Last week, Peter Smith, VP at Citi Global Transaction Services, hosted the webinar “Leading Strategies in Cash Disbursements” and presented some very interesting findings (replay here). Recent research by Citi shows that we are coming into a ‘recovery’ period, with the markets rewarding companies with high liquidity ratios. To hasten time to recovery, companies are looking at their payment strategies and payment technologies to help find better sources to unlock working capital within their own organization.

Now defining a payment strategy is a complex project with many players, so Peter identified 5 key steps for success:

• Establish collaboration
• Identify process improvements
• Choose an experienced partner
• Build a realistic business case
• Scale and plan the solution to you capacity

Peter noted that establishing collaboration is the first step to creating a successful strategy, and that includes collaborating with your suppliers and buyers

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In recent months, the liquidity crisis that left companies with little cash for the last year has eased somewhat. Today the Huffington Post reported on a benefit some small companies and their employees are seeing as cash flow improves; the return of company bonuses.

For example, the owner of a logistics company in Michigan who was interviewed for the article, said she had no choice but to do away with the bonuses last year since her customers were extending their DPOs and ”it was really very frightening.” This year, the company has been able to give $700 bonuses to their employees since they are beginning to see improvements in their business and cash flow.

The article also points out how

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Like other sectors of the economy, news from the credit markets are a mixed bag of good and bad news. On the one hand, you have signs that consumer credit is loosening, which obviously helps the consumer driven US economy and possibly indicates loosening of business credit as well. But then on the other hand, you have dire news like the CIT bankruptcy.

While things may be headed in the right direction, companies may still face challenges with credit and liquidity for quite some time, especially with companies continuing to extend their payments. As Drew Hofler recently noted, 70% of companies are currently or are planning to delay payments to suppliers. And yesterday, a BusinessWeek contributor actually recommended you “never pay your vendors on time.”

While cash is king … yet hard to find, you have to know your options. We’ve had quite a bit of coverage on the topic in recent months, so I thought it would be helpful to highlight some supply chain finance videos from the vault…

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An article on SupplyManagement.com last week highlighted the results of a survey of top concerns facing UK suppliers. Long-time Supply Excellence readers won’t be surprised to find that “late payments” were the #1 cited issue AND that those payments are being extended even further by the suppliers’ larger customers. Notably, “securing access to finance” was another key concern.

So, despite all of the talk about “green shoots” of economic recovery, not much has changed for suppliers in terms of cash flow. While this was a UK study, it is hardly a UK phenomenon. Suppliers in the rest of Europe and the US continue to find credit hard to come by in the quantities they need. In fact, a recent Hackett Group study revealed that over 70% of companies surveyed either already have or are planning to extend their net payment terms to their suppliers.

So while things may be beginning to look up in the economy, suppliers are still having to look out for cash flow issues brought on by later payments.

And what, you may ask, can suppliers do to help their cause and free up some cash?

The options really fall into two categories

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While there may be some early signs that the global economic recovery has begun, there is still a need to proceed with caution. The recession has sparked deep and widespread structural changes into how businesses operate, organize, capitalize and manage costs.

It has also created new state of normal for business — one in which supply volatility, capacity constraints, and global uncertainty will be commonplace and must be carefully managed. Some early signs of this:

• Oil prices are slowly but steadily rising - now just under $70 per barrel.
• Metal prices are also climbing, with increases in steel, zinc, copper, gold, and silver.
• Prices in several segments of the electronics sector are up - particularly silicon — and wafer fab utilization rates are also increasing.

With business bankruptcies and insolvencies up and credit still extremely tight, the available supply base has shrunk dramatically over the past 12 - 18 months. Remaining suppliers have leaned out their inventories, cut back on capacity, and laid off skilled laborers. As a result, many may not be able to ramp up quickly and will be reluctant or unable to invest in additional infrastructure and rehire and retrain the staff needed to accommodate significant rises in demand.

Companies that don’t

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