Working Capital: Levers to Support Cash Performance

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Inform - Industry Insights


Thursday, May 11, 2023


2:00 PM – 3:00 PM EDT


This is an online event


Alex Weiss, Esker
Brian Rieber, LSQ
Craig Jeffery, Strategic Treasurer


TD Bank
TD Bank

Hosted By

Strategic Treasurer Logo


With interest rates rising and other factors creating a complex economic environment, managing the cash conversion cycle and working capital efficiently is a major challenge for many organizations. While cash is always a priority, it’s often difficult to track and improve liquidity. This webinar will discuss ways of leveraging technology and using efficient organizational strategies to manage working capital effectively even with limited human resources. Topics covered will include the following:

  • Measuring what matters.
  • Building bridges internally.
  • Gaining exposure to payables and receivables departments.
  • Tools that allow you to move quickly.
  • Benefits of joint software and finance solutions.

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


Announcer  00:33

Okay, well, welcome everyone to today’s webinar titled, Working Capital Levers to Support Cash Performance. This is Brian from Strategic Treasurer and we’re pleased you could join us as we consider ways of leveraging technology and using efficient organizational strategies to manage working capital effectively. But before we 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 would 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 resume display name includes both your first and last name, so we’ll know to whom we should send the credits. Our speakers for today are Alex Weiss, FinTech Business Development Manager at Esker. Brian Rieber, Vice President of working capital solutions at LSQ. And Craig Jeffery, Founder and Managing Partner of Strategic Treasurer. Welcome Alex, Brian, and Craig. And I’ll now turn the presentation over to you.


Craig Jeffery  02:30

Thanks, Brian. Appreciate it. And thank you, everyone for joining us this afternoon or late morning, depending on where you’re located. Thanks for taking time, we know you have a lot of things to do, and voices to listen to. Thank you for investing time with us, and Brian Rieber and Alex, good to be with you to do this presentation today.


Brian Rieber  02:53

As well, Craig, we appreciate the invitation.


Craig Jeffery  02:59

All right. So we’re gonna we’re gonna move on to what our agenda is. And as Brian said, there’s opportunities to engage through the chat box to the q&a box, and through some some polling questions that we’ll go through. But what are we going to cover today? The topic is working capital levers to support cash performance. And instead of just saying tools are visibility, achieving visibility, to understand cache performance, we’re talking about lever. So how can we adjust what’s being done in the cache performance design so, so think of that in the context, but what we’re going to cover today? First, we’ll begin with the overall context of the macroeconomic condition. Most of you are familiar with rising inflation, corresponding increases in interest rates by central banks to tamp down the level of inflation, and then decline in some of the economic activity in touching down to recession or bumping into very, very low growth. Don’t look at cash conversion cycle and working capital definition the cash conversion cycle. Look at those. You know, as cash is put into the business process, let’s say in the form of inventory, items are sold, they become a receivable receivable is converted to cash. So it moves from accounts payable and inventory gets returned to the organization. So we’ll talk about the cash conversion cycle, and how it’s important, generally, for efficiency of how a business runs, but that will tie it back to working capital, as you see in the third bullet point is what are the what are the two different definitions of Working Capital One is a measure of the ability of an organization to meet their needs as they come due. There’ll be also definitions about how much is tied up in the cash conversion cycle. So receivables payables, less accounts, receivables, inventory, less payables. So we’ll look at that how that might Under sort of discussion, then we’ll look at supply chain finance. And we have that subtitle of gaining liquidity is that concept of instead of, if I win by pushing out my payments you lose by collecting them far later. So that’s a win lose to a different model of having the additional financing put into that process. And through efficiency of the business process, allowing for a greater set of wins or more flexibility throughout the overall cash conversion process between organizations. So more flexibility, leading us to this idea of democratization of access to capital, we’re looking at solutions moving from manual to automated, that’s part of the, if we want to be efficient, we have to be far more automated manual processes are not only suboptimal, but it’s very difficult to do well operationally, but they also have an in an impact a negative impact on the cash flow of organizations. Ability to look at that. So we’ll look at moving from manual to automated, and how those items combined together this idea of I can see, I can improve my process. And now I have extra liquidity that can be inserted into that exchange of information. Now I have a bigger lever, I expand the domain that I can look at more powerful lever. And then we look at key takeaways. We’ll cover three items funding, visibility, and the idea of using levers not just monitoring it goes on. So that gives us a sense of our agenda for the next 50. So minutes. Now, let’s move on to the macroeconomic list. So if you’re paying attention, you know that there’s lots of macroeconomic changes after a long period of relative stability, suppression of a lot of activity by central banks, interest rates broke out after COVID a creation of a lot of extra liquidity into the financial system, you see that spike spike on the interest rates. In the US on the top line on the right hand side, you see a similar increase jump on interest rates. And you saw the central bank in the US the Fed. I’m sorry, the central bank, bumping up interest rates on the top left to counteract that increase in inflation on the lower left hand side in the US, and you see inflation on the bottom declining, yet the interest rates have gone up. And we saw the most recently 25 basis point rate rise by the Fed happening. We don’t have the latest change on the UK side in this particular graph, but you can see similar type of environment there, except with the change in the UK, inflation is not moderating at the level that it has in the US. So two big economies. Brian, I’m gonna kick it over to you in case you have any feedback.


