Working Capital Management - Create Liquidity, Get Paid Early

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Caroline Patrick
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2 Working Capital Management User Group Session Agenda Session Agenda: What do YOU want from this session? Working Capital Management Solutions for Suppliers Introduce WCM Solutions for suppliers Focus on The Receivables Exchange View into the product screens Discussion of Supplier Focus on Cash Flow/WCM What users in your companies would typically interact with Ariba to request early payment/sell receivables? Who determines discount terms? What part do receivables play? When would you offer discount to Buyers to accelerate terms (When does it make sense?) What Net Payment Terms are you seeing with your customers? What role do early payment terms play in the contract neg. process? Ariba, Inc. All rights reserved.

on Cash Flow/WCM What users in your companies would typically interact with Ariba to request early payment/sell receivables? Who determines discount terms?

3 What is Working Capital? Situation and Objectives of Buyers and Suppliers Working Capital is cash available for running your operations Working Capital = Current Assets Current Liabilities DWC = DIO + DSO DPO (Goal -- Minimize Days Working Cap) Buyers Need to unlock working capital Maintain or increase DPO Need better return on cash Need to minimize liquidity risk in supply chain Suppliers Need to unlock working capital Maintain or decrease DSO Need better access to cash Face significant liquidity risks due to credit crunch Ariba, Inc. All rights reserved.

Assets Current Liabilities DWC = DIO + DSO DPO (Goal -- Minimize Days Working Cap) Buyers Need to unlock working capital Maintain or increase

4 Situation Assessment Our current cash flow is is draining our cash reserves at at an alarming rate; The lending banks have received Federal funds but are not over extending on existing loans. The release we have received from our senior lender is is at ata hideous fee rate. - Automotive Supplier Payment Delays Supplier working capital squeezed by payment delays - Sarah Johnson, CFO.com, March 4, 2009 Dependence on Diminished Credit 63% of companies with <$1B revenue depend on lines of credit for short term cash needs - AFP Short Term Credit Access Survey Cash Flow Critical With the credit crunch closing down credit options, we could be in jeopardy because of a cash flow issue, not a profitability issue - Supplier interviewed on CNN/Money, 2009 Traditional Supplier Options Traditional Bank Lending Credit lines capped or cancelled Restrictive covenants Debt on Balance sheet No Effect on DSO Pcard Expensive Not Effective for post-ship payment Factors/ABL Very expensive All asset liens and guarantees Lending of Last Resort Buyers Seeking to to Extend Payment Terms! Ariba, Inc. All rights reserved.

com, March 4, 2009 Dependence on Diminished Credit 63% of companies with <$1B revenue depend on lines of credit for short term cash needs - AFP Short Term Credit Access Survey Cash Flow Critical With

5 Extended Payment Terms Payment Term Trends in Today s Environment Realities of Extended Terms: 1. Customers Paying Late: Avg. 40% jump in late payments over last year and a half. 2. Customers Extending Payment Terms Unilaterally: ~70% of companies have or are considering extending payment terms within past year (Hacket Group, 2009) Hackett Group, Ariba, Inc. All rights reserved.

Customers Extending Payment Terms Unilaterally: ~70% of companies have or are considering

6 Working Capital Management Current Product Suite Full Invoice at Term ($) Accounts Payable Discount Pro Pcard Trade Finance Partners Invoices Discounted Early Payment ($) Supplier (A/R) 1. Accelerated Payment/Discount Pro Buyer pays supplier early in exchange for discount Key to Accelerating cash flow w/out debt Key to reducing DSO 2. Trade Finance Supplier discounts at low rate for early payment from 3 rd party Buyer pays 3 rd party at normal invoice term Key to Accelerating cash flow w/out debt Key to reducing DSO Receivables. Receivables Finance Partners 3. Receivables Finance Supplier-centric online exchange for selling receivables to best bidder Reduce DSO: Monetizes receivable in as little as 3 days Competitive bidding drives down cost of capital Key to unlock working capital from Receivables Discounted Early Payment Ariba, Inc. All rights reserved.

