Sitting on gold, but you are against the clock
Posted by: susiewest on: February 23, 2012
The Taulia webinar took place this week and the content was remarkable.
What is so apparent is that multi nationals are currently in a unique position. Consider the following:
Context
The world economy is slowing down.
The Bank of England interest rate has remained at 0.5% for 34 months in a row. Markets now forecast the increase to come in 2014.
Safe havens for financial investments have become ‘volatile’.
Banks are not lending to small businesses and UK banks are expected to miss their small business lending targets in 2012.
What does this mean for large corporations?
Multi nationals are withdrawing investments from markets now considered ‘volatile’.
This means large corporations are sitting on the highest levels of cash on record. A Deloitte report talked of UK non financial companies holding cash reserves of £731.4 billion in the 3rd quarter of 2011.
In this report a third of the 136 large companies interviewed said they were ‘holding on’ to the cash as insurance against unknowns, like the Iranian blockade of oil supplies.
According to the Federal Reserve, in the US corporate cash balances have reached $2.12 trillion (an increase of 33% from 2009).
What does this mean for suppliers?
Financing costs. Because banks are lending to SMEs at either high rates or not at all, it puts a typical SME requiring capital in a position of need.
This is why dynamic discounting is becoming a huge topic. And interestingly it’s becoming a huge opportunity for those shared services organisations that can actually process and pay invoices quickly.
If you have a process in place where you can approve and post an invoice within a few days, pay early and take a 2.25% discount, you would be reaping huge reward for having an efficient process.
In financial terms, investing your cash in your supply chain is low risk (you placed the order with them, and you’re going to be paying the invoice… so it’s low risk), and the return is higher than sitting in a ‘high interest’ bank account.
To put it crudely, getting on with dynamic discounting a ‘no brainer’.
Business cases for any project concerning P2P process automation should be factoring in supply chain financing returns as this is what these projects enable. This in itself should accelerate the speed of getting this automation project done.
The opportunity is golden. But jump on it now – the influencing factors may look very different in 24 months time.
To watch the Taulia webinar, click here
1 | Steve Grice
March 11, 2012 at 4:46 PM
This is interesting, and could potentially unlock huge amounts of cash that SMEs desperately need. I’d question whether most large corporations want to eat into their cash safety blanket though.