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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