Cashflow and the CREDIT CRUNCH: How to keep it flowing

1. Cashflow and the CREDIT CRUNCH: How to keep it flowing Presented by Colin Campbell Senior product director, Asia Pacific www.sungard.com

2. Who we are “I have never watched rapids where boats go in and come out the same way. You should never waste a good crisis and in crisis there is always opportunity” Source: Deloitte CEO Giam Sweigers Financial Review May 2009

3. Agenda This better be good because I know… CASH FLOWS! • What is Risk? • What is financial Risk? • How risk impacts organizations aspirations? • Why manage Risk? • How should risk be managed? • Requirements for “”effective” risk management.

4. What is Risk? Risk is anything that gets in the way of an organisation achieving it’s strategic objectives To take risk is the essence of economic activity….the main goal must be to enable companies to take the right risk…by providing knowledge and understanding of the alternatives. Peter Drucker 1974

5. “After 15 years of good times there has got to be an element of poor quality. In fifteen years badly run businesses can make money. Right now they can’t and we are beginning to see that normalisation happen.” Source: ANZ Chief Executive Mike Smith The impact to poorly managed cash • Cash has a holding cost • The income earned by investing it, OR • The interest cost of borrowing it • Cash is subject to shrinkage • Decreased margin on sales due to late payment • Interest rates • Exchange Rates through Multi Currency Trading • Inaccuracies in Forecasting and Monitoring • Short Term lending at higher Interest rates • Lack of Actual income to supplement Financial management • Dispute resolution • Insolvency

6. Quote Order Management Manufacturing Logistic/ Delivery Invoicing Collections Returns Cash Application Financial Plumbing Sales Bookings On Average 1 in every 4 Invoices has an issue or dispute that requires attention. Cash Collected

7. Where is this Risk? Delays/inefficiencies in the Order to Cash Domain (Intra Domain efficiencies) Accounts Receivables Credit & Collections Customer Management Reporting & Analysis Order Management/ Distribution Billing • Order Entry • Order Tracking • Shipment • Service Management • Database Management • Terms of Sale • Invoice generation and dispatch • Freight and Tax management • Invoice adjustments • Sales Management • Cash Application • Revenue accounting and accruals • Debt / credit notes • Returns and chargebacks • Deductions and Warranties • Discounts and allowances management • Credit Control • Payment follow up • Dunning Letters • Disputes and Deductions Management • Banking channels • Bad debt provisioning and write – offs • Fraud Monitoring • Master data maintenance • Account Reconciliation • Query Management • Customer Credit Line updates • Sales trend analysis • Revenue forecasts • Cash Management • Period Reporting / Ad Hoc analysis • Data is available in ERP systems but is often fragmented • View on cash positions and liquidity forecasts to be poor across industries – This also creates the cash trap Order to Invoice (O2I) • Big cash traps Invoice to Cash (I2C) • Cash gets trapped due to variety of upstream root cause issues emanating in the order to cash cycle • Domains, by nature of the activity, often reside in the various areas of the firm. This makes the O2C cycle a challenge to manage • Effective methods to determine and fix root causes – do not often exist in house Caught by Surprise…ANZ chief executive Mike Smith says companies are becoming “basket cases” overnight. Source: ANZ Chief Executive Mike Smith

8. High DSO (Compare to Industry) Disputes are Ignored Is technology, culture or apathy the crossroad you face in your organisation? Financial Risk. Poor Visibility 90-99% margin Reduction 75-85% margin Reduction 45-55% margin Reduction 18-22% margin Reduction 1-10% margin Reduction Current You can’t manage what you can’t see. High Costs – Primarily Headcount 90 Days How can I make my department better? 180 Days Is this due to design, neglect or ability? Lack Protocol / Standards 360 Days How can you control your environment better?

9. Currency Management Credit Management Cash Management Treasury Management “Businesses continue to wear the pain of higher borrowing costs as the big banks raise loan rates and tighten credit criteria for corporate clients.” Source: NAB Executive Director of Finance Mark Joiner How Cash Flows Through the Organisation Funding Management Credit assessment Credit Limits Risk management Collections Strategies Factoring Insurance Banking Arrangements Cash Transmissions Working Capital Control Investing Surplus Funds Obtaining Funds Interest Rate Exposure Export Finance Project Finance Buying Currency Selling Currency Currency Exposure Management

10. Manual Process Management Management Backed Practices Control Mechanisms Document Storage and Retrieval Automate the Reminders, Automate the Workflow, Establish Call Queues Based on Strategy Tracking Invoice Paths, Address Past due A/R Right Away, Getting Copies of Invoices to Customers Quickly Establish escalation Paths, Provide more Transparency, Modify Internal Behaviour to Manage Disputes Making Prudent Lending Decisions & Have a Documented Plan in Place to Manage A/R How many boxes do you Tick? Dated Technology Disparate Systems – Operating on Multiple ERP Systems