Brian Rieber  08:03

Yeah, I think what we’re seeing here, Craig is, particularly with the with the higher interest rates, I think, the UK central bank put out today that, you know, interest rates are going up another quarter of a cent. And that 25 basis point will now push it to the highest level in 15 years. But more for corporations and the treasurer’s who are being impacted. It’s the speed of this change, which is really caught some a little bit flat footed. Right. So we’re seeing a pretty practical effect on corporations today who, over the last five to 15 years of racked up that, you know, they’re finding a far more far more working capital being allocated just to service the existing debt. They’re seeing demands pressed on them from their customers who push them for longer payment terms. And of course, they they have no competence company’s in terms of where this is going over the next nine months as they’re still trying to recover from these changes. You know, I think we’re we are seeing a bit of a slowdown or at least a hint that it’s going to slow down for the rises. So in the near term, but all told, I think, you know, there’s two stories here we have both the higher interest rates that are having a direct impact, but also the speed of change today from a from an interest rate and inflation perspective is more than what any of us had anticipated, you know, two years ago and and that’s that’s put some unexpected pressures and demands on our Treasurers and CFOs.


Craig Jeffery  09:36

Alex, anything that you wanted to add on this?


Alex Weiss  09:40

Yeah, absolutely. So when you see in less than a year that your base rate has increased by 4%. That’s, that creates, I think, a lot of uncertainty Right. And, and that’s might might be here to last because you see that inflation is coming down, but the rates are staying at the same level which which means your real rates are kind of rising, actually. And that creates a lot of uncertainty in the market.


Craig Jeffery  10:07

Yeah, excellent. So let’s, let’s move from the macro to the environment of what’s happening in the capital markets, where’s their variability. And so this comes from the Treasury perspective, survey 2023 version. I’ll say a few things, then we’ll go again, Brian and Alex afterwards, on the left hand side, it’s what’s the expectation of loan covenants and restrictions, more restrictive versus less, less restrictive. You can see the corporates, the green, tick, the 40%, minus 8% 32% of the corporates on that basis, believe it’s going to be more restrictive for covenants. While it’s a 68%. Difference, banks expected to be more restrictive on covenants, they’re the lenders, that’s what they’re expecting, we’re looking at favoring borrowers and favoring lenders, you can do those calculations in your head, they tend to look pretty comparable between these two. When you look at it, there’s a 50 53%. net negative view or power shifting to the lenders. If we go back just several years, that movement has been dramatic in favor of borrowers quite heavily. And now it favors lenders. And so just a few years that pendulum of access to capital has moved towards, towards the lenders. Yeah, happy to have you jumped in Brian, and then followed up by Alex.


Brian Rieber  11:33

Thanks, Craig. So I will tell you what we’re seeing. I mean, I speak to dozens of clients a week, across the board, every single Treasurer I speak to is telling us that they are getting indications and or are actively trying to do things with their debt structure, their capital structure today, and they are experiencing additional covenants, tighter restrictions, more conservative ratios that they’re going to have to adhere to. I have yet to meet anybody who has said that it’s actually easier to negotiate something today than it was 12 months ago. Even those clients who are in a better position, right, we deal with a number of clients who have a very healthy balance sheet, their income statement is in decent shape. And yet, what we’re we’re hearing from them is that they’re in renegotiating capital structures that are, you know, tighter in terms of covenants, you know, or Endor, seeing their covenant for me in the same despite the fact that they’ve hit benchmarks and targets that they had with their banking partners a year or two ago, when they last negotiate it. So all in all, I think this is a reality for the next rest of 2023. And into 2020. For that, it’s going to be tighter and more difficult to access capital, debt, these are certainly going to be more favorable to the banks, we’re going to see higher rates, right. And importantly, for those who have become very debt heavy, or maybe are on the low end of the non investment grade structure, this may be one where they they literally lose access to capital from their traditional banking partners. And we’re gonna see many non banks stepping in to fill that void. I think, you know, the stars are aligning for non bank, financial partners that have a balance sheet, but they’re not going to fill everything. Right. And we’re going to see the market tightening up and the consequence of this, we will we anticipate being some more bankruptcies and, and more accelerated failures because of the capital markets going on today.


Alex Weiss  13:38

100% Yeah. And if you think about it, that creates going back to the uncertainties that creates in the market. Companies may be rethinking maybe longer term projects, right, and longer term borrowing that pushes everyone to look at cash as a potential solution to fund the business. And that’s why I think today’s topic is right on point.


