Quarter end push for
Cash at a Fortune 500 company
Twenty days before
quarter end, management at this division of a Fortune
500 company learned that reductions in inventory where
not materializing as forecasted. The resulting increase
in capital charges would reduce the rate of return as
forecasted by executive management. With twenty days
left in the quarter, the primary option for overcoming
the inventory shortfall was to look at significant and
unexpected increases cash collections. Accordingly, the
cash target was increased by 20%.
| Would
customers try and take the discount on an
ongoing basis, on past due invoices or take
the discount of eligible invoices and simply
not pay past due invoices?
Also, would
customers have time to process the offer in
time to meet the quarter end deadline? |
CashFlow Enhancement
Group had already been in place and was on target for
exceeding the previously establish cash forecast. As a
means of generating the additional cash, CashFlow
proposed executing a plan to offer customers a one time
2% discount on invoices due after quarter end provided
payment was received prior to quarter end.
While sounding simple
enough, CashFlow knew this strategy was fraught with
complexities. First, this was no small endeavor.
Hundreds of customers would have to be contacted within
ten days to have any chance for success. The details of
the offer needed to be explained precisely, often to a
decision maker such as the controller or A/P Manager.
Confusion concerning payment terms could easily occur.
Extra resources would be needed immediately.
Execution of the
Strategy
In order to maximize
acceptance of this offer, CashFlow Enhancement Group had
to respond quickly and execute with precision. Offers
needed to be extended prior to customers’ finalizing
their last check runs of the quarter. Maximizing
effectiveness while eliminating confusion meant that the
offer would be made verbally to decision makers with a
brief but specific written document sent as support.
Also, customers were advised that payment should be sent
via 1-2 day courier and that payments arriving after the
deadline would not be eligible for the offer.
Every customer with an
eligible balance exceeding $10,000 was systematically
identified, including a review of the orders scheduled
to ship prior to quarter end. CashFlow Enhancement Group
also decided to track every offer extended, accepted or
declined with the amount for each category available in
real time so if / when the cash target was deemed in
reach, the extension of offers could be immediately
discontinued.
The Strategy
Succeeded
Three days prior to
quarter end, CashFlow was able to forecast that the cash
target would be met and the client would meet its
working capital goals for the quarter. This strategy has
since become an immediately executable option for this
client as a means of compensating for shortfalls in
other areas of working capital improvement.
More
Decision Support
