With credit remaining tight, there is still considerable liquidity risk throughout most supply chains. But there is something that can be done about it, and I’m glad to see that some vendors, like Ariba, are making it easy for buyers to help their suppliers. Even though traditional banks might not be very helpful in these troubled times, there are a lot of new, innovative, lenders out there that will happily do short term financing, for much more reasonable rates, with assurances that they will be (re)paid within a guaranteed timeframe. This means that if a buyer is willing to commit to payment in 30 days, a cash-crunched supplier can get much needed liquidity in as little as a single day.
In addition, as I indicated in my last post on The Receivables Exchange, the supplier can completely control the process. The supplier can define the minimum advance required, the maximum transaction fee it will pay (for a 30 day advance), preferred “buy it now” financing requirements, and the auction start time. If the request is reasonable, the receivable could be bought in 15 minutes and money wired to the supplier’s bank account the next day.
Furthermore, according to this recent article on shoring up the weakest link in Treasury & Risk, trades often happen in as little as 15 seconds and sale of a $1 Million receivable will often occur within 15 minutes. Sellers who cherry-pick their receivables from investment-grade customers often find that 85% will be bought at their buy-out price.
Furthermore, if the supplier happens to be on the Ariba network, the supplier can quickly shunt receivables with all of the necessary supporting documentation onto the Exchange, simplifying the process even further. Plus, they can do so after evaluating what discount the buyer has offered for early payment, allowing the supplier to make the best possible decision.
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Today’s guest post is from Vinnie Mirchandani of Deal Architect and New Florence. New Renaissance. Vinnie, a founding member of the Enterprise Advocates, is a tireless advocate of trends and technologies that can help buyers get more for less.
Ray Wang gives us a timely reminder that “Labor Day (US & Canadian Holiday) traditionally marks the end of summer BBQ’s, the beginning of the fall conference season, and yes, the time to begin a review of your software maintenance contacts that expire at the end of the year.”
I would say start with that — and then keep going. Take a look at all of your contracts that renew through the end of 2010.
Several good reasons to this include:
- Establishment of a savings target on the total maintenance spend for 2010.
Have your staff focus on every software contract, especially those that have been “auto-renewed” for years now because they were “small” and fell under attention thresholds. If you make the overall target part of a compensation plan for key IT and procurement staff, you’ll quickly find that Thar’s gold in them yellowing software contract files.
- Multi-year maintenance deals which looked good when signed may now be overpriced.
Current market trends are driving the cost of maintenance down, especially through third party services. Don’t assume they cannot be re-opened. (See Marc Freeman’s tips for renegotiating with integrity.)
- If you don’t start now, you might not finish the renegotiations in time.
Don’t overestimate the ability of your team to get organized — or underestimate the ability of the vendor team to stall — beyond the end of the year. If maintenance expires, and something goes wrong, you could be at the vendor’s mercy in renegotiations. Formally document your new process and let the vendor know next year will be different. Furthermore, be sure to allow 6 months for the renewal negotiation next year.
- Even if you are looking to migrate, you will still need incumbent vendor support until the cut-over occurs.
This holds true whether you are looking to migrate away from the incumbent vendor to SaaS, or to third party maintenance, or to do-it-yourself support (and readers of Deal Architect will know I am a broken record on the subject of considering all of these options). This will likely push you into 2010 planning and funding.
So, use Ray’s call for intensity over the next 3 months and build momentum for another 12 months. The payback will be huge — software maintenance continues to be one of the items on the IT menu with the most “empty calories“.
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