Cima stratford 20 october

10/04/2023 Copyright CashPerform Ltd John Mardle 1

CIMA Stratford

18th October 2014

John MardleCIMA Mastercourse presenter on Working Capital


Event Objectives

Knowing the current market for commercial finance, who and what are in the market, and how to get what is available are essential in securing finance.

This event will look at these points and the ways which will give the best opportunity to be successful in raising funds.


Warning - Think differently!• What is an asset?

– Stock, WIP, Debtors, Plant, Machinery?– Orders/Sales …..think Demand chain

• What is a liability?– Creditor/Supplier– Procurement/Payables…..think Supply Chain

What is an Invoice?“Quality paper not toilet paper”

The Cash Conversion Cycle (CCC)TCP4 SID T C PDescription Account Timing Communication Process Description Cash Method

Term Days via Balance Sheet Acronym

S Supply Chain DPO 0 Trade Creditors P2P Purchase to Payment Supplier Finance

I Inventory Chain DIO 0 Stock/Work in Progress I2C Inventory to Cash- Nil? JIT/ Supplier/Customer

D Demand Chain DSO 0 Trade Debtors O2C Order to Cash Factoring/Securitisation

R Reverse Supply Chain Nil Net Zero Net by offsetting Dr/Cr R2C Reverse to Cash-Nil? Supplier/Customer

Cash Conversion Cycle 0 Positive WC cashflow CCC Healthy Cash Chain? Cost or Investment?



Envisaged CCCContractual Statutory Reality DifferenceBoard Terms Dif Accounts Dif Board vs Reality

Purchase/Creditor DAYS 60 28 28 32-30 10

Sales/Debtor Days 30 38 61 31

Stock and Work in Progress 10 ? 14 4

Cash Conversion Cycle -20 10 47 67

Positive Cash Conversion Cycle indicates cash OUTflow is greater than cash InflowNB: INTERDEPENDENCY is CRITICAL

NB: Statutory accounts per DPO/DSO/DIO traditional calculation

Copyright John Mardle CashPerform Ltd October 2013


Background

• 2008 and all that…..– Basel III– B of E PRA/ FSA

• Accounting Reporting CA 2006, IR,FRS100/1/2– Micros directive

• Credit Agencies in disarray– DSO/DPO/DIO/WC definitions re S &P/Fitch/Moody– Corporates go their own way- awash with cash>26%– SME’s lose out re SCF – Start ups / Entrepreneurs – new breed- no bank debt


What is Commercial Finance- traditionally?

• Banking - Asset backed Lending• Receivables Invoices

– Factoring– Securitisation– Letters of credit (LOC)– Forfaiting

– Business assets, stock, work in progress- Tangible– Personal mortgage, credit card, overdraft


What is Commercial Finance- New World?

• Tangibles– Pension led release of pension funds– Director led –mortgage via ‘others’, credit card,

personal account- FSB March 2014• Intangibles

– IP copyright, trademarks – ‘knowledge’ via software licences/franchises

• Big data re volumes• Efficiency of Process


Who and what is in the market?• Who?

– Thousands of ‘providers’• Trading platforms for invoices – Tradeshift, Taulia, Nipendo• Start up – crowdfunding- bizcrowd• Tesco/JLP incubators• Wealth Management teams• Angels• Auction sites- Platform Black• Challenger Banks – Aldermore, Handelsbanken, Shawbrook• Church of England – Wonga £6billion in PE/VC

– Thousands of Government Grants/Funds/Schemes• FLS• Community ‘Third sector’ - Commissioning type – beware PE/ VC• Regional • Infrastructure re broadband


Ways to give the best opportunity?

• So where are you as an organisation?– Sector B2B, B2C, B2Public- all three?– Market- Telecoms, FM, Industrial, Pharma– Type of company- private, family, Ltd, LLP, CIC’s – Funding type – appetite for ‘risk’- debt – Size of company current/ future- sales trend– Geographic location current/future– Trading abroad

Business Strategy is paramount


Ways to give best opportunity?

• Now an OPERATIONAL plan is required– What does your cash conversion cycle looking like?

