Cash may be king, but don’t cash in
According to figures released by Trade Shift, cross border trade in China fell by 56% in the week commencing February 16th, 2020. This was roughly mirrored by Global B2B international trade patterns in the week commencing 8th March, 2020. In China, it took somewhere between one and three weeks before signs of recovery were seen across some economic indicators, namely Property Transactions, Coal Production and the movement of people and goods.
Markets have fallen quickly, which traditionally means that they may rise quickly, although these are unchartered territories, and the speed of recovery will be different across sectors. Buyers need to be thinking about resilience and recovery. Right now, they also need to be thinking about the immediate challenge; cash.
As procurement professionals we need to recognize the cash sensitivities in our supply chains and work closely with our suppliers, finance and operations. Despite government support, many businesses will still be fighting fires and facing multiple ‘what if’ scenarios as they strive to return to “normal”.
As procurement professionals we need to recognize the cash sensitivities in our supply chains and work closely with our suppliers, finance and operations. Despite government support, many businesses will still be fighting fires and facing multiple ‘what if’ scenarios as they strive to return to “normal”.
1. Visibility is critical. This doesn’t just apply to cash, but now is the time to get visibility of critical and important supply chains. Understanding prime vendor relationships is no longer enough, who is working for them, and who is working for them?
If the chain needs to be kept afloat, or if there is a failure, how does that affect the chain and how quickly can a replacement be found? If you need to step in and manage liquidity, you need to have the right operational relationships in place and work closely with suppliers to manage the chain.
Tech and data is one thing, but if you can’t answer questions quickly you don’t have the right level of visibility. Invest your time in this as it will be critical to the decisions that you make.
2. Contracted Payment Terms may no longer apply. Let’s face it, very few of us will have a picture of the cash flow through our supply chain but it is highly likely that somewhere there is a large corporate enforcing long payment terms which get backed off to a varying degree down the chain.
For gig workers or SME’s, long payment terms are hard to accept at the best of times. They are often carefully leveraged against other client payment terms so as to ensure sufficient cash flow to buy things, pay staff etc. A few clients’ losses and those 100 day terms could be a cash flow noose.
So look at your payment terms, and those in critical supply chains. Does cash need to be released early, to keep cash moving? A good example is UK Grocer WM Morrison taking the lead in offering all smaller suppliers preferential terms in the short term.
They realize that this is bigger than them alone and that there is a circular effect here too.
3. Finance and Procurement need each other. Whilst not from Mars and Venus, it’s fair to say that Procurement and Finance sometimes speak a different language when it comes to financials, everything from spend data, to savings, to cash.
For now finance will be working hard to understand liabilities and receivables in the customer and supply chain, in short; cash in and cash out. As demand patterns change so do forecasts, and so procurement should be looking day to day at demand patterns and forecasting with finance and suppliers.
If you are not working closely with finance already, then pick up the phone, or jump on a video call to see how you can help. Let’s assume we are not far from starting the recovery, it’s time for a strong partnership with finance.
4. Understand the support available. Governments are making lots of financial support packages available to individuals and businesses. Whilst you might not think that they apply to your business, they might apply down your supply chain.
As a buyer you can make sure you are familiar with these and how they might impact you, your business and your suppliers. How do they work? How quickly can they be operationalized? What difference does it make to cash now and in the long term?
If things are not clear, you can use your direct line to finance for support.
5. Empathize with your suppliers. The fact is that most of us are in this together. Success means coming out the other side rather than coming out the other side the most profitable.
There are a lot of free and discounted offers going around. The extent to which something can be made free normally depends upon the cash position of a company (or individual), and/or the operating margin of the product / service (e.g. software).
Be wise to this. You will have some very good suppliers who may not be able to offer huge discounts or free services, but still are working hard to support you. Think as if you are already in turnaround, and who you want to be working with.
Finally, be ready for turnaround, it starts now.
Whilst some things have ground to a halt, others have not and it is up to those of us to lead in recovery. Liquidity is likely to be high on the agenda of most companies, and so expect to get involved in conversations about things like;
- Cost optimization – might seem out of place in a blog about keeping cash flowing, but it’s important to consider implications for demand patterns and what you should actually be paying (rather than what you do). How do you become healthier?
- Long term investments – where you have long term investments, now might be a good time to double down and hedge further. This is about where you place your bets.
- Data management – think about all the things that you wished you had right now and you can construct the ideal business case for why you need them in the future for real time visibility.
- Working capital – the payments industry is undergoing enormous transformation at this time. What are your options for managing payments smarter in the future and how can you be smarter across all suppliers?
- Risk tools – Many organizations have risk tools in place and many of these will be useful, some of them critical, but many will be exposed for what they are; historical checkboxes. If yours is falling into this category then now you know.
These are the things that you can be reading up on when not working, working more, or looking after the children. At least there is no sport on…
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