2010 european trends in aggregate spend, transparency and disclosure
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Gaining Transparency into AP Spend and
Improving the Accuracy of Cash Forecasting
Amy Beninato
Executive Director
J.P. Morgan
Jennifer Dale
Assistant Treasurer
Sprint Communications
Meet Your Presenters
Jennifer Dale
Assistant Treasurer
Sprint Communications
• Responsible for global cash
management, short-term
investments, cash account
reconciliation, payment channel
management and short-term cash
forecasting
• Certified Treasury Professional
Amy Beninato
Executive Director
J.P. Morgan
• Responsible for directing the global treasury management relationships of the firm’s Technology and Media clients
• Past president of the Board of Directors of the Treasury Management Association of New England
Where is every dollar at any given time?
The AP Black Hole Conundrum
Cash Forecasting Improvements
Old Method New Method
• Three-pronged approach to cash
forecasting:
• P&L
• Regression
• New cash-based model
• Developed a Business Unit driven cash
based forecast process
• Variance analysis performed and model
updated monthly
• Real-time visibility into how forecast is
tracking to budget, exact cash balances
on hand
• Customer receipts/equipment
sales/miscellaneous cash-trending based
• P&L based regression and historical
trending model
• All inputs were owned by Finance
Operations
• No visibility of updates until budget
variance finalized
• AP was single line item
• Monthly cash forecast variance 5%-10%
• Daily receipts model based on day of
week logic applied using payment
patterns & actual billing detail within a month
Sources Of Cash
Uses Of Cash
• Bottom up approach
• Identified top 80% of spend and classified into 11 categories
• Categorize spend based on a hierarchy of: Bank Account, PO, Origin ID, Cost
Center, General Ledger and Vendor ID
• $10B in average quarterly spend
• 300,000 lines of data analyzed monthly
• Spend is analyzed against cash forecast provided by Business Unit
• Variance analysis preformed monthly
• Developed a daily AP and Customer Receipts forecast
• Developed daily Cash In Transit model
New Forecast Model
Treasury: Quarterly Variance View
Vendor X
Vendor Y
Results
2% Improved variance to
Focus on spend Heightened enterprise-wide
Senior Management Enhanced communication
process with
Cost to implement $0
Reaching New Heights in Treasury Success
Working Capital Committee To foster discussion of ideas, and identify opportunities for
improvement to the corporate Working Capital
Cash
Management
Forecasting
Accounts Payable
Inventory
Customer Finance
(Credit/Collections)
Supply Chain
Financial planning &
Analysis
WCC Measurements & Results
Measurements Results
• Industry Benchmarking
• Cash Conversion Cycle – DPO, DSO & DIO
• Applicable departmental roadmap and
objectives
• Metrics refreshed semi-annually
• Quarterly progress reports
• Working Capital savings
$1B approximate savings in two years
Improved DPO While still maintaining a discount to capture
priority
$0 Cost to Implement
Optimizing Working Capital Best practice: utilize supplier segmentation to deploy appropriate payables solutions
• Spend / supplier segmentation is critical to optimizing working capital and supplier
adoption
• The rate-of-return paid by suppliers varies based on their strategic importance and
transaction value
Transaction Value $$$
Su
pp
lie
r B
as
e
$
Single Use Account
(+ 14 Days DPO**)
Trade and SCF
(+ 30 days DPO)
Non-Strategic
(Indirect)
Strategic
P-Card
(-1 Day DPO*)
* P-Card’s DPO of 29 days (15 day monthly average + 14 day grace period) vs. a 30 day invoice
** Assumes invoice paid 15 days prior to term, with remaining 14 days of P-Card’s 29 day DPO accruing to Buyer
*** Reflects early payment of 20 days in exchange for a discount with a high APR
1/10 Net 30 = 18% APR
0.5/10 Net 30 = 9% APR
Check Print
Working Capital has Achieved Increased
Importance Over the Last 3 Years
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
500
550
600
650
700
750
800
850
900
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11
Cash on Hand Net Working Capital EBIT/Revenue %
1 2 3 4
STEEP DECLINE CRISIS RESPONSE VOLATILE RECOVERY GROWTH
WC reduction <
rate of business
decrease
WC increase <
rate of business
increase
Corporate
Response:
Focus on Cash Focus on cost Focus on growth
Working capital
decreases as
revenue drops and
focus shifts to
increasing cash
Executive focus on working capital as cross-
functional solutions are implemented to keep
working capital growth low as revenue
recovers
Source: REL 2011 US Working Capital Survey
Economic
stage: $B
illio
n
Working Capital Performance
Source: REL 2013 US Working Capital Survey
Best/Worst % Change in DWC
Performance by Industry
Source: REL 2013 US Working Capital Survey
Benchmarking Analysis
Median and Benchmarking Quartiles have been rounded and are based on
sample listed competitors financial information sourced from CAPIQ, based on
latest publically available financials
Leading Lagging 4th 3rd 2nd 1st
DSO DPO DIO CCC
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th
Median 32 40 8 -4
Telecom A 34 56 14 -8
Telecom B 40 52 9 -3
Telecom C 41 34 10 16
Telecom D 30 29 7 9
Telecom E 18 79 0 -61
Telecom F 14 22 0 -8
Telecom G 37 46 5 -4
Telecom H 23 20 24 27
Peer Benchmarking
The Problem • Top 29 financial institutions will each have $20B
shortfall to comply with Basel III
• Average bank will need $6B retained earnings to
meet shortfall
• 90% corporate treasurers say forecasting is
important, only 6% very satisfied with accuracy of
forecasting
Sprint’s Goals • Visibility into all cash at any given moment
• Maintain liquidity and increase yield
• Reduce costs through creative use of ECR
• Manage counterparty limits
• Achieve best practices via active benchmarking
Liquidity Landscape
Sources:
Federal Reserve and SEC research, published in the New York Times and Wall Street Journal in August, 2012
FitchRatings.com
Reflecting on the Future, A Study of Global Corporate Treasuries, Ernst & Young, April 2012
Earnings Credit Rate: Evolving the Concept
• Bringing the relationship between operating
business and ECR balances to its full
potential:
• Horizontally: add new services to offset
• Vertically: include balances outside the US
• Three dimensions: apply incremental value to
those balances, even if interest bearing
• ECR standalone or as a “yield optimization”
tool to grow overall relationship
• Taken to its full potential: services outside of
traditional banking sphere – link between
receivables purchasing agreement and ECR
Global fee and balance
offset across geography,
currency and products
Global balances
offsetting US-based
services
Offsetting US
services
beyond cash
management with
US-held balances
Treasury Transformed into Super Heroes
• Business units now utilize the Treasury/AP database as a management reporting tool to assist with budgeting, executive presentations and vendor discussions
• Treasury has been brought to the table and now participates in direct relationships with several key vendors in discussions on credit lines, payment terms, discounts and reviewing spend analysis
• Treasury involved in Business Development projects as SME to advise on “everything cash” crossing functions from SCM, AP and Treasury
• Treasury was “loaned” to a strategic partner to assist them with building a startup organization
• Treasury has been instrumental in building a culture of “cash minded individuals”
Enhanced Role of Treasury
We’d Like to Hear Your Thoughts
It’s 5 O'clock Somewhere, Which
Can Only Mean…
Contact Information
Jennifer Dale
Sprint Communications
(703) 433-4458
Amy Beninato
J.P. Morgan
(212) 552-2184