Craig Jeffery  14:02

So, so, so happy news. Right. rates are going up and capitals less available. And that’s, that’s certainly why I think talking about levers to help them make sense. So on the on the bank failure side, this this influences Well, we’ve seen some of these fairly significant size banks run into problems get go into receivership, failing being picked up by someone else, or forced into a merger. And for those who, who’ve been at those banks and are suffering dislocation, that’s a that’s a hard situation to be in and, you know, on a personal level, we certainly feel for each person and all our friends in those areas, but we’ve seen three significant failures in the US and concern and others and then certainly in the Credit Suisse side. That’s that’s happened and significant. So what are the concerns about the about banks and fed support? In particular, it’s like when when will bank stop supporting a failing bank and make all the depositors full? There’s no, no requirement to make everything in excess of the FDIC insurance hold? What point will that support and or stop? Either way, this idea of access to capital and concerns about credit lives on? Brian, you may have a few things you want to touch on here?


Brian Rieber  15:29

Yeah, I think you’re, it said, right. Like we don’t, we don’t lose sight of the fact that there are people behind these banks. And frankly, there are a lot of very smart, talented people who, you know, did a lot of good things, and just got wrapped up in some in some environments that were not of their own making. Right. So So setting aside that, for a moment, the human impact of this, as a treasurer, and a CFO, it’s a really unique time that we haven’t seen in the last 15 years of not just worrying about your own liquidity, but really looking at those partners that you depend on to provide you capital and their own liquidity and their own stability in the marketplace to continue doing. So. It is, it is not lost to me, when we have these conversations with customers of the three failed banks, in particular, the speed of change here caused them to react very, very quickly. And they found themselves where it didn’t matter what other priorities they were doing, they immediately had to find and shore up capital from other means. In some cases, they didn’t act fast enough. And they needed access to short term liquidity until they could get access to funds that were were locked up in these banks. You know, I think for the strategic Treasurer, and CFO out there, they need to rethink their entire capital structure, where are they placing money? How much are they putting in particular institutions? You know, and what are their redundancy plans and their disaster plans when things go unexpectedly bad and do so very quickly? There’s there’s definitely an operational if not an existential risk to all of our companies that are out there and dealing with this, this environment today. And I think there’s more to come right, as we’ve seen in the market, as we’ve talked to more and more Treasurers and CFOs. And we obviously are paying close attention to what’s going on to the Fed in the banking market. This is not likely to be the end with these three, this year. To you know, the key is to be on the front end of this and to take action today as opposed to waiting until somebody fails, and then and then responding.


Craig Jeffery  17:40

Excellent. So let’s, let’s move to our first poll question. And we have a different code to use for that. But there’s two questions, double stack here, because you can handle it. The first one is select all that apply, we focus on the following metrics, collector effectiveness index all the way down to none of the above. So you can select any of the top four, or you can select none of the above or below that taking place in number two, and you might need to expand your window that shows up in general, or your customers asking to pay you later. And then there’s some 90 day terms or more 60 or more. Yes, but we hold firm to our standard terms, no and other. I know the other is meant to handle all the other options that could exist. This is a short poll to go ahead and answer those and hit submit. And I’ll give some instructions about what to post in just a moment. So in the chat box, you can see Brian has put some information about finding the ol box. In case it’s not showing up on your screen, especially if you have 2, 3, 4 monitors that you’re using. One of the things that will be interesting, go ahead and submit it if you type the word lever, or poll, but if you type the word lever in chatbots, and we get 150 responses with the word lever or poll, I will send out all of the poll summary responses embedded in the deck after the event. So what’s it all we’re asking for his 150? We’re not asking for money. And hopefully I won’t have to keep talking about that. So lever is the idea. You have a lever to adjust things and pull is what we oftentimes say. So hopefully, we can adapt the lever and I’ll give the first right of refusal to comment on these to Alex.  Any any comments about the measurements or customers or do you want to flip it over to Brian to comment?


Alex Weiss  19:48

That’s very interesting that you know most of the companies are looking after AR and AP and I believe liquidity measurements may be more today than they have been in the past probably 10 years or so.


Craig Jeffery  20:05

Brian, any any comments?


Brian Rieber  20:08

Yeah, I would say I’m kind of a little bit surprised on the on the customer has asked him to pay later. I know that consistently, pretty much every conversation I have with the CFO and treasurer today, they they’ve really impressed upon me that over the last decade, they have seen every one of their customers, especially for larger companies push trying to push terms out, and they basically accepted 60 to 90 day plus terms in order to to win that business and to meet their, you know, their sales goals. As a company. Of course, it didn’t, it wasn’t much of a concession when interest rates were near zero. Now that now they’re feeling that a bit more so. Yeah, based on these results, I am a little bit surprised. Just on the bottom side. Question number one makes total sense, right? I think there’s a number of different liquidity metrics we all use. And frankly, strategic treasurers and CFOs are looking at all of them in conjunction with one another as opposed to one metric as they figure out their their own liquidity and working capital needs. So a firm on that on the first question, and a little bit surprising on the second.


Craig Jeffery  21:18

All right, thank you both for your comments. And everybody who responded to the polls. Thank you for doing that. This is always interesting for us to see who’s on what those responses are and how we can learn from it. Just have a quick, quick way of flash way. All right. So Brian, tell us about the cash conversion cycle.


