Liquidity Management: Pain Points and Leverage

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Advise - Major Projects
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Research - Market Data
Inform - Industry Insights


Wednesday, May 31, 2023


2:00 PM – 3:00 PM EDT


This is an online event


Ken Akel, Optimum Healthcare IT
Boaz Rahav, Hypersonic Force
Terry Ragsdale, LSQ


Craig Jeffery, Strategic Treasurer


TD Bank

Hosted By

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Managing liquidity in today’s organizations requires more than achieving visibility to cash balances. In an environment of risk and tightening access to capital and cash, challenges become amplified. A panel (representing corporates, SCF experts, and consultants) will discuss corporate pain points, developments in the economy at large, and the use of levers such as SCF to better manage liquidity.

If you encounter any issues with this webinar replay, please contact our team.

Announcer  00:22

Okay, well, welcome everyone to today’s panel discussion titled, Liquidity Management:  Pain Points and Leverage. This is Brian from Strategic Treasurer. And we’re pleased you could join us as we discuss corporate pain points, developments in the economy at large and the use of levers such as supply chain finance to better manage liquidity. But before I introduce today’s speakers, I have just a few quick announcements. Zoom offers several different ways for us to interact today. If you would like to post comments or questions viewable by all attendees, please use the chat icon in the toolbar. If you’d like to ask your question to just the presenters, please use the q&a icon in the toolbar. You can ask your questions at any time during the presentation, and we’ll try to get to as many as we can. But if we don’t get to your question, someone from our team will gladly follow up with you. There will also be a few polling questions throughout today’s webinar where you’ll be able to select your response from a list of multiple choices. You will need to click the submit button on the polling questions to have your response recorded. If you are here for CPE credits, you will need to answer at least three polls today. And last, please ensure that your zoom display name includes both your first and last name, so we’ll know to whom we should send the credits. Our moderator for today is Craig Jeffery, Founder and Managing Partner of Strategic Treasurer. And our panelists are Ken Akel, CFO at Optimum Healthcare IT, Boaz Rahav, co-founder and CFO at Hypersonic Force, and Terry Ragsdale. CFO at LSQ. Welcome Ken, Boaz, Terry, and Craig. And I’ll now turn the presentation over to you.


Craig Jeffery  02:16

Thanks so much, Brian, for the intro. And welcome, everyone. Thank you for for joining us on this discussion, a panel discussion, very light on the slides. So we appreciate everyone’s engagement in the chat box in the q&a box. We’ve got a good panel of very experienced intelligent people, and have a good conversation as we step through today’s discussion. But just as a way of getting a little bit more information from everybody, let’s, let’s go do some introduction. So let’s go in the order that I had suggested before. And just give us a little bit about what your responsibilities are. So I have a little more color.


Boaz Rahav  02:56

Okay, sorry for the confusion. Hi. My name is Baoz Rahav. And thanks Craig and Terry for hosting today’s event. Topic is super exciting and interesting and timely. I am the co founder and CFO of Hypersonic Force, based out of Florida. And we are a prime contractor to the Department of Defense. We specialize in hard to find, hard to source commercial items that might be available worldwide. And that’s what we do is part of my responsibility. I’m in charge of making sure that the machine works. We have quite a lot of transactions POS AR is out there. And my job is to make sure that things are working as smoothly as possible, especially in light of changing environment as we have today.


Craig Jeffery  04:07

Right Thank you Boaz. And can you jump in?


Ken Akel  04:10

Yeah, thanks, Craig. Hello, everyone. My name is Ken Akel. I’m with a company called Optimum Healthcare IT. So we are a full service IT staffing and consulting firm. We’re located in Jacksonville Beach, Florida. And we’ve worked with large hospital systems all throughout the country and some internationally as well. So we’d like to think of ourselves as sort of the one stop shop for the Chief Information Officer at hospitals. So whatever their problem is, whether it’s a workforce solution problem or a full scale it project that they need help with an implementation or go live. We’re there to solve that problem for them. So my job encompasses really, you know, everything that you could think of in accounting and finance so heavy on the Treasury and cash flow management as well as you know, projections. FP&A A, and what do you think of his traditional accounting? So happy to be on this webinar over there, buddy.


Craig Jeffery  05:05

Excellent. Thanks again. And Terry, you also from Florida.  I didn’t realize we were on a panel with at least half Floridians.


Terry Ragsdale  05:12

Well, yes and no. LSU is located in Orlando. But I’m located in Philadelphia, we have about 100 people in Orlando, and then 30, or 40 of us in various areas around the country. So I’ll go on from there. LSU is in the working capital finance business, where we’re kind of in the business of bridging the gap that you know, buyers want their payment terms to be as long as possible suppliers want payment terms to be as short as possible. And so we tried to help one element of that, or the other or both, and bridge that gap. We’ve been around for about 25 years doing that. I am the CFO. And I think I would just describe my responsibilities as being quite similar to Ken’s just at a different company. And I’ve been around LSP for about 10 years.


