Cima stratford 20 october

CIMA Stratford
18th October 2014
John Mardle
CIMA Mastercourse presenter on Working Capital
25/07/2014 Copyright CashPerform Ltd John Mardle 1

Event Objectives
Knowing the current market for commercial
finance, who and what are in the market, and
how to get what is available are essential in
securing finance.
This event will look at these points and the ways
which will give the best opportunity to be
successful in raising funds.

Warning - Think differently!
• What is an asset?
– Stock, WIP, Debtors, Plant, Machinery?
– Orders/Sales …..think Demand chain
• What is a liability?
– Creditor/Supplier
– Procurement/Payables…..think Supply Chain
What is an Invoice?
“Quality paper not toilet paper”

The Cash Conversion Cycle (CCC)
TCP4SID T C P
Description Account Timing Communication Process Description CashMethod
Term Days viaBalance Sheet Acronym
S SupplyChain DPO 0 Trade Creditors P2P Purchase toPayment SupplierFinance
I InventoryChain DIO 0 Stock/WorkinProgress I2C InventorytoCash- Nil? JIT/Supplier/Customer
D DemandChain DSO 0 Trade Debtors O2C OrdertoCash Factoring/Securitisation
R Reverse SupplyChain Nil NetZero NetbyoffsettingDr/Cr R2C Reverse toCash-Nil? Supplier/Customer
CashConversionCycle 0 Positive WCcashflow CCC HealthyCashChain? CostorInvestment?

Envisaged CCC
Contractual Statutory Reality Difference
Board TermsDif Accounts Dif Board vs Reality
Purchase/Creditor DAYS 60 28 28 32
-30 10
Sales/Debtor Days 30 38 61 31
Stock and Work in Progress 10 ? 14 4
Cash Conversion Cycle -20 10 47 67
Positive Cash Conversion Cycle indicates cash OUTflow is greater than cash Inflow
NB: INTERDEPENDENCY is CRITICAL
NB: Statutory accounts per DPO/DSO/DIO traditional calculation
Copyright John Mardle CashPerform Ltd October 2013

Background
• 2008 and all that…..
– Basel III
– B of E PRA/ FSA
• Accounting Reporting CA 2006, IR,FRS100/1/2
– Micros directive
• Credit Agencies in disarray
– DSO/DPO/DIO/WC definitions re S &P/Fitch/Moody
– Corporates go their own way- awash with cash>26%
– SME’s lose out re SCF
– Start ups / Entrepreneurs – new breed- no bank debt

What is Commercial Finance-
traditionally?
• Banking - Asset backed Lending
• Receivables Invoices
– Factoring
– Securitisation
– Letters of credit (LOC)
– Forfaiting
– Business assets, stock, work in progress- Tangible
– Personal mortgage, credit card, overdraft

What is Commercial Finance- New
World?
• Tangibles
– Pension led release of pension funds
– Director led –mortgage via ‘others’, credit card,
personal account- FSB March 2014
• Intangibles
– IP copyright, trademarks
– ‘knowledge’ via software licences/franchises
• Big data re volumes
• Efficiency of Process

Who and what is in the market?
• Who?
– Thousands of ‘providers’
• Trading platforms for invoices – Tradeshift, Taulia, Nipendo
• Start up – crowdfunding- bizcrowd
• Tesco/JLP incubators
• Wealth Management teams
• Angels
• Auction sites- Platform Black
• Challenger Banks – Aldermore, Handelsbanken, Shawbrook
• Church of England – Wonga £6billion in PE/VC
– Thousands of Government Grants/Funds/Schemes
• FLS
• Community ‘Third sector’ - Commissioning type – beware PE/ VC
• Regional
• Infrastructure re broadband

Ways to give the best opportunity?
• So where are you as an organisation?
– Sector B2B, B2C, B2Public- all three?
– Market- Telecoms, FM, Industrial, Pharma
– Type of company- private, family, Ltd, LLP, CIC’s
– Funding type – appetite for ‘risk’- debt
– Size of company current/ future- sales trend
– Geographic location current/future
– Trading abroad
Business Strategy is paramount

