Category Archives: Finance

Finance and Procurement Need to Collaborate, but Sometimes the Relationship Needs to go Beyond the Financial Viewpoint

A recent article over on Financial Executives on Why Finance and Procurement Need to Collaborate For Success made some very good points …

The article in question, which noted that how companies approach expense management will become a top priority with the economy heading into uncertain times summarized an interview with Matthew Smith, CFO & CoFounder of finetune, a full service expense management firm focussed on select complex categories (such as uniform rental, waste & recycling, pest control, energy & utilities, and security) for large clients. In addition to the baseline assessment, sourcing, implementation, and ongoing management (which many BuyDesk operations will do), they also do regular auditing, which is key to ensuring you get what you pay for because, as Matthew said, where the rubber meets the road in expense management is what happens after the contract is signed.

Matthew believes that expense management does need to be its own thing and that there has to be a coordinating element between the affected functions, which always includes Procurement (which is responsible for placing the order and managing the contract) and Finance (for paying the bill) and then the department(s) that are using the goods or services being procured. Especially since the vendors will give up a lot in the negotiations, and then do their best to get it all back through change orders and off contract-purchases of items not covered under the contract. In addition, analytics is becoming critical, but most organizations have bad data. However, without the necessary expertise, the data won’t be clean and the right calculations can’t be done. Procurement can identify the good data and Finance can identify the key analysis that needs to be done. (Not ChatGPT, which is hallucinating and getting all those bad answers and producing false information. Matthew’s words, but the doctor couldn’t agree more.) Furthermore, without a good understanding of the entire situation from multiple sides, you don’t know when incentive are good or bad.

Expense management is a key area where Finance and Procurement needs to collaborate because it takes both departments to prevent overspend, and the article was a really great deep dive in this respect, but it’s not the only area. Working capital management is also key. Managing expenses is a great start, but the goal should be improved working capital management. If both departments work together, and with other organizational departments, to appropriately predict demand and utilization, and optimize payment terms, then the organization can do accurate cash-flow forecasting and working capital can be optimized. And that can truly only happen when both departments collaborate.

Aspects of the Tax Efficient Supply Chain

Many companies overlook function-based tax planning where the supply chain is involved. Considering that tax reductions, or even tax payment delays in Free Trade Zones can save a company millions and millions of dollars, and free up millions more in working capital, tax considerations should play a major role in your supply chain, and in your supply chain finance, efforts — especially now that tariffs are skyrocketing and you need every source of savings you can find.

When you consider that tax-planning affects both supply chain steps (including supply, distribution, retail channels, and customer delivery) and supply chain management processes (including procurement, EDI, merchandising, financing, branding, and asset management) and that it applies both above-the-line (taxes that impact operating income) and below-the-line (taxes that impact income-based taxes), it has far reaching implications. Furthermore tax issues permeate every aspect of identifying, acquiring, importing, transporting, distributing and selling goods and tax planning can impact almost every aspect of the supply chain. This means that tax savings can be almost anywhere. Some of the possibilities that have been noted on this blog in the past include the following:

  • Procurement
    Ownership of the transaction is key as it allows the taxpayer to determine the subject matter, value of each component, and the appropriate jurisdiction, because the right balance can minimize tax.

    • in many states, intangible assets are not subject to property tax — thus, including a warranty cost in a capitalized asset unnecessarily increases a company’s property tax base
    • in many states / jurisdictions, electronically downloaded software is not subject to sales tax
    • disconnecting volume or contract inducement payments from the purchase of the underlying property can cause sales or property taxes to be overstated
    • appropriate planning can often reduce customs and duties
  • Brand Management
    Brand management also has tax implications.

    • the determination of where branding occurs in the supply chain, and thus where value is added, determines the situs of taxability and the value of goods for import, export, and tax purposes
    • the ability to license and protect IP associated with the brand often impacts the jurisdiction of income taxation
    • the situs of where IP is held impacts the tax costs of dispositions
  • Merchandising and Marketing
    Critical in retail operations, they carry their own tax implications.