Craig Jeffery  05:57

Right, thanks for the interest and just for everybody who’s either live on the internet or live through zoom. I think we’re on LinkedIn Live and Zoom, pushing out to both channels. What we’re going to cover today, as we talked about the topic of liquidity management, what are the pain points? As well as how do we engage leverage, we’re going to cover a little bit on the current environment, what are we seeing the area of liquidity? We’ll look at the pain points, then next, we’ll look at what are some of the developments in the economy? And how is this bothering the markets, bothering our customers or suppliers? Then we’ll look at levers to manage liquidity, and then we’ll wrap up with final thoughts. So Terry, I’m gonna begin with you and then have Boaz jump in as we look at the current environment, how, what are some of the headlines that you would describe the current environment for liquidity management? Being that most people are certainly aware of some of the major items that have been occurring, and maybe give some calibration on that for for the audience?


Terry Ragsdale  06:56

Sure. I mean, I think the one liner is it’s just a radically different world liquidity these days than it was 18, or even 12 months ago. It’s not very long ago, I think we all would have said that the world was awash in liquidity and cheap money. And that was the case for 15 or so years, starting with the financial crisis. And, oh, 709, rates were extremely low for a very long period of time rates even bordered on zero. For the financially strongest borrowers, the investment grade borrowers. And capital is just an undifferentiated commodity, with lenders falling over each other to offer it. So I think liquidity wasn’t at the top of the list for for those of us on this panel, and probably those in the audience here. There’s some pretty experienced financial people these days, who have literally never lived through any environment other than low rates. And even those of us who have lived through it probably would plead guilty to having grown maybe overly accustomed to persistently low rates. But that the Fed obviously has changed that situation dramatically. And I guess I would say, there’s two obvious impacts to that. One is some borrowers have seen a doubling or tripling or worse of their interest payment burden. And then secondly, some banks have lost deposits or have to pay a whole lot more than the former zero, to keep the ones they are keeping. So their credit appetite is significantly curbed. So today, you know, capital just isn’t cheap or plentiful anymore. And so it’s more at the top of the list. And I think CFOs and treasurers are looking for creative ways to manage their liquidity that maybe artists that was a bank credit line.


Craig Jeffery  08:40

Creative not in terms of creative accounting, but creative ways of finding, of course, capital. Sure. That’s good. I mean, yeah, the shift has been so dramatic with the rise of inflation and the Fed, moving particularly the Fed rapidly to to address that, with so many large set rate increases in one year, what a change that span, and how that’s rippled through the markets. Certainly, Boaz, anything you wanted to add to the dialogue about the current environment that we’re experiencing?


Boaz Rahav  09:17

Sure, I definitely echoing on what Terry mentioned, it’s a it’s a completely different landscape in a universe that we all facing on different directions. It’s in a strange way it’s back to the new normal but we it is been normal for so long, that everybody kind of forget how the new normal looks like and and it requires adjustment over after 1314 years of irrational exuberance and zero interest rates. You need to sharpen your pencil and rethink liquidity risk assessing risks and And from places that sometimes you don’t, you forgot that some of these may or may be buried somewhere that now they start to emerge it hypersonic we are in a unique, we are unique place because our customers are different branches of the Department of Defense might be Navy or Army or Air Force. So our ARs are pretty stable, we don’t see any changes there, the payment terms are fixed didn’t change for ever. Thank God the government is paying on time for so for us. They are is not a concern. On the AP side, the other side of the equation, the market did change a lot. So we buy, we fulfill government orders by buying merchandise from hundreds of vendors, mostly in the US and around the world. And the way we assess that has changed dramatically from assessing risk profile, to negotiating deposits. To try to really think through the cash flow process and forecasting and making sure we don’t, we are not too overly optimistic. But at the same time, we can be overly pessimistic because we have to run a business. So coming back to the noon round, normal takes time to adjust. We are fortunate to have actually LSU as a funding partner, and we work together in assessing risks and, and it’s it’s a great journey for us. But, you know, at this point, the the landscape has been changing quite a lot of the last was 12 months. And I believe we all owe it to ourselves and to our companies that we’ve worked for, to really take a deep look, and really understanding the fundamentals and the way they are changing.


Craig Jeffery  11:58

Excellent. Ken, anything that you wanted to add or comment I know there’s other news, the debt, the debt, limit the ceiling that appears to be moving towards conclusion, anything else that you wanted to comment there from environment?


Ken Akel  12:15

I mean, nothing significant. I mean, I think just uncertainty, obviously, you know, makes it to waves throughout the markets, and everyone feels it and what everybody’s nervous things continue to get squeezed. So you know, as Terry and Boaz kind of referenced, you know, we’re all feeling that and have to come up with creative ways to solve some of those constraints that you’re running into.


Craig Jeffery  12:36

So some of our research, we look at views perspectives on the balance of power between lenders and borrowers. What are the banks saying, what are the borrower saying? It definitely in the last three periods, so over a two year period, measuring from two years ago, to a year ago to current, the balance of power was to the lenders, they felt they had much more capacity to borrow, they were the world was flush with cash. And that’s shifted in these timeframes. So that was the same view, very similar view. The bankers had as borrowers and corporate practitioners as, as we move through a couple of periods, it’s moved dramatically in the favor of the lender, others if there’s feelings of limited, much more limited access to cash. And when you can get it, it’s at a higher rate. It’s not a terrible situation, but it’s definitely more costly and less available than it was a year ago or two years ago. So in two years, what a difference what a difference it makes. There’s a question from attending, what are the opinions on bank CC lines of credit? I don’t know if anybody wants to take that. You don’t in particular, bankers on the line, though that is happening. Any Anybody care to take that?


