Show Me The Money: Driving World-Class Cash Management David BennettDirector, Financial SolutionsAriba, an SAP company

© 2014 Proformative

Working Capital Management Overview

• Business Context For Working Capital Management & Early Payment Discounting

• Working Capital Tools

• New Potential from Dynamic Discounting

• Developing an Effective Working Capital Program

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Cash Conversion Cycle = Operational EfficiencyWhy DIO, DSO and DPO Matter

DIO(Days Inventory

Outstanding)

DSO(Days Sales Outstanding)

DPO(Days Payables Outstanding)

$ Inventory $

$ Receivables $

$ Payables $

CCC(Cash Conversion Cycle)

$ Working Capital $

Goal: Reduce Working Capital Free up Cash

Reduce

Reduce

Increase

Reduce

Goal: Maximize Return on Cash

© 2014 Proformative

Working Capital TensionSituation - Objectives of Buyers and Suppliers

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Historic Cash Reserves: $1.9T+*

Low Interest Rates: 0% - 0.3%

Investor pressures for greater returns

Supply Chain Risk

BuyersSupplier

sPayment Terms Stretched

Limited bank credit

Low visibility into cash flows

Cash flow is critical

Working Capital Tension

© 2014 Proformative

Working Capital Tools for DPO/DSO

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• Multiple options are available – Diversify • You can employ ALL options – Not mutually exclusive• Combining discount savings + DPO improvement – Technology & Managed Services

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Automation and Dynamic Discounting

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1%

Dis

cou

nt

Rate

Days

2%

20

10

30

Pap

er

Invoic

e

Ap

pro

va

ls

60

3%

e-I

nvoic

e

Ap

pro

vals

Reduce Cycle Time

Prorated Terms

Monetize Idle Payables

• Compress cycle time, maximize discount window Avg eInvoice cycle time is 4-6 days• Monetize idle payables 88% of invoices sit idle until due date¹ • Put payables cash to greater returns Early payment discounting returns 24% Avg APR• Optimize terms to balance DPO Rationalize terms & industry benchmark

¹Source: PayStream Advisors

© 2014 Proformative

Maximize Discount Capture: Flexible, Pro-Rated, Self-Service

7

Buyer Offers Early

Payment?

Supplier

Needs Cash?

Supplier Response

Dynamic Discount Type

Yes NoWait for payment at maturity date.

-

Yes Yes“I want to get paid early every time!” Automatic

Yes Yes

“I want to pick the invoice(s) I want paid early, and choose when to be paid.”

Ad hoc

Yes Yes

“I want to be paid early, but I want to make a counter-offer to the rate my Buyer has offered!”

Ad hoc(Supplier-initiated)

No Yes

“I want to offer up an early payment discount.”

“Your invoice

is approve

d.

It will be paid at

this date in the

future.”

Paper

Invo

ice

w/

Contra

ct T

erm

s

E-Invo

ice

w/

Contra

ct T

erm

s

Autom

atic

Dynam

ic D

isco

unts

Ad-Hoc

Dynam

ic D

isco

unts

5%

10%

15%

20%

25%

Recent studies show

50% of pre-negotiated

discounts are never captured¹

Opportunity

Visibility

Capability

¹Source: Aberdeen

Developing an Effective Working Capital Program

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© 2014 Proformative

Three Pillars to Discount and WCM Success

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Technology Experience / Insight

Capabilities+ +

• Dynamic discounting Daily Discount Rate Scheduling & Calculation to complement ERP/FI

• Cash Optimizer Identify opportunities for cash acceleration with customers

• Program Configurator Define discount rate groups, amount of cash to use, and which suppliers to include

• Size of B2B networkLeverage scale and insight to offer/set proper payment terms with suppliers

• Market KnowledgeInsight to incentives, category intricacies and financial capabilities to target and maximize returns

• Balanced ApproachCustomize program to cash return and DPO requirements

• Proven MethodologyTarget, onboard, and support suppliers throughout the lifetime of the contract

• Rapid Ramp Reduce risk and earn early stage discounts during deployment phase

• Performance Measurement Establish benchmarks, goals and measure targets against your stated objectives

• Ongoing Account MgmtFull Services & Maturity Mgmt for life of contract

© 2014 Proformative

WCM Program Methodology

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Accelerate Your ROI – OneOK enrolled $2M in discounts prior to technical implementation utilizing RapidRamp

• Approach from a holistic working capital perspective that drives discounts, improves DPO and balance sheet. Monetize all spend across platforms Understand client’s working capital goals (discounts only or improve working capital?)• Peer Benchmarking• Supplier liquidity analysis• Analyze spend and provide recommendation Pay terms rationalization, industry statistics, network intelligence• Design a program that offers varied rates to incent supplier participation across all spend sizes and categories• Position a balanced message to suppliers Constancy of payment Standardization of pay terms More flexibility for suppliers to manage their own short term cash needs• Incorporate extensive marketing to supplier base Personnel changes – always ensure we have the right audience Seasonal changes – quarter end/year end cash driver Future liquidity changes• Program requires lifetime management Institutionalize early payment terms and grow organically

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Average Client Discount Performance

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$1-$3 Million Savings per $1 Billion Targeted Spend

% Suppliers Participati

ng

% Discounts Captured

Average Annual Return

Average DPO

Improvement

20-25%

95+%

24.6%

4 Days

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Suppliers Benefit From Early Payment Program

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“When we submit paper invoices, it can take a long time to get our invoices approved. With Ariba, we get paid as quickly as four days, and the visibility into payment status is like gold.” Joy Stoelting, Studio Manager, Big-Giant

“By submitting invoices over the Ariba Network, we have improved our cash forecasting and seen a dramatic increase in prompt payments. The substantial DSO improvement is a huge advantage in this difficult economy. ”

Trish Jackson, AR Mgr, Photo Craft

• ATM for Receivables

• Automatic & Ad Hoc Early Payment - Early payment on demand - Opt in/out at any time

• Reduces DSO

• Non-Debt Cash Flow

• Control over timing and amount

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Are You Ready?

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1. Does your company have strong cash balances?

2. Are less than 10% of your suppliers/spend currently discounting?

3. Do you have inconsistent terms or terms >45 days?

4. Can you process some/all invoices quickly?

5. Do you have other Working Capital initiatives in place (Card, Factoring, SCF)?

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Q&A

Show Me The Money: Driving World-Class Cash Management

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