Enterprise Cashflow Management: The New World Order

June 8, 2012 Joe Hyland

cashflowIn response to yesterday's WSJ article on large corporations hoarding cash and squeezing small suppliers, these cash-rich corporates need to ask themselves if this strategy really makes sense. Conventional wisdom held that extending Days Payable Outstanding (DPO) was the best (and arguably only) way to get better returns on cash. The concept was not overly complex: hold onto your cash as long as possible to reap the interest earned on this liquidity - through overnight sweeps, money markets, T-bills, etc. This was also the main reason many organizations preferred to pay via paper check -- to gain the check/mail float for the few extra days the money sat in their interest earning account. This made sense in the Reagan era when interest rates exceeded 20%, but in today's near-zero interest rate environment why are Treasury departments holding onto these old-school methods?

One of the most important assets to any large organization is their supply-chain. Imagine the impact on Apple's now famous product unveilings if a major component supplier ran into problems and couldn't deliver critical parts on time. Innovative organizations realize that they need to monitor the health of their supply chain. Exploiting small suppliers by extending DPO is a lose-lose proposition: poor returns for payers and squeezed supplier cashflows benefits neither party.

What if there was a way to gain significantly better returns on excess liquidity all while helping suppliers in need of cash? Such a solution exists. Many suppliers, often stretched thin by other customers, are willing to give a discount in return for earlier payment as this option is far preferable to more expensive factoring alternatives. The challenge is finding a solution that can scale, meaning one that allows you to offer discounts on all invoices, regardless of how they are submitted by suppliers (paper, .pdf, electronic). As each buyer-supplier relationship is unique the offering should be flexible enough to also enable cost effective third party supply chain financing as another payment vehicle. All of this is exactly what Taulia offers. Some of the largest companies in the world are managing both their money, and supply-chain, in new ways because of Taulia's flexible invoice and dynamic payment offering. In this new-world order Treasury groups are getting annualized returns at 15% or higher and strengthening their supply-chain. A true win-win.

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