Terry Ragsdale  13:56

I’ll jump in on that one quickly. As I mentioned, and every as everybody had been reading post, Silicon Valley Bank and other things, deposits are tending to move either from smaller banks to larger ones, or from zero yielding deposits at banks to something that yields like a money market fund. As a result, banks are sitting on less cheap capital than they had grown accustomed to. And as a result, their appetite for credit is lower. I’ve seen situations recently where a bank was interested in extending credit, but only if the borrower would place deposits with the bank, which is a little counterintuitive from a liquidity perspective. Yes, thank you for lending me the money and now here it is back in you know, into the bank account. And I think some of the surveys like yours, Craig have have indicated that banks genuinely are pulling in they’re pulling in in terms of their interest in in range of credit quality, they want higher quality. They want to concentrate more of their business with people they’ve been in business with with for a while and Just in general, their their funds are more expensive and less available, and therefore lines are harder to come by.


Craig Jeffery  15:07

Let’s, um, let’s get everybody involved with a poll question and some poll questions. This is particularly useful for those looking for CPE. But it’s great for everybody just to see what the audience thinks on the topic. So Brian will pop up our first poll question. And it could show up anywhere if you have multiple screens, or might show up on your primary screen if you’re only one screen. So this is about financial pressure. And we are experiencing more financial pressure from some of our trading partners more pressure now than a year ago with suppliers, buyers, both or neither. So I’d love for you to answer those. This is a this is a single choice. I know reality can be I guess you can select suppliers and buyers because we have both just go ahead and select that. That will that will work well. And if neither of those are the case, go ahead and put that in there. Once you’ve hit submit, you’ve made your selection hit submit. We invite you to go into the chat box and type the word SCF that stands for supply chain financing, just as a way of linking in there to the topic at hand. If we have, say if we have 100 and 150 people type the word SCF or type the letters SCF if you type the word poll accepted to but if you go ahead and type that in the chat box, we’ll go ahead and send out the responses to everybody who attended today’s session. Right, Brian wing, it looks like we’ve got two three or 350 or more full responses. Go ahead and share that. panelist, if you guys have any. Any comments, pithy comments, we’ll take them take them from Susan shows them? Yeah, I think


Boaz Rahav  17:02

looking at the I’m not sure if everybody can see the results on my end. I can. I don’t we kind of spoiling the news here. But it seems that most people feel that the answer both is the correct one. Almost half of the response came to both sides, which which is really not surprising. When you have risk off type of mentality, you feel the pressure on both sides. And as we said, the paradigm is changing has been changing has been changing, not done yet, probably. And it’s not surprising at all to see the effect on both sides of the equation.


Ken Akel  17:43

I was uh, I see 29% say neither, I guess that’s maybe a little surprising to me, I thought potentially the other three categories would take a little more than that. But I mean, I think that’s great. You know, almost a third really aren’t experiencing pressure from other suppliers or buyers, so, or at least more than they’re used to. So you know, maybe people are adjusting. And things aren’t quite as bad as they seem potentially. So then it was just kind of that was my initial thoughts.


Terry Ragsdale  18:17

I have the same reaction as Ken.  Sounds like a luxury.


Craig Jeffery  18:23

All right, you guys able to carry on the conversation while I ditch the webinar for a few minutes?


Terry Ragsdale  18:46

We mostly did, might have left you with a couple of seconds of blank.


Craig Jeffery  18:51

Excellent. Excellent. Well, thanks, everybody for responding to the poll question and for dealing with the the abrupt bump off of the Zoom webinars. So let’s, let’s continue. And so just as just making me ready, can I call on you first, and then we’ll move to Boaz. And then Terry, maybe you could do a wrap up, just add to it. So from a pain point perspective, as we think about pain points is this rapid shift is created pain. And we talked about less access to working capital throughout the cash conversion cycle or supply chain? In many ways, we’ve seen inflation, which is increasing costs. And, you know, this, this idea that I need to see what’s going on. But that doesn’t necessarily relieve the pressure. It lets me identify earlier, which is helpful, but not enough, but maybe you could talk through some of the pain points or challenges you see with your customers, suppliers, or in the conversations that you’re having with your peers.


