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5 Proven Strategies to Improve Working Capital
July 9, 2014
Hi, thanks for joining us! We will begin the webcast shortly but in the meantime, please keep in mind:
• Questions or comments should be entered into the chat box• Use #tradeshift when tweeting• Presentation and recording will be sent after
Agenda
Introductions
The BIG value in Payables
5 Proven Strategies for Working Capital Savings
Putting it all together
Technology’s Role in Working Capital Optimization
Q&A
Introductions
Rinus Strydom
VP Alliances & Solutions Consulting, Tradeshift
15 years using, deploying, and marketing enterprise
procure-to-pay solutions
Tom Glassanos
President Bavelos Group
Over 10 years Early Payment Program experience
“Dynamic Discounting” inventor
3 times Supply Chain Executive Magazine “Pro to Know”
Bavelos Group Profile
Early Pay Programs
Supply Chain Financing
Best practice consulting
Advisory Services forWorking Capital Optimization
Firms the Bavelos Team Has Helped
Bavelos methods for working capital have benefited over 50 global corporations and more than $1 trillion in spend.
Big Value in Payables
The Big Value in Payables
Financing the supply chain to strengthen trade and save millions
0 DaysInvoice
15 DaysApprove
60 DaysDue Date
The Opportunity
$9 Trillion Global Investment Opportunity*
*Main Street Advisors
The Early Payment Opportunity
* Actual Bavelos EPD experience
Over 80% of suppliers surveyed will consider discounts for accelerated cash
0.2% 0.3% 0.15%
3%
MoneyMarket
AA Debt30 Days
U.S. Treasury30 Days
Early PayDiscounts
8-40%*
*Early pay discounts yield .5-3% over 10-60 days risk free
today’s treasuryCash Return options
Early PayDiscounts
What Can Be Achieved?
Up to 1/2% of savings on all spend Over 30% APR on use of cash Increase in cash via longer DPO Efficiency - 99% paperless AP
2% 15 net 45 ASAP
Day 10 Day 30 Day 45
Early pay discounts
Rule of thumb: $3-$5 million of savings for every billion of spend!*
*Data from over 50 major corporations; >250k vendors; >$1 trillion spend
How to Enable the Working Capital Opportunity
Longer net terms – more need for cash
Faster approval – more early payments
Day 10 Day 30 Day 45 Day 60
Faster invoice approval
LongerNet Terms
5 Proven Strategies for Working Capital Savings
1. Faster Approval – Core Automation
Electronic invoicing
Workflow approval
Pre-matching (PO Flip)
Shorten the approval time with coreAP automation tools
2. Improve Terms – Supplier Onboarding
Leverage on-boarding
Extend net payment terms
Propose early payment terms
Document this in the enrollment
2% 15 net 45 ASAP
Day 10 Day 30 Day 45
“Transform Terms” when you onboard suppliers for electronic invoicing
The Foundation of an Early Pay Program
Components of a “Terms Transformation”
Analytical assessment – Which suppliers to target– Number of days for approval – Optimal discount terms to offer
Discount oriented terms policy– Extended net terms– Explicit hurdle rate
Compelling vendor proposition– Choice of early pay options– Electronic payment
2% 15 net 45 ASAP
Day 10 Day 30 Day 45
A process of analytics & telesales
Terms Transformation - Speed to Benefits
Typical campaigns are 90-120 days in length(Can take place prior to automation or the same time)
KickoffOutreach
BeginsInitial
Results>75%
Results
4 weeks 4 weeks 8 weeks
3. Enable More Discounts - Dynamic Discounting
How it works
– APR rate is fixed
– Discount varies
Benefits
– Discounts on any approval up to net date
– Picks up large savings for earlier payment Invoice approval time
Day 100%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Day 30 Day 45 Day 60
2% 10 ASAP 45
Discounts >2%
All invoices qualify for a discount
Use of ASAP (sliding slope) Terms
Dynamic Discounting
How it works– Presents “ad hoc” early pay offers
– Two methods: POs or email
Benefits– Skims incremental savings at key
times
– Offers based on supplier end of month & quarter cash needs
– No pre-existing discount terms needed
Enables opportunity for discounts on every invoice
Pay Me Now Offer• $3,200 approved to pay• Pay today for 1% discount• Click “here” to approve
Use of “ad hoc” early payment terms
4. Capture Rebates - Payment Automation
“Buyer Initiated Payment” (BIP)
Works on mainstream ERP spend
Suppliers pays interchange fee (equivalent to early pay discount)
Bank rebates % of fee to buyer (share of the discount)
Buyer gains 30 days of cash
Rebates as much as 1% on 25% of spend
1
Buyer ERP approves payment & initiates authorization DIRECTLY to card network.
