“Cash is no longer king; in the new age, the customer is king,” said Fergal Power, partner of cash management advisory services at KPMG China and Hong Kong, at November's EuroFinance cash, treasury and risk management conference in Shanghai.
According to KPMG’s global cash management survey of 300 chief financial officers and treasurers of global multinational companies this year, cash remains a priority. However, its perceived importance is decreasing as companies outperform their expectations. The report highlighted that improvements have been made with net working capital, but the majority of companies surveyed have no incentive packages linked to cashflow targets for employees.
Linda Zhang, China treasury manager at Honeywell in Shanghai, agrees that companies have performed better than expected in the past year. Cash balances have increased in China, but working capital remains the key managing point within treasury operations for finance teams. And incentive packages are an important tool at Honeywell.
“Working capital is always an incentive indicator for performance,” said Zhang. She attributes Honeywell’s success in reducing working capital requirements from $40 million to $6 million to a programme focused on end-to-end processes for accounts receivables. Through the same programme, the company also reduced days sales outstanding by almost 50% from 54 days to 28 days, and simultaneously extended payment terms for customers from 60 days to 75 days.
DuPont has a slightly different approach. “Our focus on working capital management in recent years has increased a lot before and after the [global financial] crisis. We have a global supplier finance programme which provides incentives to our customers for early payment,” said Kevin Xuejin Zhang, the firm's China treasury manager.
The US-based chemical company offers active discounts for its account receivables in China. The finance team tailors different offers for each individual customer, offering an attractive discount for early payments. Zhang explained that during the financial crisis, the company was forced to accept banker’s drafts from its customers. This meant that they had to deal with banks directly for accounts receivables and accept a reduced payment figure. Therefore, offering an early payment discount and communicating directly with customers was preferred.
Improving working capital can be achieved in many ways depending on the stage of development at the company. For global beer producer AB Inbev, known for its Budweiser, Stella Artois and Hoegaarden beer brands among others, focusing on accounts payables was vital. Throughout 2009 the company worked on improving communication of cashflow, extending payments terms and educating employees at different levels to meet cashflow targets from sales leaders down to workers at individual breweries.
“As a sales leader, you don’t just sell, but you should keep good sales terms and relationships with major customers. If you are in a factory or a brewery, keeping accurate inventory levels for finished goods and raw materials is very important,” said Lisa Wang, Chinese treasury director at AB Inbev.
There are situations where the customer may always be right. But for companies venturing into China and for Chinese companies themselves, it seems the customer is not king, at least not yet.