Ken Akel  19:49

Yeah, so I can talk to that. So in our business, given that we’re in the consulting world, the good side is we don’t have a ton of suppliers our asset is our people. So one of the biggest pain points we have is, you know, we are, you know, continually paying our people bi weekly, our consultants are traveling all across the country travel cost increase, that cost gets passed on to our customers, but you know, they’re not always excited about that. And, you know, given that we are working with hospitals, a lot of hospitals and forcely are slower payers and have stretched payment terms. So in our business, you know, we’re performing work, let’s just say, for a project, let’s just say monthly, or every week, we should say, and then you know, we’re not maybe billing our customers until the end of the month. So, you know, we’re floating that costs before we can even generate our receivable for roughly 30 days. And then with our payment terms, you know, hospitals are anywhere from 30 to 60 days, kind of depending on what we negotiate with them. And, as I alluded to earlier, some of them are slower payers, and they take it a Liberty upon themselves to kind of pay when they want to. So we don’t always have a ton of visibility on when the cash is coming in. But we’re continually, you know, floating cash, you know, every week. And so that gets amplified in times like this, specifically, as everyone I’m sure knows, hospitals have experienced a lot of stress in the past three years. And, you know, more recently, with inflation and, and staffing shortages, currently, nurses is like the big is the big trigger, right. So a lot of nurses have moved to the traveling nursing model. So they’re not full time employees of any one hospital. So that’s a much more expensive model for hospitals. So hospitals margins are being squeezed, you know, their budgets are getting tighter. So you start to see a little bit of your organic growth slowdown, as hospitals are, you know, pushing projects back or pushing back on our bill rates, really doing whatever they can to squeeze as much margin as they can get out of their business. So then you look at, you know, we do have the opportunity to land these larger projects. So continue to grow your business organically, you know, right now, you, you have to take a much deeper dive kinda into two things. So one is, you know, the credit strength and the financials of the customer you’re accepting that project for because, you know, two years ago, maybe it was a slam dunk, even if a customer had, you know, marginal credit, you know, you could withstand a potential, you know, extremely extended receivable. But now, we have to look a lot tighter into that, and so you risk turning down, maybe a large project that could really, you know, grow your top line revenue, but you’re trying to get down to not put the rest of the business at risk. And so, you know, on the, on the flip side of that, if you want to grow in organically, which, you know, a lot of companies are looking at, including ours, to grow, you know, through bolt on acquisitions. You know, if you don’t already have a lender, you know, that that’s going to be a tough relationship to kind of Forge today. You know, we’re lucky that we have strong relationships with some lenders, but once again, that money is now a lot more expensive today than it was, you know, a year two years ago. So now it looks at, you’re looking at it eating into your margins and your return on your capital, just because the cost of capital has increased so much in the last couple of years. So, you know, really, for us, those are, I would say, the main pain points we feel. And so, you know, we do a variety of things to mitigate some of that, which I think we’ll get into later. But I’d say for us, that’s, that’s kind of the crux of it all.


Craig Jeffery  23:46

That’s a great, great start Boaz, would you like to add to that?


Boaz Rahav  23:51

Sure. So, I I will take from what Ken mentioned, and I will take two items, which are super relevant for us as well. One, I got to start with the second point that Ken made about relationships coming back to the same point of going back to the new normal relationship count a lot. When money is there achieved, then you know, liquidity is a commodity is available. It’s it’s you know, it’s widely available, it doesn’t require too much work, but when you go back to a different environment, relationships, long term relationships, having that working history together and trust are becoming more and more relevant throughout the entire ecosystem. And and that leads to the first point that I also will borrow from Ken with your permission. But I will I will reflect that not on the on our buyers, but actually on our suppliers on our buyers. As I said, we are in a interesting business where our buyers are different government offices. So have no worry, no worry there. But on the suppliers, we are seeing a shift where OEMs throughout the world, their cost of production is is is increasing by the by the week by the month just on the back of COVID, that creates tremendous strain on the supply chain overall. Second, we see their requirements request to pay higher deposits. It’s a trend that we have seen for the last year. So OEMs, that’s where cool with 10% 15% and then some scheduling of deliverable now require 30 or 45, or 40%, just to place the PIO because they need to buy the goods to start production. It also we see some of the contracts that you know, future contracts, delivery will take place in three months, six months, nine months, just because the item needs to be produced. It is hard, harder and harder for them to look at price. Today, which is also an interesting phenomena. Because if I’m buying a million dollar worth of an item to be delivered in first quarter of 2024, we see OEM kind of struggle how to price that. And that’s also adds a little bit uncertainty and a little bit of a discussion and going back to forecasting and models to see what makes sense. And of course, on our end, we have a fixed contract by the government. And we need to think about long and hard. Whether there is enough profit coming to us in first quarter of 2020 Ford that does it worth the while, especially when you need to pay higher deposit, and you need to finance that spread the time of production over an extended period of time. So again, going back to the new normal, we’ve done that before. We haven’t done that we didn’t do that type of heavy thinking and deep thinking for quite a long time. And now we are going back to the drawing board.


Craig Jeffery  27:13

This, this rapid increase in the amount and the timing of these deposits. That’s that doesn’t fit into your regular model. And you’re looking at what was going to change a year from a year ago to what’s happening now with that, that environment quite a quite a significant shift.


Terry Ragsdale  27:30

Gives new meaning to shorter payment terms, right?


Craig Jeffery  27:33

Prepay everything it’s like it’s like buying your airline tickets, right? I want to place an order send you home and source the material out of the ground, put it together and then ship it to you. That’s a that’s a that’s kind of a rough environment. Terry, I’m going to ask you to make some more comments on this if you want in in the next section. We’re set the next section. So feel free to tag team into that. But actually, actually, if you have any comments on this once you get going because I want to pop up the second polling question now. So let’s let’s let it pop up for a second Sherpa says Select all that apply. On the macroeconomic outlet side, we have a moderate or higher concerns about the economic impact. You know, when we look when we look back, maybe if we look back, six months, six months to today, it’s we have a moderate or high level of concerns about economic impact, not low level, not any but just moderate to high level of concerns. Russians ongoing war against Ukraine, down to tightening access to capital and trading partners, or none of the above. So select all that apply and hit submit. Give everybody just a moment. After you hit submit, we’ll let others respond there. If you’ve done that already. In the chat box, Brian has happily put up some ways to follow some of the companies on LinkedIn LSU strategic treasure and then our media site which is CTM file. And I am pleased to say that we have now hit the 150 people typing SCF we’ve exceeded it, no more as needed. Everything else will just bank in our computer. So we’re we’re all set, no need to type or keep typing it. That’s awesome. So yeah, I see that for some people. The poll questions are not not responding. The poll is not popping up for people. So apologize for that. Brian, pop some information in the chat box. So we’re all good with the comments there. So concerns. top concern is inflation, followed by central bank interest rates built to combat that, and then closely followed by a global recession and resolution of the US debt limit. I wonder how that would advance started a week ago, right? If that would have been up in the 70 or 80% range, now it’s progressing quite a bit, just four out of nine, who responded are saying that and then to others to gain access to capital and the brushes war sent about three out of 10. That looks like a pretty perfect bell shaped curve almost right just peaks up with inflation sitting in the middle. Anybody have any comments on these responses? Or any other thoughts that we should look up?