• Direct Debit- monthly, quarterly, annual- Insurance/Phones/Broadband/Utilities

• Fixed/standing versus/plus variable charges• Receivables Invoicing- goods services as and when• Payables Invoicing- good and services as and when• Contract Revenue Generation – Milestone driven?• Service Contract - monthly or annual or/and as and

when


Cash flows or does it?

• 18 Month dynamic chart– Seasonal- Christmas/ Summer/Holidays– Time driven – legislation- SEPA– Supply Chain needs – Mobile phones/Turkeys– Currency– Political intervention– Supply Chain Disruption

Identify liquidity gap(s) or funding chasms Headroom?


18 Month Types of Cash Forecast Types of Cash Forecast

40 45 4050 55

45 40 45 50 50 45 40 35 3555

35 40 45

4555 60

5555

60 6570 65 60

6060

55 50

60

5050

55

20

3020

1010

100

20 20

60

1010

2050

100

2020

0

50

100

150

200

250

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb MarMonths

£M

Operational Cash required within 3 months Core Cash Required within 3 to 12 months Strategic cash required After 12 months


Risk Mitigation processThis determines type of finance needed:Short term finance -Why?

overtrading, efficiency in CCC – hiccups in invoicingMedium term finance -Why?

operational plan issue stock, assets, customers not paying

Long term finance -Why? Is strategy ‘wrong’? ‘’right’?

With a bank lending rate at 0.5% for the past 5 years‘forward guidance’ has become ‘fuzzy guidance’ from B of E so factor in risk of increase plus ‘new’ charges.


Cash Flow Narrative solutions

• Short term 1 to 3 months– Invoicing is the normally the largest challenge– Terms and Conditions of sale/purchase– Supply chain finance (SCF) – reverse factoring

• Medium Term 3 to 9 months– Dynamic discounting for suppliers– Factoring of Trade Receivables

• Long Term 6 to 18 months– New strategy

But TIMING is everything re Year end, Audit- VAT, HMRC , Covenants/ loans renewal


Explain types of requirements

• Opex– Organic – Process issues

• Capex- potential growth– Machinery to help suppliers be more efficient– Own plant and equipment, buildings

• M & A/Divestment - diversification


If Speed (1 to 3 months)is needed then is SCF right for you?

• Can your suppliers Invoices be ‘trusted’? – Is it Timely– Is it Accurate– Is it Legitimate– Is it Compliant

If they pass the ‘TALC’ test then supply chain finance or Asset backed lending could be useful?


If Medium Term (3-9 months)

• Banks?– Re traditional ABL funding

• Factoring• Securitisation etc.

– Challenger Banks- less baggage• Government schemes

– Councils lending to SME’s


If longer term 6-18 months

• Are you prepared to give away equity?– Crowd-funding– Angels– PE– VC– Wealth Management– AIM– Peer to Peer (P2P lending) of certain types


Alternative Finance –Decision tree


Where is your credit management?

• Who checks what and when?– Customers, suppliers, peers, directors– Your narrative versus the credit agency reports– Your Terms and Conditions– Your customers, suppliers, peers T’s and C’s

• Is it part of your strategy/risk mitigation process?

• Is credit management a board item not a bored question?


Positioning for FSC next steps

Working Capital Optimisation Trade Receivables less Trade Payables Credit Rating Performance Measurement

Cash Conversion Cycle

Value Based Process Mapping


Recent Quotes

From highly respected CEOs of FTSE 500 Companies have included:

“Cash flow is like the blood flow in our bodies. Interruption or restriction will cause a perfectly healthy body to rapidly deteriorate.”

“Cash is King.”

In both cases these CEOs were speaking after spending millions in correcting working capital issues and having to spend almost two years ‘communicating’ how they were retrieving their cash flow situation as investors and stakeholders had lost so much confidence in the management team.


Thank you for Listening

Any Questions…..please?

18th March 2014John Mardle

www.cashperform.com0795 756 7053

http://www.cashperform.com/

Cima stratford 20 october

Education

Transcript of Cima stratford 20 october