Ways to give best opportunity?
• Now an OPERATIONAL plan is required
– What does your cash conversion cycle looking like?
• Direct Debit- monthly, quarterly, annual-
Insurance/Phones/Broadband/Utilities
• Fixed/standing versus/plus variable charges
• Receivables Invoicing- goods services as and when
• Payables Invoicing- good and services as and when
• Contract Revenue Generation – Milestone driven?
• Service Contract - monthly or annual or/and as and
when

Cash flows or does it?
• 18 Month dynamic chart
– Seasonal- Christmas/ Summer/Holidays
– Time driven – legislation- SEPA
– Supply Chain needs – Mobile phones/Turkeys
– Currency
– Political intervention
– Supply Chain Disruption
Identify liquidity gap(s) or funding chasms
Headroom?

18 Month Types of Cash Forecast
Types of Cash Forecast
40 45 40
50 55
45 40 45 50 50 45 40 35 35
55
35 40 45
45
55 60
55
55
60 65
70 65 60
60
60
55 50
60
50
50
55
20
30
20
10
10
100
20 20
60
10
10
20
50
100
20
20
0
50
100
150
200
250
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Months
£M
Operational Cash required within 3 months Core Cash Required within 3 to 12 months Strategic cash required After 12 months

Risk Mitigation process
This determines type of finance needed:
Short term finance -Why?
overtrading, efficiency in CCC – hiccups in invoicing
Medium term finance -Why?
operational plan issue stock, assets, customers not
paying
Long term finance -Why? Is strategy ‘wrong’? ‘’right’?
With a bank lending rate at 0.5% for the past 5 years
‘forward guidance’ has become ‘fuzzy guidance’ from B
of E so factor in risk of increase plus ‘new’ charges.

Cash Flow Narrative solutions
• Short term 1 to 3 months
– Invoicing is the normally the largest challenge
– Terms and Conditions of sale/purchase
– Supply chain finance (SCF) – reverse factoring
• Medium Term 3 to 9 months
– Dynamic discounting for suppliers
– Factoring of Trade Receivables
• Long Term 6 to 18 months
– New strategy
But TIMING is everything re Year end, Audit- VAT,
HMRC , Covenants/ loans renewal

Explain types of requirements
• Opex
– Organic
– Process issues
• Capex- potential growth
– Machinery to help suppliers be more efficient
– Own plant and equipment, buildings
• M & A/Divestment - diversification

If Speed (1 to 3 months)is needed then
is SCF right for you?
• Can your suppliers Invoices be ‘trusted’?
– Is it Timely
– Is it Accurate
– Is it Legitimate
– Is it Compliant
If they pass the ‘TALC’ test then supply chain finance
or Asset backed lending could be useful?

If Medium Term (3-9 months)
• Banks?
– Re traditional ABL funding
• Factoring
• Securitisation etc.
– Challenger Banks- less baggage
• Government schemes
– Councils lending to SME’s

If longer term 6-18 months
• Are you prepared to give away equity?
– Crowd-funding
– Angels
– PE
– VC
– Wealth Management
– AIM
– Peer to Peer (P2P lending) of certain types

Alternative Finance –Decision tree

Where is your credit management?
• Who checks what and when?
– Customers, suppliers, peers, directors
– Your narrative versus the credit agency reports
– Your Terms and Conditions
– Your customers, suppliers, peers T’s and C’s
• Is it part of your strategy/risk mitigation
process?
• Is credit management a board item not a bored
question?

Positioning for FSC next steps
Financial Supply Chain
Pricing/Margin/Market
Strategy
Risk Mitigation Strategy
Working Capital
Optimisation
Trade Receivables less
Trade Payables
Credit Rating Performance
Measurement
Cash Conversion Cycle
Value Based Process Mapping

Recent Quotes
From highly respected CEOs of FTSE 500 Companies have included:
“Cash flow is like the blood flow in our bodies. Interruption or restriction
will cause a perfectly healthy body to rapidly deteriorate.”
“Cash is King.”
In both cases these CEOs were speaking after spending millions in
correcting working capital issues and having to spend almost two years
‘communicating’ how they were retrieving their cash flow situation as
investors and stakeholders had lost so much confidence in the
management team.

Thank you for Listening
Any Questions…..please?
18th March 2014
John Mardle
www.cashperform.com
0795 756 7053

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