11. Moving from Theory to Practice The “theory” of driving Cash-Flow improvement through Working Capital is well known… But in practice it is a great deal more complex • Many functions are involved • Process hand over's between functions are often the weakest link • International/multi-language environments with different “cash” cultures • Gaining buy-in, raising understanding and getting people working together • Driving simultaneous activity from top-down and bottom up

12. What Drives Working Capital? “Simple” business elements do actually drive the level of working capital required by an organisation… • How quickly you convert supplies into a product available for sale (production lead-time/storage and shipping time • Customer payment terms & how long it really takes you to collect the cash • Payment terms with suppliers (and the point you take ownership) Equally “process conformance” (or non-conformance) has a major impact • Failure to adequately record goods receipts – can result in additional emergency orders being raised for the same part • Failure to send the customer invoice on time, or incorrect details (price/quantity, purchase order reference number) extends the time to receiving payment • Failure to apply the negotiated terms, can mean supplier payments are made earlier than necessary

13. Who Drives Working Capital? Reality Perception Working Capital Management: • Is a Finance issue • Is purely a balance sheet item • It is only in focus at year-end • Will be detrimental to Customer Service • Has limited ROI potential and doesn't align with business strategy Working Capital Management: • Involves many functions • Directly impacts P&L • Needs to be considered in day-to-day decisions • Improves customer service in many ways • Delivers a fantastic return, creates significant value and supports strategic goals

14. Optimize Process and an enabling Technology Consolidation of Disparate Systems Automation vs. Manual Processing Increase Productivity Reduce Redundancy & Error Improve Visibility Collaboration Leverage Data & Resources Improve Communication Key Elements to World Class Performance APPLY A SYSTEMATIC APPROACH TO RISK

15. APPLY A SYSTEMATIC APPROACH TO RISK Comprehensive Review of Credit Risk on an Enterprise Level with Embedded Controls to Initiate Action if Required AUTOMATE THE 02C WORKFLOW Strong Collection & Deduction Practices based on a Strategic Approach to Mitigate Risk DRIVE ENTERPRISE WIDE VISIBILITY Dashboard Visibility to Highlight Potential Areas of Concern and to Ensure Timely Resolution Three Things you can do Today…

16. APPLY A SYSTEMATIC APPROACH TO RISK Comprehensive Review of Credit Risk on an Enterprise Level with Embedded Controls to Initiate Action if Required Best Practices – Portfolio Management Best Practices • Automate the corporate credit policy • Use of automated credit scoring • Segment all customers by risk • Daily credit review work queues for credit analysts based on configurable parameters (Customer approaching credit limit, customer ADTP increases 10% over 3m) • Periodic reviews of all customers • Automatic adjustment of collection strategies based on changes in risk grade • News alerts

17. AUTOMATE THE 02C WORKFLOW Strong Collection & Deduction Practices based on a Strategic Approach to Mitigate Risk Best Practice – Collections Management • Best Practices • Drive workflow to the collector work queue • Stay in contact with your customer • Use Risk Based Collections • Immediately address disputes • Use automated matching for cash application • Dispute Resolution Analysis

18. Elements that build a path to effective management of your cashflow…. Build the Framework for Enterprise Wide Visibility Drive Enterprise Wide Visibility….. • Best Practices • Consolidate Data from Multiple Sources to Single Solution • Embed Policy to Automate Processes & Drive Workflow • Leverage Data Across the Entire Order-to-Cash Cycle • Facilitate Internal & External Collaboration • Track Performance, Adherence to Policy & Effectiveness

19. Automate Credit Risk Management Drive Collections/ Disputes Management Close the loop with Sales & Service Provide On Line Payment Channels Key Elements to ensure cash flows you can effectively manage Integrate Commercial/ Consumer Reporting Channels Apply Cash Quickly with Intelligent Matching Elements Build the Framework for Enterprise Wide Visibility

20. Real Time View of Activity Take Corrective Action as Needed, in real time Empower Business units to become PARTNERS not ADVERSARIES Visibility: How do you Monitor Collection Activity?

21. CASH RECEIPETS – CASH ALLOCATED Visibility: Cash Application, How can you gain Visibility?

22. Typical Improvements Realised in Working Capital Projects Sources to SettleSM Forecast to FulfillSM Customer to CashSM 5% - 25% 10% - 25% 120 95 90 5% - 20% 100 105 100 75 100 75 DPO improvement DIO improvement DSO improvement Source: REL Consultancy

23. Collaboration is Vital to Achieve Success Efficiencies across the financial supply chain will be a key focus with CEO’s and CFO’s for Liquidity and cashflow. The absolute need to operate a lot more smartly and adhere to the rule that “Cash is King” • It’s not just process! • Set-up a Working Capital measurement system • Focus action by creating a Working Capital Council with Board level leadership • Clearly define responsibilities and improvement targets • Get people to think outside their function to improve the ‘end-2-end” process • Document ‘best practices” – develop and train the organisation in how to implement them; policies, processes. IT tools, organizational alignment and metrics • Change the focus of rewards – not just sales and profit, but cash generation too! Key success factors for releasing Cash through Working Capital

24. AvantGard – Collaborative Financial Management Thank You