Brian Rieber  21:39

So I think the cash conversion cycle for most treasures and CFOs is the most commonly used working capital metric. Certainly the one that we see we see it the most mentioned inside of investors, analyst questions and reports. And really, what I would draw attention to is, and what I think finance executives are looking at today is that over the past year or two, in particular, with COVID. The supply chain disruptions have led them to take actions to build up inventory, right, they ordered inventory earlier, and they found themselves in positions where they were prepaying for inventory. They were prepaying in order to get legitimate, you know from logistics to get items onto a ship and make sure that they can get over here. And in the last several months, we’ve seen this precipitous drop in certain industries with demand that’s left them with this excess inventory, that’s that’s built up. And for many of these clients, you know, these customers, now they’re stuck in a quandary where they really don’t have the levers to pull on inventory. It’s either on a boat coming here or it’s in a warehouse, and now they’re they’re paying for that. So they’re really stuck in this position where they want to start looking at the other life levers from an AP and an AR perspective. Right. And, in particular, they’re focused on where there’s mismatches. And so as we as we looked at the cash conversion cycle and visibility, for liquidity, we’re finding a lot of leading CFOs and treasurers are starting to look at where they have relationships within their AP and AR is, even with the same relationship, the same, the same party who’s both the customer and the supplier is dramatically different. And they’re starting to try to negotiate and find opportunities for them to harmonize and standardized terms, so that they’re not in the business of financing their suppliers and or their peers. We certainly see that as low hanging fruit. But we also in addition to your traditional capital lines and LLCs, etc. are hearing from people who are inquiring about what flexibility they have to actually pay these parties later. Right? Can they can they step in and use a third party to either accelerate the AR balances and put cash on their, their balance sheet is sooner, right? Or is there an opportunity for them to actually extend payment terms beyond the due date from an AP side? So this, this cash conversion cycle is giving them an acute amount of focus, and really looking at the levers that they can take immediate impact on to improve liquidity of their organization?


Craig Jeffery  24:12

Yeah, good points moving beyond just tapping. Bank credit was handled in cash conversion cycle. Thanks for that. That explanation, we’re gonna jump over to measures of efficiency. And Alex, if you would, if you would walk us through this.


Alex Weiss  24:28

Yeah, so you know, the cash conversion cycle is basically the how much days do you need to kind of convert dollars that have been invested for your in your operations into cashed in revenue, right. So you’re gonna think about the inventory that you bought the cash that’s held into accounts receivables that you wait payment on? And in the Accounts Payables where you benefit from from terms and it gives you a number of days? that are needed to kind of convert that revenue into cash. I think I wanted to have a little bit of a conversation around around these these metrics, the DSO and DPO, especially, because these are averages and, and everybody calculates them differently, right? So a common version of DSO is calculated by using the open receivables and sales. But you can see that you lose a lot of granularity on what’s going on in the day to day business with that kind of calculations. And maybe another approach would be to say, to look at the DSO by looking at the actual payments that you received versus the receivables that were open. And that gives you maybe a closer look into what’s going on in the business. And that brings me back to the poll question, actually, you know, we presented the ratios that are being used as one or the other, but it’s really multiple, different KPIs that should be used in conjunction, to see to kind of resurface the granularities, that could happen in the day to day business.


Craig Jeffery  26:09

Yes, thanks. Yeah, I appreciate that. And maybe we can look at before I’ve jumped to the next slide, I guess you know, that that will image at the bottom of, we talked about the lever, and you think about, you have a thermometer that tells you what the temperature is your lever, like a thermostat that allows for that shifting and, and it’s measurement helps, right? Because that that helps you know what to do. And you know, you need to help. Go ahead.


Alex Weiss  26:38

You need ’em, you need measurements, right, you need averages, because it’s too complicated to look at maybe, you know, 1500 accounts injured individually. So you got to make averages somewhere. But you gotta remember that you lose some granularity some vision of maybe particular accounts, or particular situations that may impact these averages that you’re looking into.


