By Tom Glassanos, President, The Bavelos Group
Although the Federal Reserve slightly cut rates in July, interest rates overall are up substantially after years of record lows. In this environment, finance has a critical role ensuring working capital is optimized to offset higher capital costs and create strategic advantage for sourcing and sales. So how do higher rates effect payables working capital and what are the best ways to optimize cash and income in this environment?
In our AFP 2019 session, we’ll follow the journey of Gordon Food Service (GFS), a leading North American food logistics company, that took advantage of higher rates to implement an innovative early pay strategy that transformed financial risk and liquidity in its supply chain.
STEP ONE: ESTABLISHING A PLAN
Like any critical initiative, working capital success starts with a formal plan. Surprisingly, when we poll finance professionals, we find most organizations don’t have one. Expertise in supply chain finance, early pay programs, and dynamic discounting is sporadic. And getting alignment across finance, treasury and sourcing is often a key obstacle to success. So, step one of the Gordon Food Service journey was overcoming these obstacles to develop a holistic three-year working capital strategy that had broad organizational support and strategic value.
STEP TWO: DOING THE EASY STUFF FIRST
The foundation of accounts payable working capital is the payments terms. Optimizing terms often takes a back seat to invoice automation, dynamic discounting and other technology dependent, hard-to-do priorities. In step two of the journey, GFS tackled terms optimization first and deployed a world-class early pay program. They did this without electronic invoicing, without dynamic discounting and with minimum distraction and cost. In short, they did the easy stuff first and deployed a terms optimization strategy that delivered on 80 percent of the cash and discount opportunity. In our AFP 2019 session, we’ll discuss how.
STEP THREE: AUTOMATION
Once the foundation for working capital value had been deployed, Gordon Food Service implemented an electronic invoicing solution to shorten their pay cycle and expand the discount opportunity. They addressed typical challenges like vendor selection, technical implementation, supplier onboarding, and how to manage changing jobs and transition timing.
STEP FOUR: GOING STRATEGIC
Supply chain finance is emerging as the strategic tool of choice to expand supply chain liquidity and create strategic advantage for sourcing. Often seen as a powerful means to extend payment terms, supply chain finance is morphing into a must-have tool for sourcing success. This is the next step in the Gordon Food Service journey, and in the final segment of our AFP session, we will discuss how supply chain finance can fully unleash the opportunities of a rising rate environment.
WHAT YOU’LL LEARN
In the current rate environment, finance can play a critical role, ensuring that working capital is optimized in ways that strengthens buying and selling relationships. You’ll leave our session empowered with practical knowledge on how to plan and implement a common-sense working capital optimization strategy that delivers strategic value to the supply chain. Following the journey of GFS, you’ll learn how to optimize payment terms, shorten the invoice processing cycle, deploy a world-class early pay program, and lay the foundation for the strategic benefits of supply chain finance.
Don’t miss our session, Capitalizing on Rising Rates: Driving Strategic Value from an Early Pay Program. It is part of the Treasury Management Track at AFP 2019. Register for the conference here.