The Insider’s Guide To Improving Payments And Cash Flow: Estimating Value

Alan Cohen and Scott Pezza

Part 4 of the Payments and Cash Flow Series

This quote says it all: “Goals not written down are just wishes.”

When implementing or expanding a payments or cash flow initiative, this is so true. To get started, an executive (CFO, treasurer, shared services vice president, or CPO) will request a preliminary “back of the napkin” estimate regarding the value-creation opportunity. You will revise this analysis over time, so it doesn’t need to be perfect from day one. What’s important is to be prepared with this information so you can articulate the need to proceed or expand your initiative.

Here are some guidelines for an initial estimate of project value:

  • Payment automation: $1 to $5 savings per payment
  • Early-payment discounts: $1-2 million in savings per $1 billion in targeted spending
  • Cash flow via terms extension: $40 million per $1 billion in targeted spending extended 15 days

Sharing estimates with colleagues

To prepare for your early conversations about estimated value, you should:

  • Craft your value “elevator pitch.” Rehearse a 30-second elevator pitch on your company’s payments or cash flow opportunity and suggest a next step. When speaking with executives, think beyond traditional departmental views on savings and highlight income statement and balance sheet impacts.
  • Make metrics meaningful and align to outcomes. The value must be more than just a metric. You must link it to your company’s strategic goals. Perhaps the estimated discount savings are equivalent to a 5% increase in sales, or the additional cash flow would allow you to break ground on two new stores or build a new manufacturing plant.
  • Explain the impact of payment terms on supplier operations. If you pay suppliers faster than your competitors, you are effectively financing their operations. It is important to stress the value and competitive impact of optimizing payment terms.
  • Embrace enthusiasm and learn from skepticism. For those enthusiastic colleagues, ask for their sponsorship or support to help you move forward. For those skeptical colleagues (we all have them!), ask for their specific concerns and objections. Be prepared for follow-up discussions and gather information in advance of the meeting. Facts are your friends.

To drive your project forward and help seize the current opportunity, you must first:

  • Estimate your project’s value. For payment automation, dynamic discounts, and cash flow from payment-terms extension, quantify the financial impact in a one-page summary.
  • Practice and deliver the elevator pitch. Start sharing the summary information with colleagues in a way that’s easy for non-finance experts to consume and understand.

How we can help

For public companies, we offer a one-page value estimate covering value drivers, financial impacts, competitive benchmarking, and revenue growth required to have the same impact. For private companies, we can share an example output. To request one of these, send an email to: SAP_improve-cashflow@sap.com

Our complimentary Insider’s Guide to Improvement Payments and Cash Flow e-book is now available. You’ll learn how to build a business case, plan, and implement a new payments and cash flow program that can deliver measurable value to your organization.

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Alan Cohen

About Alan Cohen

Alan Cohen is VP Payments & Financing Strategy, SAP Ariba. Alan has over 20 years of payments and working capital experience as a practitioner, consultant, and banker. In his current role, he leads the payments and financing strategy for SAP Ariba to help clients achieve improved business outcomes. Previously, at Coca-Cola Enterprises, Alan led the procure-to-pay transformation that encompassed sourcing, procurement, and payables automation, and the company became one of the first to benefit from dynamic discounting. Alan holds a supply chain management degree from Arizona State University. In 2015, he was part of a team that won SAP’s Hasso Plattner Founders Award for an innovative approach to B2B payments. Alan lives in Atlanta with his wife and 2 daughters. He has served on the board of the Weinstein School since 2007 and actively participates in 2nd Helpings, a nonprofit to rescue and deliver surplus food.

Scott Pezza

About Scott Pezza

As part of SAP Ariba's Digital Transformation Organization's Center of Excellence, Scott researches, compiles, and shares best-practice information to help SAP Ariba's customers get the most out of their investments. He has a dual focus on the emerging technologies (AI/ML, IoT, Blockchain, etc.) across the source-to-settle cycle, as well as a specific interest in the financial supply chain (invoice management, payments, discounting, and supply chain finance). His research helps inform strategic planning, performance measurement, and program execution. He has spent the past 17 years in the B2B technology space, in roles ranging from software development and support to research and consulting. Scott earned his BA in English and Philosophy from Clark University, his MBA from Boston University Graduate School of Management, and his JD from Boston University School of Law, where he served on the Executive Board of the Annual Review of Banking and Financial Law.