Craig Jeffery  27:03

Yeah, excellent. All right. So let’s, let’s move on to working capital. You know, if you’ve heard me talk about working capital, we oftentimes the often oftentimes, I’ll say, you know, ask the question, Do you want more working capital less? What? Depends on what you mean, right? Like, what are you thinking about with working capital the the traditional accounting measure, or bank or measure, that’s current assets minus current liabilities? Well, that sounds like it’s better to have more working capital, because you have more liquidity to do things. But that also makes no distinction between a receivable and cash. And I think we all know that I have cash today than a hamburger four days from now. Whatever, that’s a wimpy burger. But that idea of receivable, well, you can’t pay with a receivable traditionally. But you can with cash. And so that’s a, that’s a great measure for an organization’s ability to meet their obligations when they come do bankers like the accountants like that, but you know, net adjusted working capital or net operating working capital, whichever measure us, that’s looking at AR inventory and accounts payable, the net there, so that doesn’t include cash. So converting pulling things out of receivables into cash, or taking funds out of cash and putting into inventory all relates to how much capital is tied up in this conversion, the business conversion of that activity. And so the efficiency of converting receivables to cash or inventory to receivables, receivables to cash, that whole process, that measure efficiency is a big factor in how the organization’s can scale. But these are the areas that were late to cash. And you may want less working capital in some cases. You don’t want your receivables to grow and be everything you don’t want your inventory to be zero because you can’t sell and so you want that to be optimized. So the question is a bit of a trick question. So you want to optimize either measure, just want to know what you’re talking about. So which is which is better? What’s the right level of optimization? Well, there’s there’s also some additional flexibility instead of just saying I have receivable that becomes cash, maybe I have you know, maybe I need my receivables sooner and someone else to pay, bro if we insert a third party in there who can handle and manage the finances? So there’s a couple couple key points on working capital the different definitions What are you trying to accomplish? Brian, love love you to weigh in on this topic. And then your you talk about this and live this world every day.


Brian Rieber  29:44

We do.  LSQ has this conversation with just about every customer and I would say in addition to the word optimize that the real thing that I would say is how do we tell them this each customer’s unique situation right because not all, not all companies are created equal here and I And what I mean by that is, uh, the most tangible way I can give you an example is, you know, Eliska we have a client to deliberately carries a very high level of inventory on their balance sheet right there. But their go to market strategy is that when their customers are b2b customers need a product, they want it in stock, right, you don’t have to worry about them running out of inventory, they’ll have that item in stock, and therefore, you know, they can charge a premium for that, right. So that that is what is driving their top line growth as a company, and the differentiation that they have in the market versus their peers, which might sell it a few dollars cheaper, but you’re gonna have to wait a few days to get it. That doesn’t work well in a b2b environment where, you know, there might be an assembly line that went down. So when we think about working capital, and we’re having a conversation with Treasurers and CFOs, it’s really about tailoring that unique need, and working capital optimization for their business and their culture. And what are the goals that they’re trying to meet as an organization, both at the top and the bottom line? So, you know, in this, in these cases, we might have a conversation about how can we accelerate their receivables and get them as close to zero. But we might also have an environment where they need to push terms out to offset the high levels of inventory that they’re doing and just remain competitive with with their industry peers. So I think optimized is the perfect word. And then I would second say, we need to tailor it for each company, and make sure that they’re competitive with their industry peers, if not best in class, which is our goal.


Craig Jeffery  31:29

Right, so that brings us to our second poll question landing page, that will, that will pop up somewhere on your screen. Again, it’s double stacked, what are your standard payment terms, and pick the one that’s closest. And then number two is have you extended payment terms and your suppliers in the last year? Again, pick what is what you think is most appropriate. And for those writing lever in the chat box, we need 23 more people to hit our 150 responses. And we are keeping track of those of you typing in several times. So nice try. But Brian will certainly pull those numbers out. Thanks for your engagement in the chat box, by the way. So go ahead and fill out the payment terms and hit submit. And then we will reverse the the order from last time for comments from Alex.  All right, so Brian, let’s go ahead and show those. And Brian, are you the one needed to go first this time? Mr. Rieber? Can’t remember who did first last time.


Brian Rieber  32:56

Alex went first last time. So your payment terms net 30 or less? You’re very nice people. I would say clearly this is industry dependent. But for midsize to larger based organizations, we’re typically seeing a minimum of 45 across the across the way. And if I averaged it out, certainly in balance net 45 would kind of be where the majority of companies are today. That was a different conversation. 10 years ago, I would, you know, we would have seen net 30 being well above 50%. So the trend is clearly the longer terms and we don’t see that receding here in the short term. So interesting poll to see that’s the 40% of the companies that are represented here today are paying in that 30. And as we’re pushing terms out, interesting that roughly half or not, you know, I would say that’s pretty close to what we’re seeing in conversations I have, I would say darn close to 50/50 chance, whether they have whether they’re currently pushing terms out, and whether or not they’re looking at what I typically hear as we’ve done that exercise over the last few years. I feel like they’re balancing how much they’re pushing their supply chain, which I think is reflected in the numbers that we see today. Yeah, all in all interesting to see with who’s represented here.


Craig Jeffery  34:28

Alex, anything you want to add on the discussion here?


Alex Weiss  34:31

Yeah, no, I totally agree with Brian. And it is it is very interesting to see these numbers. As Brian said, you know, it’s industry specific. And I think each company has also very specific objectives, right, these the objective objectives that they should know about and, and kind of tailor their solutions to what they’re trying to achieve. And so we don’t know exactly what industries aren’t in the audience, but that may be a driver for these numbers.


Craig Jeffery  34:58

Excellent. All right. So Will we have enough responses to the poll by people type one word lever or both? And so Brian has finished his counting up for that. So we want to ask for more of those. But Brian rebirth if you could explain this slide and the disconnect of, or the connection between two and the disconnect when you add a third party in cash conversion?