Boaz Rahav  30:34

If I may, you know, the question was about moderate, moderate or higher concerns, I will take it as most of the participants today, like everybody else, have a high level of concerns about quite a lot of items. So it’s, it’s not a single problem that bothers us on a day to day basis, whether it’s going to be a war or inflation, but it’s all over. Yes, there are differences in distribution, but we just outlined six different concerns that people are bothered by, which is a lot. And that’s, that’s my comment. So it’s not a single one problem. We have a war inflation or the Fed or whatever it’s going to be, but it’s it’s across the board. And that’s something to take home.


Craig Jeffery  31:31

And then only 3% didn’t identify any of those as moderate or higher. That’s, that’s quite low. And the other comments on this one?


Terry Ragsdale  31:40

Well, it’d be interesting to see what people would type in as their additional issues that are concerned about maybe people can do that in the chat box. My other reaction is that the first to I mean, to your point, Craig, about resolution of the US debt limit, maybe people having a different view a week ago was the first to strike me is kind of binary. That is they’re either going to be a big problem, or they’re not going to be a big problem, right? I mean, Ukraine maybe contributes to inflation. And it’s sort of sort of higher or lower, but it’s kind of binary. The rest of them? It’s it’s sort of what the temperature is, you know, is it going to be a red hot problem? Or is it going to be a moderate problem? Where’s it going to end up at cetera? And I do you think that the market data today is spending more time worrying about how high rates are going to go, whether we’re going to have to go into recession in order to get inflation back to something manageable? And finally, how bad credit quality is going to get due to any combination of these factors?


Craig Jeffery  32:44

Nothing, nothing was below 30%. And we didn’t have anything hit the 75% response. Inflation was just under that. Thanks, everybody, for taking our second poll question. I’ll go back to you, Terry. On developments in the economy at large, I knew there’s a couple paths here, right, we have 97% of people are moderately to highly concerned about at least one of those six items, there might be others that would have brought us close to 100%. But as we look at this, there seems to be two, two potential outcomes, of course, or somewhere in the middle one is when a more bright future like we’re getting expect interest rates to lower you see that in the forward curve. But there’s also storm clouds, as levels of bankruptcies have shot up higher than some of the early COVID days. There’s quite a bit of talk by different economists about a moderate or more significant recession. How is this factoring in or bothering the markets? Generally? And how should we be thinking about this?


Terry Ragsdale  33:47

I think a lot of it is a question of timeframe. You know, if you if you are focused on the next two or three months, and you’re a trader, which those those two go together. And I suppose you’ve got a lot to worry about in the whole range of potential outcomes. If you’re a corporate, hopefully, you can look a little bit further out. You got to plan your liquidity in the near term, of course, but, you know, ultimately, we’re going to come out of all this and we’re going to go back to a growth stance, right? I think the market today has begun to price in another fed increase. You can really see it in one and three months. So for rates over the past several weeks, there was a period where rates were down on the SVB news, and then they sort of went back up to where they had formerly peaked and then they were flat there for a couple of weeks. And the last couple of weeks, we’re back up again, I don’t know if that’s June or if it’s July, but probably one or the other. And then the market is now finally pricing in more or less flat through the end of the year. And then maybe some cuts next year. That That seems like a reasonable view to me. It is interesting as usual, to see how quickly market sentiment changes, you know, from from, notably one one direction to, notably in the other direction.


Craig Jeffery  35:03

Caused by a few events have been happening in close timeframe as well as any, anything that you’d want to weigh in here on the economy at large, either either agreeing or disagreeing with Terry or Arang, some different different color to it.


Boaz Rahav  35:24

So I always agree with his theory, because he’s my capital provider. And so it would be foolish, it would be foolish to take a different approach. But I think, no pun intended. But Terry, I agree, it takes, it depends on the on your time horizon. If you are looking short term, there will be additional adjustments. We’ve been through a pretty material drastic change on many, many variables that took place in in a terribly short period of time, 12 to 18 months, it’s a very short period of time. And I think the ripple effect will will continue to be a level of uncertainty and concerns and but I think sooner than everybody expects to realize we’re going to go back to a normality. And may it be two or three quarters out, we may be no. Flirting with a mild recession, I think the Fed is scratching their head, whether bringing us to a mild recession by by bringing interest rates up one or two times more, to feel more comfortable whether it’s a smart strategy, the right strategy. But I am optimistic about the future. I thought that zero interest rate environment is an unhealthy environment, I thought it was just unsustainable, this irrational exuberance could not last forever. So I in a funny way, I think we are much better off returning to a new normal, even it will take a little bit time a little bit concerned a little bit stress, where are we going to be again, you know, at recession, mild recession or the like. But I think overall entering into 2024, everybody will be in a much better shape will feel there will have better visibility moving forward.


