Managing Working Capital during COVID-19

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Managing Working Capital
during COVID-19
April 22, 2020

Kyriba.com Copyright © 2020 Kyriba Corp. All rights reserved.Kyriba.com Copyright © 2020 Kyriba Corp. All rights reserved.
Today’s Presenters
2
Shruti Gupta
Value Engineer,
Working Capital
Kyriba
Cheik Daddah
Vice President,
Global Value
Engineering
Kyriba
Tom Gavaghan
Vice President,
Global Solution
Engineering
Kyriba
Steven Otwell
Director,
Payment
Kyriba

Poll Question 1:
3

COVID-19 Overview
4

COVID-19 at a glance
Health and Humanitarian Crisis Economic Impact
Almost all countries are grappling with
unprecedented infection and mortality cases
Intrinsically different from any other previous crisis
but still possess some striking parallelism.
Uncertain future
5

We are living in
a new world
now!
• The way we think of
financial metrics will
most likely change
• Risk-adjusted liquidity
KPI’s?
6

The only thing that matters in the short-term is
LIQUIDITY
7

Working Capital Overview
8

9
Cash
Management
Account
Receivable
Management
(DSO)
Account
Payable
Management
(DPO)
Marketable
Securities
Management
Accruals
Management
Inventory
Management
(DIO)
Return on Capital
Credit Risk and Solvency
Uninterrupted Production
Liquidity -> Internal Cheaper Financing -> Profitability
Free Cash Flow –> Business Value
Ability to face demand shocks and spikes
Effective Working Capital Management leads to
Theoretically
Current Assets – Current Liabilities
Simple Language
Daily/Weekly/Monthly cash and liquidity requirement
for operation of a business
Working Capital Management Basics
Major Components:

Massive Impact of Working Capital:
~$185M per $1B in Revenue
10
* Upper or 1st quartile performance – Lowest DIO / DSO, or highest DPO in top 25% of companies
† Median performance – Median DIO, DSO, or DPO in all companies
$83.7 Million of cash flow
per $1Billion of sales
$54.8 Million of cash flow per
$1Billion of sales
Days Sales Outstanding Days Inventory On-Hand Days Payables Outstanding Cash Conversion Cycle
Source: The Hackett Group, 2018

The Active Liquidity Network Approach
1. The whole is greater than the
sum of the parts
2. 360 degree view of enterprise
liquidity
3. Networked Economy
4. Strategic decision support in
times of crisis
11

Poll Question 2:
12

How COVID-19 is causing Working Capital
Crunch?
13
Demand Shock
Supply Chain
Shock/Under-capacity
Lower Sales
• Low consumer demand leading to
lower sales that is in-turn resulting
low cash inflows
Existing/New Credit Facilities
• Increased probability of non-
compliance of financial covenants
such as EBITDA/Debt or Interest
Coverage ratio in existing facilities
• Increase rate on existing credit lines
due to downgrade of credit ratings
• New credit lines can be complicated
as banks re-assess their own portfolio
Existing Liabilities Obligation
• Difficulties paying SG&A expenses
such as wages
• Difficulties paying suppliers
• Difficulties meeting existing
schedule financial obligations such
as debt interest payment
Higher Counterparty Risk
• Suppliers unable to deliver leading
to either unmeet demand or
adding to WIP balance
• Consumers default on existing
payments
• Even for industries experiencing
demand spikes, supplier production
capacity is a road-blocker

Poll Question 3:
14

How can different functions contribute to
address COVID-19 Working
Capital Crunch?
15

