USE CASE

Working Capital

Optimise working capital to drive growth and profitability.

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Companies need capital to grow, address existing debt and distribute shareholder value through dividends or share buy-backs. One way to decrease working capital is to optimise it – the less capital tied up in the working capital cycle, the more there is available to drive growth and create shareholder value.

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Supply Chain Finance

To free up capital tied up in working capital, organisations can utilise supply chain finance, also known as reverse factoring.

Supply chain finance gives suppliers the flexibility to ‘sell’ approved invoices to financial institutions for a discount that is dependent on the time it takes for the credit risk of the buyers and is agreed upon in advance.

Using supply chain finance as an alternative means of financing helps buyers negotiate longer payment terms and can help increase free cash flow.

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24% of Kyriba customers say improved working capital management has been the biggest business benefit of choosing Kyriba so far.

Source: TechValidate, 2019
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Dynamic Discounting

Early payment discount programmes enable buyers to generate high returns on free cash, reduce costs through discounts and grow profit and EBITDA margins.

The main benefit of moving from a standard manual discounting program to a wider discount window with dynamic discounting is that the sliding scale model captures all possible discount opportunities, thus maximising costs and increasing the amount of free cash available for investment.

With the sliding scale, the discount moves towards zero as the payment nears its due date, allowing buyers to choose a payment date that fits both their ability to process the payment and the availability of free cash.

By taking advantage of a dynamic discounting program, buyers can reduce costs by generating a bigger discount, ultimately helping grow profit and EBITDA margins.

Benefits of a Working Capital Solution

For suppliers, both supply chain finance and dynamic discounting result in:

  • Increased cash flow (supplier decrease DPO)
  • Enhanced cash visibility/predictability
  • Access to an additional source of funding
  • Reduced financing cost depending on credit rating
  • Off-balance sheet financing that doesn’t impact supplier debt metric
  • Remittance information at no cost with reduced account receivable queries

For buyers, the benefits of supply chain finance and dynamic discounting differ slightly. Both programmes result in enhanced cash visibility/predictability, reduced account payable inquiries and improved critical supplier relationships.

Supply chain finance also increases free cash flow and can reward bank relationships, while dynamic discounting can increase the risk-free return on short-term cash investments substantially, improve gross margin and reduce COGS.

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