It’s all about the Benjamins

Chris Jones CroppedCash is the life blood of any organization and the supply chain is one of the most powerful ways to maximize any company’s cash. If you listen to publicly-traded companies’ earnings calls, the CFO will talk about cash generation from operations and days-sales-outstanding (DSO) as 2 important metrics of company performance. The right combination of supply chain strategies and technologies can help transform your accounts receivable (AR) and accounts payable (AP) processes to maximize cash generation or preservation. With a better understanding of your supply chain operations in real-time, you can make better decisions on when to pay suppliers and shorten your effective invoice cycle. The following strategies are applicable if you are a manufacturer, retailer, logistics services provider or carrier.

Mobile Invoicing: As Steve Banker mentioned in The Perfect Order and the Smart Invoice, there are industries, such as food service, where the final customer order is not determined until the goods are delivered. Failure to create a “clean” invoice at the point of delivery can result in extended payment cycles and AR balances and even loss of revenue because of the lack of documentation for disputed invoices. By being able to accurately capture and electronically document what the customer received (or rejected/returned) during the delivery process with the prices specific to that customer, food service providers can get paid more promptly and reduce their DSOs. In addition, there can be associated cost reduction because the number of disputed invoices will go down significantly.

Inbound Visibility & Yard Management: This is a great example of how logistics technology and counterintuitive thinking can conserve cash. In this case, a retailer decided that for the majority of the goods delivered they would not control the freight or own the inventory until it was received in the warehouse. A number of products they sell are high value – a trailer can be worth millions of dollars. Instead, the retailer has the suppliers drop high-value trailers in their DC yards. Because the retailer had integrated their yard management into their inbound visibility system, they can make decisions on-the-fly to accept the trailers, divert them to other DCs or send them back. This allows the retailer to hold on to its cash longer, and be flexible with their logistics decisions to minimize the inventory they do carry and the associated working capital.

Electronic Proof of Delivery (ePOD): Most logistics services providers (LSPs) operate on razor-thin margins, so getting their money as fast as possible is critical to their financial performance. This is analogous to inventory turns – the more times they turn their cash in a year, the more they have at the end of it. The challenge for LSPs is that they typically don’t have a fleet and use third-party carriers, many of them quite small and not technology integrated. The LSP cannot invoice until it knows when the delivery was made, so a lack of integration extends its AR cash cycle. By focusing on “low/no-tech” integration via web portals and smart phone applications, LSPs can get the delivery status much faster.

Electronic Pick-Up: Most carriers have fixed payment terms with their customers that start with receipt of the invoice (.e.g. 30 days). From a cash collection perspective, the payment clock doesn’t start until the customer gets the invoice. If the carrier has paper-based order capture processes, it can take days for the invoice to be sent, effectively pushing out the payment cycle. By using mobile applications, carriers can electronically capture the shipments they are receiving and effectively eliminate any delays in the invoicing process. Combining this approach with electronic signature and picture capture also helps reduce the cash collection cycle by minimizing disputes and damage claims.

Time truly is money. In the world of cashflow management, “when” is just as important to your CFO as “how much.” By better electronic integration of supply chain activities with financial systems, companies can measurably impact the cash generated from operations and working capital required to run the business. If you are in the process of putting together a supply chain project don’t forget to evaluate the project’s ability to help the CFO optimize the company’s cash. That is a conversation that he or she will be very interested in having with you.

 

Chris Jones is Vice President, Marketing and Services at Descartes. As Executive Vice President, Marketing and Services, Chris Jones is primarily responsible for Descartes marketing activities and professional services for Descartes’ solutions. With over 30 years of experience in the supply chain market, Chris has held a variety of senior management positions including: Senior Vice President at The Aberdeen Group’s Value Chain Research division, Executive Vice President of Marketing and Corporate Development for SynQuest and Vice President and Research Director for Enterprise Resource Planning Solutions at The Gartner Group.