Craig Jeffery  37:26

Two more things have popped up through the chat windows. The question is, is the housing market going to go through another crash? Maybe we could say to what extent do we see the housing market impacting the overall economy? And then the second one is a question about China’s economic recovery current taking a low momentum, like slowly growing? Could this be a factor from a macro economic outlook perspective? I think the first one is probably certainly a concern, the second one is weighing heavily, and that that seems to be one of the big inputs into the overall economic recovery, or maybe a dip into a global recession. And he any comments on those areas from a broader feedback perspective?


Ken Akel  38:14

I’ll touch a little bit on just the housing market. You know, obviously, I think a lot of us have the fears of 2008 in our heads, since it really wasn’t all that long ago. And it’s something that we’ve lived through. But I do think, you know, that was tied to a specific issue with, obviously, the credit default swaps and all the risky items that banks were taking on. So, again, I’m not an economist, I can’t predict the future. But I, you know, I don’t foresee a housing crash, like we had in 2008. I think we’re, we’re a little more because the economy has even shown a little bit of resilience throughout everything that’s going on. I mean, we saw the poll questions of all the concerns, and, you know, the economy has been somewhat resilient to that to all those things. So, you know, as far as the housing market, you know, maybe some things will slow. Obviously, when rates were near zero, you know, two years ago, you know, people were just scooping up items, like creating those just nuts, everyone was just paying cash for whatever. But I just don’t foresee, you know, the 2008 crash to where it’s going to have that significant impact across the entire economy. So that’s just my two cents.


Terry Ragsdale  39:29

If you’d told me 15 months ago that mortgage rates and other rates would be where they are today, I would have forecast that the housing market would be a whole lot worse right now than it actually is. Sort of blows my mind. And as somebody said, in the chat box there, there’s not enough inventory out there. Some of these things are self reinforcing, right? The higher rates are making it so that it’s tough for somebody to move and so they’re staying where they are and reduces the inventory and so forth. So I am not going to try to forecast the housing Mart Get we do as a provider of capital, we pay a lot of attention to it. And you know, and what our clients and their customers exposures are to that market. And indicators have been remarkably strong so far.


Boaz Rahav  40:15

Just getting to that point about housing, which I think is a key factor to consider when you assess the micro economy, environment, the micro micro environment globally in the US, especially, most buyers have managed to lock over the last who knows how long, extremely low interest rates, so the carry cost, their abilities to keep current and not default is extremely high, because the cost of borrowing was extremely low. It’s almost like musical chair, you know, the last person may have a problem, those that have not bought yet primary or additional properties depends on the situation and have not been able to lock interest rates up until 18 months ago. Again, like like musical chair, unfortunately, the last the last one will suffer. And I think that’s the pain point that we see. But overall, I think for 90% of borrowers and owners of residents, or whether it’s single family or apartment condos, I think the cash flow and the budget look pretty healthy just because of the very, very low borrowing costs. And that’s a major stabilizing force over the over the housing market.


Craig Jeffery  41:37

Alright, before we shift to the next section, I’m gonna spring a surprise on them, we’ll do a rapid speed round, you have 15 seconds to respond, you gotta say your answer, and then a short reason for your answer if you’d like to. We’ll start with we’ll go ahead and start with you Boaz, then Ken, and then Terry. And we’ll reverse the second question this way. So Fed funds rate rises, and the next two periods. June, July, will Fed Funds increase 0% 25 basis points or 50% 50 basis points over the next two periods go?


Boaz Rahav  42:19

I would say 25 basis points.


Craig Jeffery  42:23

Okay. All right. You can give reasons if you want, but let’s go to


Boaz Rahav  42:29

I will tell you My reason is just a guess.


Craig Jeffery  42:33

Okay, perfect.


Ken Akel  42:35

Again, I’m going to agree with 25 basis points. And I say that because I think you’re starting to see inflation slowed a little bit. And I think the Feds aware of, you know, the greater risk in the economy. And so I think that’ll be kind of their last, their last ditch effort. They’ll stop it there.


Craig Jeffery  42:54

Right, Terry? Your pick.


Terry Ragsdale  42:56

I’ll go for 25 as well and be a little more specific and say, I think they may not move in June, but they’ll do it in July, you asked about the two periods. And I agree with with what Ken said, I guess what I would add is my guess is the Fed is more worried about not raising enough than raising too much still now that that can change. We have a lot more agony in the bank market, perhaps. But in the meantime, it’s beat inflation first.


Craig Jeffery  43:25

Okay, we’re going to reverse the order of people. The second question is on the global economy. Will there be a global recession in any quarter in 2023? I guess it’s two quarters with you know, there’s there’s a dip in economic income, let’s just say one quarter where the GDP the global GDP has declined. Any quarter so second quarter, third quarter, fourth quarter. Go ahead, Terry.


Terry Ragsdale  43:53

I’m gonna say no. And I liked that word that Ken used as I’ve liked many of his words so far. Resilience. It just, you know, the US economy, the global economy, they they seem to take a beating and keep on ticking.


Craig Jeffery  44:08

Right. Can you’re up next?


Ken Akel  44:09

Yeah, I mean, all great. Now I’ll echo Terry’s areas terrorist for its own sake reasons. I don’t think we’ll see that.