    • site selection determines property tax
    • capitalization of store design costs have tax implications
  • Finance
    Finance structuring can have significant tax implications.

    • the capital structure of a legal entity can impact its franchise tax profile
    • internal leverage can reduce state income taxes in some jurisdictions
  • Customer Relationship Management
    There are tax implications in building an infrastructure to compile and store customer information.

    • there are state income tax implications wherever such data is stored and maintained.
    • an ability to license and protect IP impacts the jurisdiction of income taxation
    • capitalization of CRM software has property tax implications
  • Distribution of Asset Management
    Distribution management is more than just minimizing logistics costs.

    • an incorrect valuation of inventory can lead to higher taxes
    • some jurisdictions have sales tax exemptions for transportation equipment in inter-state commerce
    • distribution activities that are not separated into separate legal entities can expose a company’s major profit centers to unnecessary multi-state income taxation
  • Retail
    • the employee-intensive nature can lead to process-based payroll tax incompliance and / or unnecessary over-payments
    • state income tax savings can often be found on international distribution assets
    • inefficiently designed gift-card programs can cause unnecessary escheatment of funds

Furthermore, this might just be the tip of the iceberg in tax savings opportunities available to your supply-chain based business. Especially when you consider the numerous benefits of tax-efficient procurement, which include:

  • prevention of incorrect or duplicative taxation
  • matching subsequent rebates or discounts with original purchases to reduce the overall taxable purchase price
  • structuring the transaction to fit within a statutory or regulatory exemption
  • unbundling taxable items from non-taxable items
  • identifying taxes that can be reclaimed

In addition, tax-efficient procurement will:

  • improve the sales tax audit trail and reduce the time required to respond to audits
  • allow for more efficient refund claims when errors have been made or the corporation is entitled to a tax rebate / refund
  • greater certainty regarding tax requirements

So get tax efficient. And maybe you can at least counter all of the duties and tariffs being imposed in the trade war.

Good Working Capital Management is More than Just Timing Payables and Receivables

A few years ago we ran a post on the essence of good working capital management. We noted that, at least from a basics point of view, all one really has to do is:

  • Get a grip on receivables.

    When are the customer payments for sales due? The reimbursements from suppliers for reaching volume tiers due? The tax rebates?

  • Get a clear picture on fixed payables.

    What is the average monthly payroll? Overhead? And projected supplier invoices?

  • Get a good estimate of average disruption costs.

    If a receivable isn’t received on time, what’s the impact? Especially if it could impact a supplier payment schedule which needs to be maintained to insure timely supply.

This is the foundation, but in today’s unstable and unpredictable business environment, that’s not enough to maximize working capital management. To maximize working capital management, one has to maximize the value of the capital. In order to maximize working capital, you need to know when to use capital for internal costs, for supplier payments, and for investments. This means one also has to:

  • Understand the value of early supplier payments.

    Not just the value of the early payment discount, but the overall value to the supplier. If they don’t have to borrow at a cost of capital two or three times the buying organization, and then pass that cost on to the buyer in their overhead, that’s a big potential savings to the organization — even if they have to borrow.

  • Understand the organization’s cost of borrowing.

    If the organization can borrow at a low interest rate of 3% or 4% a year in their home market, whereas a supplier can only borrow at a high interest rate of 12% to 20% in their market, the organization can save by borrowing. But you don’t borrow just to save on costs, you borrow to profit. If you can accelerate production and accelerate profitable sales, borrowing is sometimes a pittance. And if you have good investment opportunities, that could also be a good reason to borrow.

  • Understand the organization’s investment opportunities.

    How much from accelerating production? Improving the process? Investing in R&D? Investing in subsidiaries.

Then, when you have all of this information, you do one more step:

  • Build a Working Capital Optimization Model

    and run it. Input all the receivables, payables, disruption costs, early payment opportunities, borrowing opportunities, and investment opportunities and let an optimization-backed cognitive system help you put a plan in place to not only manage working capital, but profit from it.

