The CFO-CPO Collaboration Opportunity with Cash Management

November 30, 2016
Andrew Bartolini
Transportation ship with city center view from CFOs office

Cash management is a critically-important piece of the corporate puzzle. For the continued health of the average business, maximizing cash on hand has become a top priority, forcing organizations to seek new strategies and solutions that support this need. Our recent research report, Understanding the Real Value of Supply Chain Finance, details the opportunities inherent in supply chain finance programs and provides a framework for enterprises seeking to leverage this financial solution.

Ardent Partners’ research has shown that approximately one in three Chief Procurement Officers reports to the Chief Financial Officer (“CFO”). From the procurement perspective, this relationship might be the most important relationship that exists or needs to exist within the enterprise. Certainly the CFO relationship has long been one of the most important and promising ones for a CPO; it has also been the most challenging. Over the last two decades, the organizational tension between the two factions kept them from becoming true allies, forced instead to peacefully co-exist. Whether it has been a matter of operating in a generally-stable economy or the case of technology and collaboration trends pushing these leaders and their organizations together, the two sides appear to have finally reached détente.

Additional reading: Making the Business Case for Supply Chain Finance

In 2016, consistent collaboration between finance and procurement is now seen at more than 70% of all enterprises. Today these CPO-CFO collaborations tend to focus on streamlining processes like procure-to-pay and performance measurement. As the business gap between procurement and finance grows smaller. And, as more and more procurement executives realize the value that can be generated by tighter collaboration with the CFO and the finance department, new tools and strategies must be employed to maintain their momentum. The demands of today’s marketplace insist that procurement and finance continue to advance and improve by promoting better communication and collaboration among stakeholders and layering greater intelligence into their core processes.

CFOs and Treasurers are most directly charged with managing a business’ cash and overall liquidity. But Ardent Partners’ (my employer), 2016 survey of more than 330 Chief Procurement Officers (“CPO”) and other procurement executives revealed that after savings, “impact on cash” was the second most important metric used to evaluate the procurement department’s overall performance. This emans that managing and impacting cash matters to both finance AND procurement.

Given its potential impact on cash management and supplier relationship management, one prominent area for these two leaders to explore is the world of supply chain finance (“SCF”) which is an advanced financial solution that accomplishes two primary goals: suppliers are paid more quickly, but at a slight discount, and buyers preserve their DPO and cash on hand. At its core, SCF is an early payment discount technique that uses third-party capital, typically from a financial institution or third-party lender, to pay an invoice early (instead of internal buyer funds). For many years, funding SCF was the exclusive realm of large banks and other global financial institutions and offered little opportunity for anyone outside of treasury and the CFO’s office to access. However, the introduction of new solutions that promote broad visibility and efficiency to the invoice and payment processes has enabled a broader constituency of groups, like procurement and accounts payable to become more directly involved in the development and management of the program.

Since this rate of return is effectively ‘risk-free’ in a classic financial sense, capturing early payment discounts via supply chain finance can be one of the best uses of cash available to an organization. Early payment discounts are also valuable to suppliers from a cash flow and liquidity standpoint and can improve overall relationships.

Over the last few years, the CFO and CPO have made many good strides forward in their relationship. Supply chain finance could be a great mechanism to maintain that momentum.

 

About the author: Andrew Bartolini is the Chief Research Officer at Ardent Partners, a Boston-area based research and advisory firm focused on defining and advancing the strategies, processes, and technologies that drive business value and accelerate organizational transformation within finance and procurement departments. His contact information s in the new report and he welcomes your comments and feedback.

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