Insights by Nitor

Working Capital Context – Which parts of the Cash Conversion Cycle do Procurement, Finance and Treasury teams care about?

This blog is the first of a 3-part series focusing on how businesses can get started on an effective Working Capital optimization initiative.

There is an old adage that you cannot manage what you do not measure. In response to this conventional wisdom, numerous Key Performance Indicators (KPI’s) have been developed in the core Working Capital functional teams of Procurement, Finance, and Treasury. The overarching goal in mind is simple: Strong Supplier Relationships AND Operational Efficiency AND Strategic Value. All three? That’s a challenge as each team has a different set of tactical and, at times, strategic goals, that often compete with each other.

On September 13th, Nitor hosted a 1-hour webinar discussing how to make better, strategically-informed decisions about liquidity, titled: The Power of True Liquidity Positioning and Forecasting with a Treasury Management System.

(If you were unable to attend the live event, don’t worry, you can access the recording with the link below.)

This session, featuring Jeff Scott, Principal at Nitor, highlighted the importance of implementing a Treasury Management System. 

Imagine this common scenario:

The Strategic Sourcing group has spent hundreds of hours creating savings for the organization. All year you have heard about the forecasted savings, but when those negotiated dollars do not reach the P&L, questions arise over why the savings were not realized. What happened? 

Organizations can equip their sourcing professionals with several tools, such as creating standard terms and clauses to expedite the process and establishing an accessible contract repository (see previous blog "Retaining Value Through Contract Management” for more information on these topics). While the team can utilize these tools in the negotiation and drafting of the contract, they are not present in everyday purchasing transactions to enforce the purchasing terms. 

Now, more than ever, organizations depend on Treasurers to be the fiscal watchdog. Most critically, Treasurers are asked to be the steward of the company’s most important asset: Cash. Everyone knows this asset is the life blood of an organization, propelling the generation of goods and services and the rewards that come along with their delivery. Treasurers also keep the organization running smoothly by forecasting what financial flexibility the organization can rely upon through various business cycles. Because when cash runs out, or if there’s even a question about liquidity, production is thrown off, or worse, grinds to a halt.

Agree or disagree with this overarching generalization, the fact is some things in life are not absolute. Take the case of automating your entire invoice volume (a promise rarely kept).  This promise is not broken out of misunderstanding, overselling or over-promising.  It’s just the reality of our time, when we want and expect a single solution to solve all our problems.

On June 26th Nitor hosted a 1-hour webinar about how to best enable Procurement Transformation, titled: Realizing Value Through Procurement Transformation.

(If you were unable to attend the live event, don’t worry, you will be able to request access to the recording in the link below.)

The session, featuring Gary Stoddard, Partner at Nitor,  highlighted what it takes for organizations to realize true value when looking to transform their Procurement practices.

CFOs today depend on the strategic function of treasurers more than in previous years. One reason why the treasurer’s role has become more aligned to the CFO’s agenda is a direct result of the treasurer’s ability to unlock value within the organization at a low cost, and drive strategic objectives of the CFO, such as offering a more comprehensive view of cash and payments, acquisition strategies and capital allocation strategies.

CFOs today are under more pressure than ever before from their board of directors and CEO to unlock trapped cash. Unfortunately, regional operations hold unnecessary cash buffers to protect their balance sheet. This cash-hoarding culture is detrimental to free cash flow, and could eliminate the opportunity to execute the corporate capital allocation strategy, including share repurchase targets, corporate debt repayments, shareholder dividends, and M&A initiatives.

Treasury professionals who manage cash are faced with many challenges, especially if they have not invested in a modern solution to help centralize their payments operations. These challenges are amplified when considering the recent escalation in payments fraud. More than three-quarters (78 percent) of organizations admitted that their payments operations were targeted by fraudsters last year, according to the Association for Financial Professionals (AFP’s) 2018 Payments Fraud Survey. Companies using disparate payment systems, applying inconsistent controls, and adopting manual payment policies, rather than digitized policies were more likely to have experienced loss from fraud, according to the survey. Furthermore, AFP’s research found that business email compromise (BEC) has become a very significant fraud threat, with 77 percent of organizations experiencing it in 2017.

You have probably heard some flavor of the old adage, "There's a difference between just doing things and doing them right."  

It speaks to the importance of being very intentional in our choices and actions versus being satisfied with just making an effort of any size. Often, it's the difference between really being effective in what we do and...well...just "being".  Fact is, we face these kinds of choices throughout our day, in both our work and in our personal lives.