Brian Rieber  35:26

Sure, so I think this will make sense. Illustration doesn’t jump out at you and kind of scream it. But essentially, over the past millennia, you know, payment terms have really been determined in terms of receivables and payables, as when your customer pays is when the customer their suppliers receivable is it is realized, right? So it’s, it’s a very zero sum game, it’s, and as customers have decided to unilaterally push terms out as they focused on their own cash initiatives or working capital goals, or, you know, because there’s a senior finance executive who has a bonus tied to an improvement in working capital, right, it’s been essentially at the cost of detriment to some of the suppliers, who just had to wait for that receivable to get settled at a later date. And what supply chain financing is done is you know, for for using the term d Link has separated both the technology of the invoice flow from the payment flow, right, and by D linking the financial supply chain from the physical supply chain of that invoice, we’ve now created an opportunity for both parties to win and in a third party aided by technology, particularly AP automation solutions that are out there and tell us when invoices are approved. It has empowered a third party to accelerate payment to a supplier with confidence, knowing that that invoice is going to be repaid at a later date. And your larger corporates have used that as a as a opportunity to leverage the strength of their balance sheet and credit rating and pushing terms out. So they’re pushing terms out as we saw in that last poll 45, 60, 60 plus days, right, while suppliers are being able to realize cash in and on day 510, etc, when the invoices are approved, using the third parties capital. And this has really created an environment that for many cases could be a win win by providing flexible on demand cash and often at a more competitive rate that what suppliers might be able to do on their own when they’re selling to larger corporations.


Craig Jeffery  37:34

Great, I think that brings us to our third and final poll question that will appear on your screen. Probably the same place for using Supply Chain Finance June currently use SCF. So it’s we offer SCF to our suppliers can participate in our customers or vendors have seen programs? Yes, we offer sem to our suppliers, or yes, we participate in our customers sem program. So we are not currently so please select one of those. And we have enough levering poll responses. So no need to type those in. But feel free to if you’d like. Just by way of background, if you fill those in and submit it just LSQ and our friends at Esker. One provides good visibility and efficiency tools, the other provides supply chain financing. They partnered together in ways to provide the ability to expand, expand and extend the flexibility you have on the supply chain. There’s information that will be will include later, but it’s really worth looking. Looking at those companies. Following the links, we’ll post those on LinkedIn, you can see that in the chat box, go ahead and follow and rescue on LinkedIn and escrow on LinkedIn that makes them happy. Follows strategic trends, too. That makes us happy. Everyone can feel good about staying connected to hear what’s what’s going on. So that’s that’s always a good way to stay connected. All right, not currently 73%. Got that we got some other areas, I guess. I guess I would say certainly any SCF side, Brian, you’re probably pretty happy that there’s a lot of people that don’t use SEF programs. So there’s a lot of room for for potential growth, especially with rising interest rates. Any comments from you before we jump into some of the challenges?


Brian Rieber  39:54

So yeah, very clearly, yes. Is this is a great poll result for for LSQ and tells me I need to go hire more salespeople on our team to have conversations. But, you know, realistically, I feel like I’ve done this for a long time, almost 20 years. And the conversation for many years with Treasurers and CFOs, or, you know, has largely been, hey, listen, money’s cheap, money’s near free. And, and there hasn’t been that compelling event. That conversation has changed in the past 12 months, right hands down. So for those of you who are in Treasury and finance and some of these positions, organizational momentum is always about priorities, and what they’re, they’re focused on, I have yet to talk to a company who has said working capital is not a key priority in the past six to 12 months, right? In which case, when they start focusing on it, they start looking to solutions. And I would anticipate that supply chain financing becomes more and more a topic to say, is it relevant? It may not be, but for a lot of corporations, it really provide that win for both them and their supply chain, as suppliers, you know, knock on their door for faster payment. And corporations want to hold on to their cash a little bit longer. Interesting poll of less than 10%. The offering it to their their suppliers less than 10% accepting, right and 10%. Doing both. Very interesting.


Craig Jeffery  41:20

All right, now let’s, let’s shift over to challenges. And Alex, we’ll start with you. And then Brian, and I’ll finish up with there’s anything left on that slide.


Alex Weiss  41:34

Yeah, I think when when we think of the challenges with with working capital, and AP and AR, it comes down to the systems, you know, the technology that you use, how do you manage all that data? How do you work effectively within the organization? So for instance, an AR How do you identify maybe slow payers? How do you focus on them to get them to pay earlier? And on the AP side, similarly, how do you focus on certain suppliers and kind of implement strategies to kind of push out this DPO managed to the suppliers communicate with them in an efficient manner for the organization. We’ve seen with with Supply Chain Finance, for instance, you know, any, any invoice that sits an approved, that cannot be put up for collateral for short term financing. That’s an issue either for the buyer or the seller. And that’s where we come in with Esker, where we offer to that technology that can help make sense of the data, implement those KPIs that we talked about that go a little bit further than just the global, very general averages, but it can pinpoint and very different areas where there can be issues with either processing AR or AP, or the underlying issues that could could be more operational. And also integrate solutions like ls Q, where we can push up push these, these payables to be to be financed, and in payment terms put even further.


