Calculum is a very interesting solution offering — it’s a working capital analytics solution meant to be the missing link between Finance and Procurement that just doesn’t exist today. Built to help their customers (which are mainly Global 3000 companies) to optimize their working capital across Procurement by optimizing payments and payment terms while taking weighted average cost of capital into effect, it offers a broader, and deeper, picture of cash needs and options than most platforms today.
Moreover, it goes well beyond the typical Procurement approach of simply recommending paying every supplier on the last possible day you are legally allowed to (based on either the contract or the country regulations, which they track for you) without penalty, and possibly the last possible day with penalty (if the contract is for less than the legally allowed maximum payment term) if the organization’s cost of capital is known to be lower than the penalty.
More specifically, it allows a company to understand the impact to working capital from
- paying on a different (later) date
- paying early (on a discount schedule)
- paying up front (to reduce the supplier’s cost of working capital)
- borrowing / using supply chain finance options to pay up front / early
- using (virtual) cards
while taking into account its
- cash conversion cycle (C2C)
- days sales outstanding (DSO)
- days payable outstanding (DPO)
and provide a company with true working capital and financing option optimization across Procurement, Finance, and Treasury and, in doing so, provide an average increase in free cash flow by 10% for every dollar analyzed.
Calculum does this by being possibly the only working capital optimization platform that is built on a solid spend analytics platform with its interface customized for working capital optimization, instead of category spend optimization.
Calculum starts by uploading your suppliers, contracts, and AP (invoice and payment) data, matching the data, helping you cleanse it until they have at least 90% 3-way match across your spend data (using their large, internal, supplier database of millions of suppliers ), from which they can determine immediate working capital optimization opportunities, prioritize suppliers for the realization of those opportunities, and distribute the opportunities across their 9 boxes for term extension and financing opportunities. (And you can see the exact degree of match, as well as the reasons for exception, in the match dashboards that present statistics on the data received, match rate, data quality, exclusions, and reasons for — and give you the data you, or Calculum, needs to improve the match rate)
Let’s start with that last sentence. Once the data is matched, the platform’s built in analytics will automatically identify:
- all of your term extension opportunities across the supply base (taking into account any country legislations and noting existing terms where they are defined) organized into 9 cash flow buckets defined by impact vs. probability of success (which can be computed based upon historical supplier decisions, tracked in their centralized supplier database with anonymized data and past decisions, and similar supplier responses)
- all of your financing opportunities from early payment discounts that are not being realized and/or negotiable discounts for early payments based on your weighted average cost of capital vs. that of your supplier also organized into 9 cash flow buckets based upon impact vs. probability of success (calculated in a similar manner)
Once the data is loaded, matched, and verified, a user can move from matching to optimizing gtheir working capital in the Opportunity dashboards and tabs. In this set of tabs and dashboards, you can:
- see an overview that summarizes current payment terms (by contractual, opportunity, and excepted averages), cashflow opportunity, economic profit opportunity, affected entities, opportunity by category, and opportunity by program area (spend volume, supplier count, cash flow, and economic profit)
- undertake your supplier prioritization efforts based upon your assessment of the easiest realized significant opportunities (by getting them to agree to different terms for faster payment or larger/future orders etc.)
- review the 9 boxes financing built during the match
- create your waterfall plan for attacking as much opportunity as possible
Moreover, because Calculum built their working capital optimization platform on a real spend analysis platform (with real cube support), which allows them to optimize payments and payment terms on multiple factors optimized against over 3 Trillion in analyzed spend, you can filter on any (set of) dimension(s) you like down to a small group of transactions.
Once you have finalized the opportunities and your waterfall/wave plan, you can move into the manage dashboards that allow you to
- monitor your progress in the overview dashboard that tracks progress between current and target average payment terms, cashflow improvement progress, analyzed vs. planned vs contacted (effort begun/underway) vs. agreed (which could result in an unchanged term, as the opportunity should be closed either way after an [attempted] negotiation)
- track your negotiations and reach out
And, of course, you can drill into any supplier, parent, or spend line of interest at any time because it’s a real spend analysis platform and see all of the relevant data at any level of the hierarchy that you like.
In addition, you can get a snapshot of working capital related information (spend, spend lines, (average) contracted terms, (average) payment terms, opportunity, etc. by supplier at any time simply by entering the suppliers dashboard and drilling into the supplier (or parent) of interest. The primary view will also tell you where the supplier is in the analyzed vs. planned vs contacted vs. agreed working capital optimization workflow supported by the platform. Drilling into a supplier will bring up basic corporate details, the corporate tree, any available ratings and metrics, and a payment terms vs. pricing analysis where you can calculate impacts from changes in payment terms, financing rates, your rates vs. the supplier’s rates, etc. to determine the optimal time to pay a supplier. The platform will then calculate the cost impacts of any potential/suggested change to both you and the supplier so you can make an informed decision (because sometimes an early payment doesn’t save you anything and sometimes extending a payment term costs you dearly in the long run). This allows you to propose win-win (or at least win-neutral) options that the supplier really shouldn’t be rejecting!
In addition, the platform uses AI to analyze all of the data they have on the supplier against standard strategies and built in models to recommend a detailed strategy for each supplier in the opportunity section so that you have deep guidance on how to approach a negotiation to alter the payment terms.
Moreover, Calculum is more than just a platform, it’s also a partially managed service where they work with you to ensure your data is properly uploaded and matched, the opportunities appropriately identified, the initial plan realistic and realizable, and execution effective, especially during the first few months where results and success is critical. They’re also there to support you on an ongoing basis and, if necessary, handle the refreshes / updates for you.
It’s a very unique offering and one that complements many Source-to-Pay or Procure-to-Pay platforms nicely for mid-market-plus organizations that need to maximize the value of their cash in these difficult times. It’s certainly a platform to check out if working capital optimization is front-and-center on the CFO’s mind.
We like what it’s doing and how it’s doing it and believe it is very valuable to a large segment of the mid-market. Upon a first review, there were no obvious holes or situations where we would say “the platform really should do this“, and the only point of sorrow we walked away with is that it’s not being sold by Calculon 2.0 (but then again, they are 988 years too early).