2
Supplier sends invoice to buyer
3
Card network authenticates and transfers funds
Supplier bank
Buyerbank
Use of Buyer Initiated Payment (BIP) Cards
5. Expand Available Cash - Supply Chain Finance
Bank financing for extended DPO
– Finances cash to supplier on “buyer approved” invoices
– Low cost credit – buyer approval limits risk (typically LIBOR+ rates)
– Most valuable for investment grade buyers
– Generates free cash for buyers by pushing out DPO
Treated as a factoring transaction
– Bank establishes factoring relationship with supplier
– No credit impact on the buyer
Targets the biggest suppliers who can impact DPO
Case Example: Proctor & Gamble
“P&G Stretches Payments to Suppliers”To Free Up $2 Billion in Cash
5 Proven Strategies for Working Capital
1. Faster approval – core AP automation
2. Transform terms – supplier on-boarding
3. Expand discounts – dynamic discounting
4. Capture rebates – buyer initiated payment
cards
5. Expand available cash – supply chain financing
Optimizing All The Tools
Maximizing payables-related CASH and SAVINGS
What is Technology’s Role in Working Capital Optimization?
Faster approval of Invoices
Enable dynamic discounting and SCF in-business-process
Access to early pay programs for all suppliers
Tradeshift’s Open Platform Approach
TRADESHIFT PLATFORMDocument Transmission, Statuses, Messages, Integration, Security, API
SupplierBuyer
Order Management
Electronic Invoicing
Business Firewall
CloudScan® (Paper)
Collaborative Workflow
Financial Solutions
Build Your Own App
Supplier Management
Ability to expand functionality as needed
Enabling Supplier Participation Through Electronic Onboarding
# Size of suppliers
Large Medium Small (Long Tail)
Supplier Integration
Supplier Integration Supplier Integration
Supplier Validated CloudScan
Supplier Validated CloudScan
60-70% (invoice volume)
Tradeshift Web ApplicationPlug & Play connectors like
Quickbooks
Plug & Play connectors
Plug & Play connectors
CloudScan EnterpriseCloudScan Enterprise
CloudScan Enterprise
100% (invoice volume)
Supplier Validated CloudScan
Supplier Validated CloudScan
CloudScan EnterpriseCloudScan EnterpriseCloudScan Enterprise
Plug & Play connectors like
Quickbooks
Plug & Play connectors
Plug & Play connectors
Tradeshift Web Application
Tradeshift is 12x faster than the competition at onboarding suppliers
100% (suppliers
)
# of invoice
s
# Of supplier
s
12
In-Business-Process Simple Messaging
Tradeshift’s balanced value proposition
Supplier Buyer
Communicate & collaborate directly with your buyers.
Lower costs for your entire supply chain.Manage and track POs, invoices, pmnts, and more.
Connect via web, integration or any accounting software.
Free. No supplier fees. Ever.
Communicate and collaborate with suppliers.Innovate past invoicing on top of an open platform.
One platform for all your business needs.
Reduce cost and friction for your entire supply chain.
Summary: Early Pay Discount Benefits Dwarf Those of AP Automation
Process Automation
• Eliminate paper invoices, reduce invoice approval cycle time, and improve visibility and overall AP processes
The Typical Accounts Payable Business Case
$450K
$1.5M
$3.6MEarly Payment Discounts
Discount program management and dynamic discounting resulting in increased discounts and >20% return on cash
Reduction in Invoice Exceptions
Shared supplier portal enabling suppliers to view and resolve invoice exceptions and reduce supplier inquiry calls
ProcessAutomation
Total Business Case Benefit
s
Early Payment Discounts
Reduction in Invoice Exceptions
Automation Based
Discounts
$1.5M
$150KAutomation Based Discounts
Reduction in invoice approval cycle time and dynamic discounting capabilities enables additional early payment discounts
Q&A
Thanks for joining us!
• Register for our next webcast: tradeshift.com/suppliervalidation
• Stay relevant, visit blog.tradeshift.com• Presentation and recording will be sent soon
July 9, 2014
5 Proven Strategies to Improve Working Capital