The CFO as Chief Growth Officer

Finance Executive Insight I The Hackett Group I 2 © 2018 The Hackett Group, Inc.; All Rights Reserved. | 3000174 unleash significant free cash flow. That cash can be put to work not only to fund ongoing operations but also to finance enterprise-level initiatives like acquisitions, new product development and marketing campaigns. Additionally, it can be earmarked for paying down debt or dividends, or buying back stock. Top-performing finance organizations realize significant benefits from automating and optimizing their working capital management. Our 2017 Hackett-REL Working Capital Management study revealed a growing gap between organizations that excel in the practice, as opposed to those just doing an average job (Fig. 1) . By implementing best practices and making greater use of automation, finance teams in the top quartile have 39% lower DSO than the median, generating $48 million of incremental cash flow per $1 billion of sales. They extend DPO by 65% to yield additional $187 million in cash flow for every $1 billion in sales, versus median performers. Optimizing Liquidity Management Most large companies have hundreds of bank accounts globally, often in different institutions and regions. Typically, each bank requires treasury to log in through a proprietary portal or interface. Just building the cash position can take hours, days or even weeks. This slow, disjointed approach denies the CFO real-time access to the company’s liquidity status. Today’s cloud-based treasury management systems easily streamline the balance- collection process by building automatic connectivity to multiple banks, assuming the tedious multi-portal access process and delivering the CFO daily (or even real-time) information about the organization’s global cash position. This holistic view facilitates decisions about how to efficiently shift funds from cash-rich to cash-poor entities; concentrate excess cash in investment accounts to maximize return; and free up cash to pay down debt, fund operations and growth. The CFO can minimize the need to turn to external sources such as credit lines or public debt. The latter is especially important when interest rates are headed upward, as they are currently. Improving Forecast Accuracy Full visibility into cash and liquidity and easy integration with the company’s ERP system enables modern treasury management systems to increase the speed and accuracy of cash forecasting. They replace the traditional way of collecting projections through various emailed spreadsheets, as users can access the application directly via a browser. And a TMS lets them link directly to the accounts payable and accounts receivable modules of FIG. 1 The free cash flow benefits of reducing the cash conversion cycle Source: Hackett-REL Working Capital Survey, 2017 Notes: - 1st quartile performance = Lowest DIO / DSO, or highest DPO in top 25% of companies - Median performance – Median DIO, DSO or DPO in all companies Days inventory on-hand $83.7 million of cash flow per billion of sales Median 1st quartile 56 25 55% Days payables outstanding $54.8 million of cash flow per billion of sales Median 1st quartile 44 64 46% Cash conversion cycle $186.7 million of cash flow per billion of sales Median 1st quartile 46 17 63% Days sales outstanding $48.2 million of cash flow per billion of sales Median 1st quartile 46 28 39% Reverse factoring Reverse factoring is when a bank or finance company acts as an intermediary between the company and its supplier. It commits to pay the company’s invoices at an accelerated rate (to benefit from early-payment discounts), charging the buyer a reduced interest rate. The program is a triple win: The company initiating the program can preserve its working capital (i.e., extend DPO), but not be compelled to pay early. The finance company earns a fee, and the supplier maximizes its working capital by being paid fast to reduce its DSO.

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