The war in Ukraine and the resulting comprehensive trade sanctions targeted against the government of Russia (and to a limited extent Belarus), along with companies domiciled in or with ties to Russian entities, and individuals tied to Putin’s inner circle have unleashed a flurry of “What Ifs” as it relates to counterparty risk within the supply chain and customer base. As the conflict unfolds, more and more sanctions seem to be leveled daily by a multitude of countries in an attempt to cut off the flow of funds to Russia. Within this global landscape, companies are now having to manage the risk of compliance against a rapidly changing list of prohibited counterparties, in multiple languages, that may or may not be fully comprehensive or accurate. Unfortunately, balancing this risk is no guarantee that you won’t violate a sanction or inadvertently deny legitimate counterparty access to their own funds. Understanding how to protect your company from the financial, reputational, and ethical risks in this veritable minefield of sanctions will be critical in the “New Normal”.
The Treasury and Working Capital Survival Guide
The world has changed rapidly in the last 30 days. The US economy went from setting a record for the length of the expansion to setting a record for the fastest recession in the history of the United States. Navigating through this gut-wrenching reversal requires decisive management action, focus, and speed. A critical component of this process is successfully managing working capital. Management teams must evaluate working capital needs and utilize working capital as a key resource to sustain ongoing business activities.
As discussed in Part 1 of this blog series, companies strive to maintain margins and maximize cash flows by managing the variables over which they exercise control. Efforts from the Procurement team focus on maintaining competitive bidding for the material and service inputs needed in the production and delivery of goods or services to market. Once suppliers are identified and contracted by the buyer, a balancing act occurs to negotiate favorable payment terms and/or capture discounts and rebates. In return for these concessions, the buyer can now offer options to facilitate expedited payments utilizing technologies that offer processing efficiencies. As with all trading relationships, the underlying dynamics are needed for both the buyer and supplier to manage counterparty risk, remain competitive, and maintain individual profitability.
Companies striving to maximize cash flows can find themselves in the middle of a constant and difficult balancing act: How to maintain profitability given the downward pressure on costs while being more efficient with working capital. The immediate reaction from buyers is to press for payment terms extensions or negotiate payment discounts while somehow maintaining cordial relationships with their strategic supply base. Suppliers are torn between the need to be paid sooner and reducing trade credit exposure while still providing quality goods and services to their valuable customers. Underlying these dynamics is the need for both the buyer and seller to remain competitive versus peers while maintaining individual profitability.
Everyone likes finding hidden money lying around the house. A $20 bill in last year's coat pocket, a $5 bill in the center console of your car, or even the loose change under your couch cushion is always a nice surprise. And what's the first thing you think of when coming across "found" money like that? If you're anything like me, you think of what you can buy. Because let's be honest, "found" money is "free" money.
This is the third in a series of three blogs focused on how to develop and implement an effective working capital optimization initiative. Our last blog concluded with options for achieving internal alignment within procurement, finance, and treasury, with the goal of optimizing working capital. Here, we’ll look at the importance of change management.
This blog is part 2 in a 3-part series focusing on how to develop an effective working capital optimization initiative. This blog was previously posted by Scott Pezza and James Wilson on Digitalist Magazine.
The first blog in this series, “Working Capital: The Link Between Procurement, Finance, and Treasury,” concluded with an example of how you can harmonize the goals of these three departments to pay suppliers early with an efficient invoice-approval process and supply chain finance relationship. Even in that simple example, there are multiple types of functionality at play that may exist in several different interconnected systems. In this blog, we’ll look at all the pieces that can be brought together to effectively manage your working capital and achieve your desired goals.
Topics: treasury and working capital
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.
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.