CASH & CAPITAL MANAGEMENT IN A CRISIS

CASH BASED APPROACH IN POLE POSITION

Source: The Association of Corporate Treasures 2

Cash is the #1 priority for all companies right now It should better remain top priority going forward
Current global business environment
Pressure on Sales & EBITDA + High-Levels Debt to be Refinanced + Tighter Credit Markets

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Increased Need for Self-Funding + End of pure Earnings-driven Focus of the Easy Credit years

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Risk & Opportunities
Firms are going through an evolution from growth-focus to profitability- to liquidity/cashfocus
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Active working capital management is only one element of liquidity management - yet usually the most effective one
A framework for addressing liquidity issues
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

Effective Working Capital Management should migrate from a project approach to an day-to-day practice in the long term
Framework for effective Working Capital Management
Short Term Initiatives (0-6 months)
Manage Payables
Introduce standard payment terms Use full terms offered by supplier Reduce number of payment runs

Mid/Long Term Initiatives (6+ months)

Manage Payables
Renegotiate terms with suppliers

Reduce Inventories
Sales & Marketing Manufacturing Warehousing and Logistics Purchasing

Collect Receivables
Introduce standard payment terms Install excellence in collections Eliminate root causes for late payments

Reduce Inventories
R&D Design for Manufacturing Sales & Marketing Manufacturing Warehousing & Logistics

Collect Receivables
Minimize end of period push Renegotiate terms with customers Minimize bad debts Eliminate/ consolidate small direct customers to distributors

The complexity of a holistic working capital management can be managed by prioritizing rigorously and regularly
Prioritization of initiative (client example)
High
>6 Months Time to Implement <6 Months Low
SKU Rationalisation Extend to Terms Network Rationalisation Price vs. Terms Trade-off

Inventory Receivables Payables

Evaluate Grace periods

Forecast Accuracy Grace Period Reduction Paying to Terms

Statistical Inventory

Top 25 Program

Disciplined Collection

Highest Priority

Low Financial Impact

Source: AlixPartners

High

Especially in challenging times, your and your suppliers fate are tied closely together necessity to communicate openly
Manage Payables

The numbers of SKUs drives the complexity of inventory planning basic systems are a pre-requisite to cope with it
Reduce Inventories

1) VMI: Vendor Managed Inventory 2) Collaborative Planning, Forecasting and Replenishment; Source: AlixPartners

While there are valid external factors that adversely impact collections there are many effective measures to counter this
Collect Receivables (I)

There are few areas in a business where implementation, although simple, is so challenging as in collections
Collect Receivables (II)

Simple is not easy!

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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

1. 2. 3. 4. 5. 6. 7.

Make senior sponsorship of the working capital imperative highly visible Establish top-down targets & bottom-up commitment across all functions Demonstrate success is measured in terms of results, not reports Challenge received wisdoms Prioritise, prioritise, prioritise Establish clear accountabilities and benefit tracking Integrate Cash-Generation measures into the Incentive Structures

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So, how do you know how effective your firm/client is in active cash management?
Cash Management Diagnostic

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