 2013 Q2 and continued to edge lower in Q3.  Those surveys also suggest that the availability of credit has been improving over the past year or so, albeit from a low base. There has been increased SME lending activity consistent with this improvement in credit conditions and the economy overall. Gross lending in the three months to October was £1.5bn higher than the same period a year ago. But repayments have also risen, resulting in negative net lending.

    Source: FSB ‘Voice of Small Business’ Panel.

    (a) Interest rates that small businesses that successfully applied for bank credit reported that they had been offered. Results have been re-weighted to exclude ‘unsure’ responses.
    For further details on survey methodology, see:

    Allegedly both Serco and G4S complied with their purchase order terms and conditions when invoicing for ‘equipment’ that had yet to be ‘installed or deployed’. It means the UK Ministry of Justice just paid invoices per the PO terms and conditions too.

    Lesson learnt is that timing is everything as verification of installation and deployment of should have occurred before invoices were raised and payments made.