Craig Jeffery  43:09

Brian, any anything you want to add on this slide?


Brian Rieber  43:13

Yeah, I think Alex said a lot. The other thing I would, I would add, though, is, you know, how to utilize the experts around you and most most leading treasures and CFOs they got access to people and resources of organizations who focus exclusively on on these pillars of working capital, right, whether it be inventory, AR AP, and there’s a lot that’s changed in this industry, over the past decade, in particular, that’s going to create more opportunity to use more of your balance sheet to your to create opportunities for you to improve working capital, and to really approach this with the mindset that it’s not a zero sum game. And you can do this in balance with with you and your suppliers and your all of the stakeholders that you’re trying to meet, you know, meet the needs and desires of right. And, you know, for many companies, if they’re still doing things manually, that’s remarkable given the pandemic and the disruption it caused, I think the pace of innovation changed dramatically in this space over the past two or three years. Right. But if you are still doing things manually, now’s the time to really look in the mirror and say, you know, perhaps it’s time we look at automation, whether it be on the payable, side receivable, side, etc. And that’s why companies like LSQ partner with our friends at Esker, who bring that expertise and automation from a payable side that drives efficiency on the working capital piece and supply chain financing.


Craig Jeffery  44:48

Thanks, thanks both of you. We’re gonna we’re going to shift over to an AR example. And then an AP example Brian, if he would start us off and Alex finish up those examples just to bring home, some of the concepts that can can exist there.


Brian Rieber  45:06

Yeah, so I think on the accounts receivable side, you know, a manual process historically has been a lot of these organizations going through a third party like a factor that become cumbersome, it’s expensive, right. And it’s and it’s put a lot of pressure on third parties that drive down the efficiency and the availability of that, that working capital for the organization. You know, Alex has a lot more experience on the AR side of the house, having done this for many years in his career, and I think he can kind of talk more to what this looks like, you know, over the past decade, and then as we migrate to what does it look like in today’s environment from an automated perspective?


Alex Weiss  45:49

Yeah, definitely. So you know, ar, there’s many forms of AR financing, there’s securitization, there is factoring. There’s other solutions. Also, it can be a very, very effective way of financing your balance sheet. Imagine, for instance, a web company that sells to very solid customers, from a credit perspective, perhaps that company could could could get a very favorable form of financing, but that it requires a lot of work, right? Because AR portfolios are very complicated. funders are quite sensitive. And so you get to bridge that gap, make a lot of analysis, structuring involve lawyers, etc. So it can be pretty complex.


Craig Jeffery  46:40

Let’s shift over to an AP example. And again, I think, Brian, you’re gonna lead off on this analogy. So bat cleanup.


Brian Rieber  46:47

For sure. So, you know, what we think about today is, from an AP perspective, or many might know, as a reverse factoring solution. Really, we’re leveraging technology, right, we’re using a digitization of the invoices or API’s to connect the systems like Esker that give us visibility to the invoice as it’s being approved by the payer, right. And that visibility is giving competence to a third party financier, like LSQ that there’s certainty of the information we can we can know that it’s got a very high veracity, and we can extend extend that benefit to both the company and the suppliers by getting cash into suppliers hands earlier, you know, in many cases, as little as 24 hours after an invoice is is submitted. And so from an automated process, this can all be done with a few clicks of a mouse, from your suppliers in many cases, right? It can be done without the lawyers doing liens and expensive and complicated carve outs and an agreement from a from an AVL. And it really is allowed vendors to have flexible on demand access to cash that’s affordable and just convenient. And it’s allowed companies to more efficiently manage their payables and extend terms so that they can meet their own working capital goals. And because for a lot of suppliers really they sell to companies that are larger, might have a better credit quality, in many cases, this becomes even more affordable than what they would otherwise be able to access on their own and other other environments. So really, automation is is your best friend and it becomes a cornerstone of working capital management strategy as a large corporate buyer


Alex Weiss  48:33

100% And I think the core concept here at AP is is is the approved payable right? The approved invoice that can you can use the funder can use to pay you sooner right or pay the supplier sooner and that’s where technology comes in where it allows the company to have this invoice Moodle faster across the organization presented to different parties within the organization help them collaborate or an approving this this invoice and gaining some some days of working capital it can be both for for the buyer and the supplier actually the benefit of early approval right. You’re muted, Craig.


Craig Jeffery  49:32

Thanks. So excellent, excellent explanation. And so we’re gonna move to increase flexibility. And Alex, maybe you could first explain this chart in terms of how its laid out. And then what does this mean? We talked about collaboration, and it won’t be a sales pitch between Esker and LSQ, but the fact that there’s the the ability to change the flow, what people see expands the ability that the that the lever will work on and so just use that as some some backgrounds.