Craig Jeffery  44:17

And bow as are you going to follow the crowd? Are you going to set out on your own?


Boaz Rahav  44:22

No, I will set up on my own. I say there is a probably decent chance. With all the disclaimers, probably decent chance for a mild global downturn. That will probably hit somewhere q4 23, q1 24.


Craig Jeffery  44:43

All right. I like the specificity I should have thrown in a few more of these and thanks for for dealing with no alerts on me. So we’re going to shift to our fourth and final major section. This is levers to manage liquidity. You know, we talked in the beginning about how visibility is helpful and seeing what goes on. Because the sooner we see things, the more there’s time to act. Levers are, you know, if we use that term is what can help us move and change what’s going on. So what are some of the Levers you and your trading partners are using or expanding their use of or planning to use? We’re talking about liquidity management supply chain finances is definitely part of the topic here. So Ken, maybe maybe you could start us off on this one. And then and Terry, I mean, you deal with so many companies, maybe you could respond there. After after Ken’s comments?


Ken Akel  45:39

Sure, I’ll talk about a few things that we do. So one of the most important ones that I’m sure a lot of companies use is just some sort of asset asset based lending arrangement, right. So we’re lucky that we partner with Osku, where we have a factoring line on our receivables. So we’re able to borrow a percentage of our receivables up front. So not only does that provide short term liquidity necessary to operate our business, but it helps us project and smooth out our cash flows rather than continually guessing all the when cash is going to come in the door. So So that’s one way that we that we manage it. So another way, and I alluded to this earlier, is really relationships, I mean, the world is still all about people. So you have your relationships with your customers and your lenders. So one of the things that we do is, you know, as we talk with customers, and before taking on larger projects, or maybe they’re a little bit risky, a little bit risky, or customer, you know, wasp verbs, a downpayment, maybe just, you know, something to get them to share in the risk that we’re taking, when we’re financing these, you know, large scale projects, where we have to outlay a lot of cash up front. And then on the flip side, you know, continue to talk with your lenders, you know, I looted to our relationship with LSU, I speak with our account manager at LSU, at least weekly, sometimes daily, it really just depends, but I never want them to be surprised on where we’re at, or issues we’re having. Because not only do I want them to help us solve those issues, but also I know, an issue that we have could potentially cause you know, effects, you know, across their business and their other customers as well. So I’m hoping that their other customers are doing the same with them. And that, you know, communication is key across the board. You know, something else that we do is we really look into the margins of all of our different projects in our divisions. So, you know, maybe two years ago, when margins were good, and you had some excess cash, the immediate answer was take that cash and reinvest it back in your business, or, you know, go buy the next piece of equipment you need for, you know, maybe bow with times a little bit uncertain, maybe be prudent to store away some of that cash and strengthen your balance sheet just to touch. So, you know, you have a reserve to tap into, and, you know, maybe you’re stretched on your line, or, you know, things are just getting tight. And so then, you know, lastly, you know, Terry alluded to the fact that we’re seeing a lot of cash in the traditional deposits and go into, you know, money market accounts or interest generating accounts. So, you know, if you do have a borrowing arrangement, and your interest rate is higher than you would like, and that’s eating into your cash, you can kind of do two things. So you can, you know, stash some of your reserves away in a interest generating account, when you’ll you know, you’ll never make up the interest expense, but it will help offset some of that expense. But you can also look into some more complex financial instruments, you know, credit rate, interest rate swaps, derivatives, you know, any of those hedges, that can help kind of alleviate some of the cost of capital that we’re all experiencing right now. So those are really some of the ways that we look into managing or liquidity and, you know, some of the levers that we pull to, to try and get through the uncertain times.


Craig Jeffery  48:54

Interesting, piling up cash, good communication with your creditor, and taking down payments sounded similar to what Bob was talking about people wanting deposits. You just refer to him as down payments, he refers to their customers is a way of reducing the risk, but But sharing and spreading out the cost of that capital. There’s different ways of doing that. Terry, I know you’ve talked to lots of different companies as a as a lender, what, how would you what what are some of the highlights you’d want to bring forth to this discussion?


Terry Ragsdale  49:30

Sure. Well, it as I mentioned earlier, we’re fundamentally in the business of helping buyers have longer terms or suppliers have shorter terms without undue pain to the other side of that transaction. There are lots of different structures for doing that. We can do it in different ways. And I would say there is a real theme, both of buyers looking to lengthen their terms and soften the blow to their suppliers by offering a supply chain for the adds program for early payment, or simply to implement a supply chain finance program to bring the liquidity and financial strength and credit quality of the buyer to their entire supply chain ecosystem, if you will, you know, a small supplier may have a harder time finding liquidity than a large buyer. And so the large buyer may choose to use some of that liquidity to bring it to their supply chain for let’s call it sustainability purposes. But I don’t mean in a dei or ESG way. I mean, literally, that the suppliers will be there when the buyer needs them.


