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CASH & CAPITAL MANAGEMENT
IN A CRISIS
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CASH BASED APPROACH IN POLE POSITION
Source: The Association of Corporate Treasures
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Pressure on Sales & EBITDA
+
High-Levels Debt to be Refinanced
+
Tighter Credit Markets
Increased Need for Self-Funding
+
End of pure Earnings-driven Focus of the
“Easy Credit” years
Risk & Opportunities
=
=
Current global business environment
Firms are going through an evolution from
„growth‟-focus to „profitability‟- to „liquidity/cash‟-
focus
Cash is the #1 priority for all companies right now … It should better remain top priority going forward
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Cash
Forecasting
• 13 Week Cash Forecast
• Appointment of a cash “Czar”
• Pushing a cash culture down to the organisation (by force if necessary)
Treasury
Management
• Draw un-used facilities
• Develop a sound intercompany funding strategy
• Avoid trapped cash
• Clearing committee for payment priorities
Working Capital
Management
• Manage Payables
• Reduce Inventories
• Reduce Receivables
• Sell Non-core Assets (asset mgmt.)
Risk Management
• Manage key receipts
• Understanding what variables can impact the timing of receipt
• Book cash v. Bank cash
Tactical Stakeholder Management
• See key vendors and customers first
• Do not wait for customers and creditors to come see the Company
A framework for addressing liquidity issues
Active working capital management is only one element of liquidity management
- yet usually the most effective one
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Framework for effective Working Capital Management
Short Term Initiatives (0-6 months) Mid/Long Term Initiatives (6+ months)
Manage
Payables
Reduce
Inventories
Collect
Receivables
Manage
Payables
Reduce
Inventories
Collect
Receivables
• Introduce
standard
payment terms
• Use full terms
offered by
supplier
• Reduce number
of payment runs
• Sales &
Marketing
• Manufacturing
• Warehousing
and Logistics
• Purchasing
• Introduce
standard
payment terms
• Install
excellence in
collections
• Eliminate root
causes for late
payments
• Renegotiate
terms with
suppliers
• R&D
• Design for
Manufacturing
• Sales &
Marketing
• Manufacturing
• Warehousing &
Logistics
• Minimize end
of period push
• Renegotiate
terms with
customers
• Minimize bad
debts
• Eliminate/
consolidate small
direct customers
to distributors
Effective Working Capital Management should migrate from a project approach to an day-to-day practice in the long term
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Highest Priority
Financial Impact
Time to
Implement
Low High
< 6
Months
High
“Top 25”
Program
Disciplined
Collection
Statistical
Inventory
Grace Period
Reduction
SKU
Rationalisation
Forecast
Accuracy
Extend
to Terms
Price vs.
Terms Trade-off Inventory
Receivables
Payables
Network
Rationalisation
Evaluate
Grace periods
>6
Months
Paying to
Terms
Low
The complexity of a holistic working capital management can be managed by prioritizing rigorously and regularly
Prioritization of initiative (client example)
Source: AlixPartners
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Especially in challenging times, your and your suppliers’ fate are tied closely together – necessity to communicate openly Manage Payables
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The numbers of SKUs drives the complexity of inventory planning – basic systems are a pre-requisite to cope with itReduce Inventories
•1) VMI: Vendor Managed Inventory 2) Collaborative Planning, Forecasting and Replenishment; Source: AlixPartners
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While there are valid external factors that adversely impact collections there are many effective measures to counter this
Collect Receivables (I)
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“Simple is not easy! “
There are few areas in a business where implementation, although simple, is so challenging as in collections
Collect Receivables (II)
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1. Make senior sponsorship of the working capital imperative highly visible
2. Establish top-down targets & bottom-up commitment across all functions
3. Demonstrate success is measured in terms of results, not reports
4. Challenge received wisdoms
5. Prioritise, prioritise, prioritise
6. Establish clear accountabilities and benefit tracking
7. Integrate Cash-Generation measures into the Incentive Structures
Our experience suggests that seven key success factors guide you through a successful (‘Cash’) project
Seven key success factors for an Effective Working Capital project
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So, how do you know how effective your firm/client is in active cash management?Cash Management Diagnostic