Working Capital Management is a growing focus for many companies and there are various metrics to evaluate it, including Days Inventory Outstanding (DIO), Days Sales Outstanding (DSO), and Days Payable Outstanding (DPO). As more and more attention has been focused on working capital, numerous solutions to help companies have been developed.
While there is a range of options for improving working capital metrics, too often companies hope to solve their issues with a single effort. The buzz today is about “Optimizing Accounts Payable,” which requires having multiple solutions in the working capital toolbox to allow a company to pull the right levers at the right time. An SCF program can increase DPO and provide a boost to cash on the books, but it won’t actually improve a company’s return on working capital or generate income for the company. In today’s competitive environment merely boosting financial optics without actually improving performance isn’t enough.
Suppliers have their own unique needs, and understanding these and recognizing the opportunity each supplier offers allows a company to make significant improvements to their working capital position. Suppliers with high levels of cash may be reluctant to offer discounts in exchange for early payment, but by implementing an SCF program a company can work with those suppliers to improve their DPO metric.
SCF is a tool for a small segment of the supply chain, and is normally only used by the largest suppliers. Attempting to craft a unique program for every supplier throughout the supply chain to find the benefit they are willing to offer is not a practical solution. C2FO’s supplier-initiated marketplace removes the need to do this. Each supplier sets their own terms and the buyer is able to realize maximum value from each supplier through cash discounts that lead to a lower Cost of Goods Sold.
A strategic view of accounts payable is needed to ensure a company is maximizing the overall benefit to and from the supply chain. For those who have implemented SCF to extend their terms (increase DPO) there is an opportunity for C2FO to complement the working capital strategy, as there are many suppliers who are not being serviced today. These suppliers are willing to take less for payment if it enables to them to get paid significantly sooner than their stated terms. This approach maximizes the value for the buyer while providing affordable early payment options for suppliers. By using SCF and C2FO side-by-side a company can greatly improve their overall working capital performance.