Craig Jeffery  50:38

Yeah, that seems that seems very, very much what we saw. Back in the early days of COVID, there were everyone was tightening slowing down their payments. But there were some companies that were in a financial position where they paid their suppliers earlier, they were pushing out or to make sure that they would be able to be sustained. Or their distributors, they offered different types of terms to essentially finance them to keep them going. So some different responses in a time of the season are a bit rougher, not this unending liquidity. We can have more comments on this. But I want to pop up, have Brian pop up the final poll questions a third one? Regarding the status of our capabilities, we currently have visibility to all of our cash globally on a daily basis, visibility to some or all of the cash conversion cycle. So AP AR, whatever the flow is good forecasting analysis on our cash flow. In other words, we have good analysis and we use multiple models, not just we have a good forecast, and levers we can we have levers we can use for liquidity management for AP or AR, such as what what’s been discussed here, or none of the above. I’m really interested to see where where people are. This is a group that’s talking about liquidity management. How advanced is the is the audience today. And again, we certainly got more than more than 150 responses we need in the chat box, which is great. And so everybody will get those poll responses. We have a couple other questions have come in, I don’t know that we’re gonna be able to take those. While we’re waiting for the poll responses. Any any other comments about levers, Boaz, or, or can anything else that you guys might want to add to that discussion?


Ken Akel  52:35

I’ll just add one more thing. And it’s kind of a mix of some things that have already been said. But I think if you’re in a business where your margins are really good, and strong, I think you have the opportunity to use that as leverage with some of your customers to say, you know, we can maybe reduce some of that margin and be a little bit cheaper, but we’re going to need, you know, quicker, faster payment terms or some cash up front. And so, you know, I think you need to take a deep dive into your business and see where you can potentially get into some of your margin if if you need to, you may not need to, but I think if you need to, that’s potentially a good route to take.


Craig Jeffery  53:14

Thanks for that. But why is anything?


Boaz Rahav  53:16

Oh, I think we our relationship is, is key, I think that you know, maybe rethinking the number of suppliers or customers, maybe it makes sense, instead of having a large quantity on both sides, maybe reducing and focusing will help you you may lose some of the margins. But you may be working with better suppliers with better customers in terms of your product and fit. And that will allow the business so maybe getting rid of some of the brake noise. Maybe the cost will be some you know, short term decrease in marginal revenues. But I think if it refocusing on key relationship key customers, key suppliers may be a great strategy.


Craig Jeffery  54:16

Alright, so we have the responses back on the capabilities. Well, it does trend Trend down from 60% global cash visibility 63%. Good forecast multiple flows 51% Number two pretty, pretty impressive, impressive number there. And then visibility on the cash conversion cycle. 45% and 40% have some levers they can use So Terry, I’m sure that’s good news for you that there’s still a even on a discussion about this. There’s still 60% of the audience isn’t using the levers they’re they’re seeing what goes on but not able to use the lever. So anyway, thanks, everyone for joining answering the poll questions that we have now, this brings us where we’re closing in on on our hour. We want to make sure we get everybody off to their next meeting on time. But we’re going to go, Ken, I’m sorry. Gonna go Boaz and Terry, love to hear your final thoughts. Any, it could be something you’ve said, or something you wanted to say what wisdom guidance or advice would you give to your peers can be something to avoid, or something to do, though, as.


Boaz Rahav  55:30

So unfortunately, I will repeat myself. And I think that the new normal is not a bad thing. It takes time, a little bit time to readjust. And but I think overall, on the other side of that process, we are going to be in a much better shape feeling more comfortable and more optimistic. I think that refocusing on our strength, refocusing on product lines, suppliers, customers that the vast majority of margins, and made sense, and maybe cleaned up everything else just for the time being, and then we can reassess 12 to 18 months from now, I am optimistic, getting into 2024. And that’s about it.


Craig Jeffery  56:11

Thanks, Boaz. Ken.


Ken Akel  56:13

Yeah, so I’ll echo kind of what Boaz said, and then also, just on some things, I’ve already hit that, you know, I think, if we all you know, make sure that we really understand our business are in tune with our customers, our suppliers, our lenders, and, you know, really just continue our relationships and make sure, you know, again, communication is key with all your stakeholders. You know, obviously this, as Bill, I said, this is the new normal, and, you know, these times will end and, you know, we’ll get back into the growth phase, hopefully sooner rather than later. But I think, you know, we can all continue to ride out the little bit of uncertainty, as long as you know, your relationships are strong with all your stakeholders.


Craig Jeffery  56:58

Thank you also can and, Terry, your final, your final comments?


Terry Ragsdale  57:02

Sure, I’ll just talk my own book and say, you know, in these days of less available capital and more expensive capital, have a think about your working capital strategy and what you’re doing with your receivables and payables and ways that you might be able to generate liquidity more cheaply than you think. And without amendments, and fees and covenants and new credit approvals, and reporting to banks quarterly and all that sort of thing. We have some interesting solutions. We’d love to share.


Craig Jeffery  57:37

Great, thank you. Thanks to each of you. Great job on the panel discussion. I know there’s a number of questions that came through that we didn’t get to particularly on the economic side, and some prognostications about some different markets. So thanks for submitting those will. We always try to cover as many as we can. As we move to Brian doing a close out and references. I think we’re also posting some some links in the box for following companies connecting on LinkedIn, we’d love to do so. So I’ll turn it back over to Brian. Thank you, everyone, Brian.


Announcer  58:15

Well, indeed, thank you, gentlemen. And thank you, everyone for joining us today, the CTP and FP&A credits. A recording of today’s webinar will be sent to you within five business days. And for more on levers for liquidity, be sure to listen to the Treasury Update Podcast episode 250 with LSQ, titled Working Capital, Thriving and Uncertain Times by clicking the link in the chat box. Thank you, and we hope you have a good rest of the day.

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