Trade Finance Supplier discounts at low rate for early payment from 3 rd party Buyer pays 3 rd party at normal invoice term Key to Accelerating cash flow w/out debt Key to reducing DSO Receivables.

7 Standard Discount Terms: Accelerated Payment...Every Invoice All the Time Acceptance of standing term offer AUTOMATICALLY accelerates payment on EVERY invoice. payment executed immediately following invoice approval Ariba, Inc. All rights reserved.

AUTOMATICALLY accelerates payment on EVERY invoice.

8 Dynamic Discount Terms Accelerated Payment... On Demand Opportunity to request accelerated payment presented on ad-hoc basis. notification In-box notification Review offer on per-invoice basis Control over accelerated payment in your hands. NO discount taken unless you accept the dynamic offer Counter-offer capability (Optional) Ariba, Inc. All rights reserved.

Email notification In-box notification Review offer on per-invoice basis Control over

10 Ariba Supplier Network & The Receivables Exchange Suppliers can increase cash flow by selling accounts receivable invoices to the highest bidder of accredited receivables buyers (A/R Buyers). The ebay of B2B financing Ariba Supplier Network The Receivables Exchange Hedge Funds Asset Based Lenders Banks Receivables Funders Others ASN is a many-to-many B2B network enabling buyers and suppliers to connect ASN provides new business discovery, P2P automation, and working capital optimization ondemand ASN is the largest supplier network of its kind with over 180K suppliers and $125B in annual spend The Receivables Exchange, a certified Ariba partner, provides suppliers access to funding in a competitive online auction Suppliers can initiate and control which invoices to auction and for how long A/R Buyers leverage a web-based interface to make bids and monitor their auctions Ariba, Inc. All rights reserved.

suppliers to connect ASN provides new business discovery, P2P automation, and working capital optimization ondemand ASN is the largest supplier network of its kind with over 180K suppliers and $125B

11 Supplier Defined Parameters Maximum discount fee fee paid paid Minimum advance amount Buyout Option Option Optimal Criteria Criteria When to to auction auction invoices Which Invoices to to auction auction No No Volume Minimums Ariba, Inc. All rights reserved.

Criteria When to to auction auction invoices Which Invoices to to

Receivables Sales Early Payments Portlet:

17 Working Capital Management User Group Session Agenda Session Agenda: What do YOU want from this session? 5 minutes Working Capital Management Solutions for Suppliers 25 Minutes Introduce WCM Solutions for suppliers Focus on The Receivables Exchange Show screenshots or do demo of these Discussion of Supplier Focus on Cash Flow/WCM 30 Minutes What users in your companies would typically interact with Ariba to request early payment/sell receivables? Who determines discount terms? What part do receivables play? When would you offer discount to Buyers to accelerate terms (When does it make sense?) What Net Payment Terms are you seeing with your customers? What role do early payment terms play in the contract neg. process? How might this be useful to the buying side of your company? If all of your invoices were approved within 5-10 days, what would your company do with that? Wait? Try to get $ sooner? Why? You have a Buyer side of your company are they looking to push out terms? Would they be interested in using this tool for their suppliers? What if we could cut the amount of times paid by pcard in half, would that be interesting to you? Why? Why not? Ariba, Inc. All rights reserved.

Supplier Focus on Cash Flow/WCM 30 Minutes What users in your companies would typically interact with Ariba to request early payment/sell receivables? Who determines discount terms?

18 Thank You! Take Action Forward this on to your Finance group Schedule meeting with Finance and Ariba to discuss more Visit us on the web at Financial Solutions Download whitepapers & data sheets for more information at: Register for a demo at Speaker contact information: Drew Hofler Sr. Manager, Working Capital Solutions Ariba (412) dhofler@ariba.com Ariba, Inc. All rights reserved.

the web at www.ariba.com Financial Solutions Download whitepapers & data sheets for more information at: http://www.

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