Steps to successful working capital optimization

Often businesses have looked at working capital initiatives as one-off boosts to the business, an injection of cash that will either cover an ailing quarter, or fund a much needed cap-ex programme. But thanks to a new wave of technological advancements, they are now becoming levers that companies can adjust to achieve their working capital goals over the long term.

In the ten years since Taulia was founded, opportunities for companies to optimize their working capital have evolved considerably – and much of this is down to technology.

Treasurers have been adopting early payment solutions, such as supply chain finance, for a number of years. But in the past, such programmes tended to take the form of a one-off tactical exercise, tied to extreme changes to payment terms, and whilst the terms extension is implemented across the whole supplier base, the early payment offering has typically extended only to the buying organisation’s largest suppliers.

Today, the picture is very different. Recent developments in technology mean that early payments programmes can now be adjusted on an ongoing basis, enabling buyers to unlock working capital with greater precision than ever before. By harnessing artificial intelligence, market-leading vendors - including Taulia - can identify a customer’s exact working capital opportunity and map out how this can be unlocked. At the same time, technology is making it possible for a wider range of buyers and suppliers to benefit from early payment programmes.

Expanding the scope of early payments

Early payments solutions come in two different flavours. Supply chain finance programmes are typically bank-funded solutions that pay suppliers early on the buyer’s behalf, often alongside a payment terms extension – thereby improving the buyer’s DPO. In contrast, dynamic discounting, another flavour of early payment discount, allows buyers to self-fund early payments to their suppliers, boosting returns on surplus cash.

While both solutions have been available for a number of years, technology is increasingly making it possible for companies to use them in new ways. For example, Taulia’s flexible funding model gives companies the ability to switch seamlessly between supply chain finance and dynamic discounting to fit changing funding needs or peaks and troughs in the business cycle.

At the same time, technology is making it easier to bring the benefits of working capital optimization to a wider audience. In the past, only the world’s largest companies would be in a position to set up supply chain finance programmes – and even then, the programmes would only be offered to the very largest suppliers. But this is changing rapidly, with vendors leveraging technology to overcome the cost barriers associated with one-off programmes. As a result, mid-market companies can now benefit from working capital solutions that would not have been available to them in the past.

Vendors have also been taking advantage of technology to streamline supplier onboarding processes and thereby open up programmes to smaller, long-tail suppliers. Therefore, a corporate buyer might now onboard 10,000 suppliers from the outset, rather than focusing on the top 25 – enabling companies to extract far more benefits from their working capital programmes.

Continuous loop

Meanwhile, vendors like Taulia are harnessing the power of AI to give buyers a comprehensive view of the working capital opportunities available to them. We have recently developed a tool that allows companies to input their business goals, specifying how much cash they wish to inject into a programme, what APR they are looking for and what level of working capital benefit they wish to achieve.

Based on these parameters, we can draw upon our own transaction data as well as third-party data sources to predict whether or not suppliers will accept discounts at different rates. This information can then be combined into a packaged working capital scenario, giving companies the opportunity either to accept the scenario, or to change the parameters and come up with a different scenario.

Once a working capital plan has been chosen, we can use our technology to pinpoint the steps the company will need to take to achieve its goals. We see this process as a continuous loop: our business consultants will typically meet with a customer on a quarterly basis to discuss progress, and adjust the plan to accommodate any changes. Key to this is making sure the company’s approach continues to meet its business goals.

That is not to deny that there is always room for improvement. With Taulia’s platform now offering blended access to both dynamic discounting and supply chain finance, we think there is potential to add further products to our existing working capital platform. In the future, this could include capabilities such as accounts receivable financing, inventory financing or purchase order financing. These will only add to our existing strategy, which is to give companies of all sizes a clear and actionable plan for optimizing their working capital.

Thinking big

To conclude, companies that adjust their early payment programmes on an ongoing basis, rather than viewing them as a one-off exercise, will be best placed to achieve their working capital goals – both now and in the future. And, while companies may previously have viewed supply chain finance and dynamic discounting as separate solutions, it’s increasingly clear that the strongest results can be achieved by using a comprehensive working capital platform that switches seamlessly between the two.

Last but not least, we believe that working capital optimization programmes work best when they are powered by AI and informed by diverse data sources – thereby helping customers learn from each other and maximize adoption rates for their programmes.

About Brady Cale

Brady is responsible for Taulia’s product strategy, delivery and operations. Leading our Product, Engineering, Operations, and IT teams, he is focused on delivering a best-in-class solution for our customers. Prior to joining Taulia, Brady combined his technical and business acumen, serving in various senior leadership roles at ProvideCommerce, an ecommerce company based in San Diego, CA. As General Manager of Sincerely, a division of ProvideCommerce, he was responsible for overall business unit strategy, product and operations. Just prior, he served as Chief Technology Officer for the full suite of ProvideCommerce brands (including ProFlowers, Sincerely, Personal Creations, Shari’s Berries and RedEnvelope) where he led the 175 person technology team and platform as the business rapidly scaled from USD 80 million in revenue to over USD 700 million.

About Taulia

Taulia delivers working capital solutions that make it easy for businesses to free up cash, accelerate payments, and improve supply chain health. Since founding in 2009, we’ve envisioned a world where every business thrives by liberating cash. Today, ourgame-changing technology powers a network connecting 1.6 million businesses across 168 countries and has accelerated more than USD 91 billion in early payments. Using our AI powered platform, businesses now have the option to choose when and how to pay and get paid. It sounds simple, but our painless process provides both buyers and suppliers the chance to rocket their cash - cash to fuel economic growth all over the world. It’s win-win for everybody.