Is your cash working as hard as you are?

Is-your-cash-working-as-hard-as-you-are

It’s peak summer vacation season judging from the influx of travel articles and glances at friends’ social media feeds. But for many of us, that glance is the only break we take. According to surveys by Glassdoor and Expedia1, only 23 percent of American workers take all their eligible vacation time. On average, employees are taking just over half their vacation days, and two-thirds of us work during that time off.

The no-vacation trend holds for the UK as well, where a third of workers did not take their full holiday entitlement. Even among countries with least time off, workers in Hong Kong, India, UAE, and South Korea were most likely to check email at least once per day2.

Our workaholic cultures extend beyond skipping vacations. Many of us are skipping weekends and working long hours, too. Among the hardest workers, finance professionals log some of the longest hours, averaging a work week of 50-70 hours. Working on vacation — if they take one — is a given, not an exception.

We are all working hard for our money. But is your money working as hard as you are?

Considering cash on the balance sheet as an “employee”

When you are putting in long hours, there is a realistic expectation that you’ll see more results. More gains. Yet, no matter how many hours you work, the cash on your balance sheet won’t see a better yield if without a better opportunity.

Maybe it’s time to think about how you employ your money.

hard working cash

Give your cash a performance review

When it comes to its job performance, the cash on the balance sheets of many multinationals is a less-than-productive employee. Perhaps it’s the work environment — low interest rates, conservative management, repatriation tax penalties, or stringent regulatory rules — that allows your cash to languish on the job. As that environment shifts, from rising interest rates to flattening bond yield curves, maybe it’s time to challenge your money to perform better.

“If you’re a cash-rich company that has infrequent M&A activity, you’re effectively wasting potential opportunities,” says Jason Bristow, former treasurer of Amazon. “If you put that cash to work either via the supply chain or in other structures, there’s pretty clear historical evidence of a benefit to shareholders,” he continues.

It’s time to get to work.

Finding the right occupation for your cash

Putting your cash to work is easier said than done. Even as a “slacker,” cash is too important of an asset to risk. Unlike other employees, you can’t just put your cash toward the first available opportunity or relocate it to a new geographic region. For some companies, the types of “employment” for cash are limited.

“Absent an appetite for dramatic change in your company’s investment policy, your hands are a little bit tied when it comes to innovation,” says Bristow. “A lot of companies are changing the way they invest. They might not go from an entirely risk-averse to an entirely risk-accepting environment. But we’re seeing different categories and classes of assets being used. For those companies that are cash-rich, especially short-cash rich, you might see a different investment strategy from others in the past.”

So, what is the right “new job” for your cash? If your goal is the lowest risk and the highest return, you may consider putting your cash to work in the supply chain.

“At Do it Best we were innovative with our investment policy,” says Kevin Ehinger, former treasurer for the company, and now VP of Market Operations for C2FO.

“We increased our duration of short-term investments. We focused on longer term capital projects. We spent quite a lot on technology and infrastructure improvements in the company. We had great returns on those, both short- and long-term and we still sat with available cash on our balance sheet,” Ehinger continues.

Ehinger and his team selected a dynamic discounting platform, C2FO, as an innovative strategy to get a better return on their cash while improving access to working capital for their suppliers.

“I didn’t know that technology existed to fund our suppliers, as if I were a bank, and make returns on cash for our existing approved invoices,” Ehinger continues. “And when the idea was presented to me, I was very excited about it from the beginning, because there was no risk with using approved invoices. It also gave us the ability to finance the supply chain at a time where payment terms had gotten long enough that suppliers were being squeezed. We were concerned this was going to disrupt the supply chain.”

“With C2FO we were able to provide benefit to suppliers and produce excess returns on cash. It was pretty much the perfect strategy from my perspective,” he said.

Making the most of an opportunity — even when you don’t have cash to employ

A dynamic discounting platform with a marketplace model like C2FO also works for companies that don’t have “under-employed” cash on hand, says Shailesh Bettadapur, Treasurer, Mohawk Industries.

“We’re a net debtor on both sides of the Atlantic, so, as a rule, we have not held cash. We use C2FO as a win-win for everybody. It was a way for us to use our short-term liquidity to arbitrage our lower rates of debt against what our suppliers would need,” says Bettadapur.

But the strategy must benefit both suppliers and the company, he explains. As with selling in any innovative approach, he says, “the math needs to work. As long as the math works, you can make a business case for it,” says Bettadapur.

Getting buy-in may be the hardest work

Even if your cash is ready to work, it can take effort to win support for an innovative approach. Just like creating and advocating for a new employee position in your org structure, you may have to build a strong business case to “hire” your cash for its new role.

“For us, one of the biggest keys, if not the biggest key, was understanding and analyzing how the supplier relationships would be impacted. It was very important to make sure that it wasn’t a one-sided arrangement. And that took a lot of internal effort,” says Ehinger. “There’s not always willingness and acceptance of something that’s different and may rock the boat.”

Unlike other investment vehicles, dynamic discounting required buy-in from procurement and IT. Ehinger stresses the importance of internal communication and collaboration here. For finance stakeholders, the innovative use of cash just makes dollars and sense.

“One of the strategies that is very successful with excess cash, for companies in the fortunate position to be like that, is to think of it as another investment category, or diversification vehicle. The ability to use a portion of that investable cash on supplier management was well received at Do it Best.” Ehinger notes.

“The treasury conversation is pretty easy. Every treasurer out there that has cash or access to low-cost capital would love to make a 300-500 basis point spread on their cash,” Ehinger summarizes.

Flex time for your hard-working cash

When it comes to innovation with your cash, clearing the biggest internal hurdles requires “safety valves” in your strategy.

“For me, personally, there’s nothing that has higher value than flexibility,” explains Bettadapur. “Anything that we do, any kind of financing structure, we always make sure that we don’t run ourselves into a cul-de-sac and that we don’t foreclose any options before we absolutely have to,” he says.

Flexibility was also the key for implementing C2FO at Do it Best, explains Ehinger, especially when it came to sticking points like DPO and Cash Conversion Cycle metrics. He explains the team at Do it Best approached challenges in two ways. First, they adopted flexibility in how the company viewed metrics.

“For internal reporting purposes, we exempted our C2FO payments from our DPO and cash conversion cycle calculations for the senior management,” says Ehinger. “We focused on the income that we were able to generate,” says Ehinger. “We certainly tracked DPO and cash conversion cycle as important metrics. But we viewed them as a scoreboard snapshot for long-term balance sheet change instead of managing by short-term balance sheet change.”

Second, Do it Best leveraged flexibility in C2FO. Unlike any other discounting platform, C2FO offers complete control of the market as easily as an on-off switch.

“A lot of companies would view the change of one day earlier on payment as a permanent reduction of in DPO,” continues Ehinger.  “In reality, discounting from early payment is a short-term, voluntary decision that makes more money when you want the yield.”

Getting the job done

No matter what your company’s cash position or risk threshold, there are innovative ways to put your cash to work. The best of these opportunities include flexibility, control over your key metrics, and higher yield with no risk. Now that’s gainful employment.

Sources:

“Work-Life Imbalance: Expedia’s 2016 Vacation Deprivation Study Shows Americans Leave Hundreds of Millions of Paid Vacation Days Unused”

Forbes, “Why Americans Aren’t Taking Half Of Their Vacation Days”

Related

Lessons from the NFL Draft: Trading a single metric for long-term wins

A risk-free alternative to prime money market fund investment for corporates