Alex Weiss  50:02

Yeah, definitely. So when you think of legacy structure, right, you, let’s say you you’re approved 28 days after, after the invoice was, was issued. So, in that case, in the case, as presented here, you have 32 days available for working to benefit from working capital from an outside funder or early payment by the buyer, right? If you approve this, this invoice, 18 days faster, which is achievable, you’d almost double the working capital benefit related to that invoice. So the benefit of the early payment can be considerable. If you can use the right tools to get again, that invoice travel within the organization at a certain speed.


Brian Rieber  50:54

Sure, and building on that and tying back to what we’ve discussed earlier D linking both the invoice approval process or the physical supply chain to the actual cash and financial supply chain. That increase approval process allows third parties to come in and have a conversation with the supplier about getting paid, you know, in a matter of hours two days, and in this scenario allows a buyer to you know increase terms to net 60 While the supplier is realizing cash on day 10, or oftentimes sooner in that environment. So it really is about creating value, you know, with the collaboration between AP automation providers and a third party financier, and it creates that flexibility that worked for both buyers and suppliers to extract that value and a better manage their own working capital within the organization. So that is ultimately the goal that the partnership provides. And what you know whether you take advantage of a solution or not today, the automation is is good to create opportunities when you need the agility to respond at a future point.


Craig Jeffery  52:03

Yeah, find a long enough lever, I can move the world, as famously said.  And here’s more space to move the lever. And let’s let’s slide over to our takeaways, or we’re landing at this in exactly the right amount of time. So well done. I’ll start off with short term funding, this idea of you know, inflation is off the ground interest rates have risen, the cost of borrowing has gone from essentially zero to seen a four 400 basis point shift or more than credit quality, combined with a more difficult time to secure traditional funding. The idea of if you already have traditional funding, this gives you another lever if you use the cash conversion cycle and SCM if you don’t have access to some of the traditional credit, like many, many organizations, don’t have your trading partners can benefit. You as a company can benefit from having this type of lever. So this idea of let’s let’s focus on having multiple opportunities for short term funding is a good diversification plan. I think Alex, if you want to talk about that this ability next.


Alex Weiss  53:20

Yeah, definitely. So visibility really is the foundation right of of saying working capital management? We talked about the KPIs and what types of KPIs you can use? How do you look at them? How do you benchmark against your competition? This is super important. And to achieve this, you need the tools that allow you to look in real time how your receivables are behaving, how your payables are behaving, the implement the strategies based on these insights.


Brian Rieber  53:53

For sure, importantly, you know, Craig, as you as you mentioned, short term funding is what we’re talking about is critical to the survival and thriving of any organization that’s out there, right? I mean, there’s there’s no company who’s not working on a that doesn’t have a working capital management strategy. It’s just a matter of how acutely they’re focused on it in terms of their priority. Right, you know, and visibility and automation is going to give you the right tools that that allow you to pull on the levers when you need to pull on them. And as we’ve discussed today, when it comes to working capital, there’s certainly a focus on inventory and I think many treasures and CFOs have a grasp of what’s going on in inventory. They’ve invested in ERPs and a lot of technology where that that might be the leading reason or focus area for working capital optimization, right. But then it comes down to AR and AP right what efforts can they do to pull levers on accelerating receivables into the organization to provide better collection efforts and or processes? And on the accounts payable side? How do they extend A window of what was possible. And, you know, in a traditional status quo environment, as we talked about it, if you were to just push terms out, without any type of third party intermediary, it would have a detrimental effect. It’s a very binary equation without somebody stepping in, where when a supplier gets paid, and it has an impact and therefore increases risk to fit into the supply chain, if you were to just push terms out unilaterally leveraging a digital digital solution, having a automation platform for payables, but that had an integrated working capital solution built in, give you an opportunity to create more value and create more opportunities for both you and your suppliers that are out there. And these are levers that we see more and more treasures are and CFOs are focusing on. As interest rates rise, inflation is not going down. And they’re trying to get ahead of the pressures that rapidly snuck up on them in the past couple of years.


Craig Jeffery  56:01

Right. Thank you, Brian, if you would put up the links for LinkedIn. Excellent. And stick those in the chat box. We would encourage everyone to connect to CTM file, which certain news media outlets, Strategic Treasurer, as well as Esker and LSQ. Just to just do a quick follow us are those companies on LinkedIn. That’s a great way to stay connected. Alex and Brian, thank you so much for your comments, talking through some of these items today.  Everyone, thank you for listening. I want to turn it back over to Brian. There’s more information, including a podcast episode 250, where Esker, LSQ, and StrategicTreasurer talk about thriving in uncertain times, leveraging working capital, a way to continue this, this dialogue. So thank you, everybody listening. Thank you, Brian and Alex.  Back over to you, Brian.


Announcer  56:59

Thank you, Craig. Thank you, Brian. And thank you, Alex. And thank you, everyone for joining us today. The CTP credits, today’s webinar slides and a recording of today’s webinar will be sent to you within five business days. And be sure to listen to the Treasury Update Podcast episode 250 with Esker and 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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