SI Won’t Be Paying (or Taking) BitCoin Anytime Soon …

According to a recent Guardian Headline, the Japanese firm GMO Internet will start to pay a portion of its employees salaries in the cryptocurrency Bitcoin in an effort to gain a better understanding of the currency.

While SI sees the value of Bitcoin, especially for global transactions (as this could eliminate the need to manage multiple currencies as all the organization would need to do is manage its in-country currency against Bitcoin), it does not see the value of using Bitcoin for salaries and does not think employees will either. Nor should an employee (or a consultant or even a small businesses) be forced to take the financial risk of being paid in what is essentially a stock at the moment with prices changing, sometimes rapidly, from day to day. Between the time they get paid and can convert their salary to yen, they could have a serious portion of their salary wiped out. That’s not fair.

While companies should get a handle on this, they should be learning by way of B2B transactions, as mid-size to large businesses, with their advanced online banking and trading platforms, and full time financial managers, are not only in a better position to not only exchange Bitcoin for Yen as needed, even on short notice, but also more capable of weathering temporary storms, letting the ‘coin sit during temporary drops, or using it quickly during temporary gains, and using Yen from the bank when it makes sense.

That’s why SI(‘s parent company) will not be paying its employees, contractors, or small business suppliers Bitcoin, and why it won’t be accepting Bitcoin (or any other coin) in the near future. Until more banks are equipped to handle these currencies in their platforms (as true currencies, and not just for [futures] trading), crypto currencies, for the doctor, will remain a C2B or B2B currency.

Fujitsu is Launching a Blockchain Money Transfer Service

Which is a step in the right direction, but it’s not enough.

As per a recent article, Fujitsu Eyes Cryptocurrency Trading with Cross-Blockchain Payments Tech. The goal of the platform is to allow two different cryptocurrency networks to interoperate.

Interoperable networks are the future of supply chain, as per a recent article on we need blockchain, but not for the reasons you think, as, implemented properly, it could allow supply chain partners on different platforms to securely, but openly, trade information that multiple partners need access to in an unalterable way.

But that, of course, is easier said than done. Company X might post that it has a 10 Million Renminbi receivable in China that it wants to trade for a 1.5 Million USD receivable in the USA, but even if that is the exact exchange rate, are the two debts equal? Only if both parties can, and will, pay the same amount at the same time. If one debt is due now and one is due in 30 days, there is a cost of capital if one organization has to borrow in the interim to meet cashflow requirements. Also, if both debts are due in 30 days, something could happen within 30 days that would result in one organization being unable to pay its debt for 60 days, and this again could result in a cashflow issue for one party that traded a debt.

As a result, unless both parties pay into a network and the funds can be immediately transferred, then you need a network where parties are trading at negotiated discount rates (subject to credit ratings or other agreed upon factors), and that could get tricky.

We could be left with a situation where each IOU is auctioned off to the highest bidder in one of the counter-party currencies of choice (1.4M USD, 1.0M British Pounds, etc) or the situation where each block is put up with a (set of) offer requirement(s) and the first offer takes it. In the first situation, which requires a fixed time auction over block chain, you have a lot of overhead (and blockchain’s primary application — bitcoin — already takes too much energy), and the second case this could leave trade possibilities on the table.

Unless a truly global currency facilitation fund where a number of entities establish a global bank, each funding in their own currency, and agree to pay out debts in the local currency in an established timeline for each IOU placed on the network, the dream could stay that, a dream. But with a global organization, the global organization would do its own risk checks, insure the risk is acceptable, and then take a cut just like supplier networks and payment networks take a cut. It would be like a bank or an invoice factoring network, but could offer lower costs as it wouldn’t need to exchange currency all the time, could weather currency storms, minimize global transfer (and global transfer costs), and generally improve global trade efficiencies. Just like the Knight’s Templar did when they effectively established one of the first global banks.

What we’re asking is not an easy network to design, but one we need to be thinking about.