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COVID-19 Working Capital Crunch
Management Contribution by Procurement
Optimize/Harmonize
Payment Term
▪ Ensure your payment
terms are inline with
industry standards to
avoid paying sooner than
competitors
▪ Consolidate payment
terms across subsidiaries
and entities to avoid high
number of payment
processing
Support Critical Suppliers
Keeping Inline with
Company’s Working Capital
Position
▪ Collaborate with Treasury to
financially support your critical
suppliers to address any supply
chain risk such as supplier
bankruptcy or capacity risk
▪ Establish an early payment
program either with internal or
external financing (Dynamic
Discounting or Supply Chain
Finance) without exacerbating
any existing working capital
constraints
Build Sustainable
Supply Chain
▪ Build sustainable supply
chains that can contribute to
avoid/withstand future crisis
(e.g. climate change)
▪ Fund such projects by
optimizing financial supply
chain and unlocking cash
flow from physical supply
chain
Explore Supply
Chain Savings
Potentials
▪ Analyze spend to avoid
any non-essential
purchase
▪ Smarter fleet/logistic
management
▪ Reduce finished goods
inventory

Management Contribution through Payments
Upgrade Mode of
Payment
▪ Upgrade the mode of
payments from
manual (checks) to
electronic
Payment Timing Vigilance
▪ Ensure payments are not
paid earlier than supposed
to be if not an approved
exception
Global Payment
deployment
▪ Integrate new banking
relations for disbursements
with managed connectivity
▪ New banks can be
disbursed for global
payments quickly utilizing
45,000 payment format
library
Avoid Frauds and
Errors
▪ Ensure right amount is
going to right account
to avoid any leakage
▪ Monitor all
disbursements using AI
to detect anomalies in
fraudulent payments.

Management Contribution by Treasury
Investments and Debt
Facilities
▪ Pull out cash from any
risky investment
▪ Consolidate all
revolving credit lines
and loans to have
maximum cash
reserves
Cash Pool/
In-house Bank
▪ Cash pool from all
subsidiaries and entities
▪ Establish in-house
banking if not already to
ensure most efficient cash
utilization
Payables/
Cash Outflows
▪ Identify biggest cash
outflows or account
payables
▪ Explore optimal payable
strategy based on cash
positioning and forecasting
− Stop any non-essential
spend
− Not in severe cash
crunch; early pay critical
suppliers
− In severe cash crunch;
delay payments
Receivables/
Cash Inflows
▪ Identify biggest cash in-
flows or account
receivables
▪ Explore optimal
receivable strategy –
− Customer Early
Payment Programs
such as Discounting
or Supply Chain
Finance
− Banks/ Factoring
Institutions

How can different functions contribute to
address COVID-19 Working
Capital Crunch?
19

Quick Scenarios
20
Consolidation
Company
Status
Identification
Possible
Lever
Identification
Possible
Solution
Actions
Possible
Solution
Actions
• Consolidate cash position
for all subsidiaries
• Project short-medium term
cash forecasting
• Pull out cash from any risky
instrument
• Identify whether company
is in “deficient”/ “excess”
cash mode
Possible Lever
Identification
Possible
Solution
Actions
Possible
Solution
Actions
• Identify biggest AR & AP
• Identify biggest
underlying payments
• In conjunction with
procurement, identify any
critical suppliers that needs
support
• Early Pay invoices with
possibility of earning some
discount (now or later)
• Wisely used cash to
support overall business
health
• Reach out to fintechs and
relationship banks to establish
supply chain finance program
to avoid supply chain collapse
• Reach out to
procurement to
delay payments
Crunch
Excess

Conclusion
Lessons from COVID-19
21

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Conclusion
Lessons from COVID-19 The Kyriba Active Liquidity Network
• In times of crisis, the only thing that
matters is LIQUIDITY
• Working capital can be a significant
source of enterprise liquidity if managed
proactively and holistically
• Adopting an Active Liquidity Network
approach to managing your enterprise
liquidity will require collaboration and
partnership between Finance/Treasury,
Procurement, Sales Operations, IT and
senior management
• The pay-off for this will be significant
and will help your organization better
prepare for the next crisis

Thank You
As a part of our continued efforts to serve treasury and
finance leaders across the globe, we have organized this
COVID-19 Treasury Resource Center, where you can find
information and links to helpful resources.
Visit the resource center below:
https://www.kyriba.com/covid-19-resource-center/

Managing Working Capital during COVID-19

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