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_improvefirstname.lastname@example.org
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.