Gaining Transparency into AP Spend and

Improving the Accuracy of Cash Forecasting

Amy Beninato

Executive Director

J.P. Morgan

Jennifer Dale

Assistant Treasurer

Sprint Communications

Meet Your Presenters

Jennifer Dale

Assistant Treasurer

Sprint Communications

• Responsible for global cash

management, short-term

investments, cash account

reconciliation, payment channel

management and short-term cash

forecasting

• Certified Treasury Professional

Amy Beninato

Executive Director

J.P. Morgan

• Responsible for directing the global treasury management relationships of the firm’s Technology and Media clients

• Past president of the Board of Directors of the Treasury Management Association of New England

Where is every dollar at any given time?

The AP Black Hole Conundrum

Cash Forecasting Improvements

Old Method New Method

• Three-pronged approach to cash

forecasting:

• P&L

• Regression

• New cash-based model

• Developed a Business Unit driven cash

based forecast process

• Variance analysis performed and model

updated monthly

• Real-time visibility into how forecast is

tracking to budget, exact cash balances

on hand

• Customer receipts/equipment

sales/miscellaneous cash-trending based

• P&L based regression and historical

trending model

• All inputs were owned by Finance

Operations

• No visibility of updates until budget

variance finalized

• AP was single line item

• Monthly cash forecast variance 5%-10%

• Daily receipts model based on day of

week logic applied using payment

patterns & actual billing detail within a month

Sources Of Cash

Uses Of Cash

• Bottom up approach

• Identified top 80% of spend and classified into 11 categories

• Categorize spend based on a hierarchy of: Bank Account, PO, Origin ID, Cost

Center, General Ledger and Vendor ID

• $10B in average quarterly spend

• 300,000 lines of data analyzed monthly

• Spend is analyzed against cash forecast provided by Business Unit

• Variance analysis preformed monthly

• Developed a daily AP and Customer Receipts forecast

• Developed daily Cash In Transit model

New Forecast Model

Treasury: Quarterly Variance View

Vendor X

Vendor Y

Results

2% Improved variance to

Focus on spend Heightened enterprise-wide

Senior Management Enhanced communication

process with

Cost to implement $0

Reaching New Heights in Treasury Success

Working Capital Committee To foster discussion of ideas, and identify opportunities for

improvement to the corporate Working Capital

Cash

Management

Forecasting

Accounts Payable

Inventory

Customer Finance

(Credit/Collections)

Supply Chain

Financial planning &

Analysis

WCC Measurements & Results

Measurements Results

• Industry Benchmarking

• Cash Conversion Cycle – DPO, DSO & DIO

• Applicable departmental roadmap and

objectives

• Metrics refreshed semi-annually

• Quarterly progress reports

• Working Capital savings

$1B approximate savings in two years

Improved DPO While still maintaining a discount to capture

priority

$0 Cost to Implement

Optimizing Working Capital Best practice: utilize supplier segmentation to deploy appropriate payables solutions

• Spend / supplier segmentation is critical to optimizing working capital and supplier

adoption

• The rate-of-return paid by suppliers varies based on their strategic importance and

transaction value

Transaction Value $$$

Su

pp

lie

r B

as

e

$

Single Use Account

(+ 14 Days DPO**)

Trade and SCF

(+ 30 days DPO)

Non-Strategic

(Indirect)

Strategic

P-Card

(-1 Day DPO*)

* P-Card’s DPO of 29 days (15 day monthly average + 14 day grace period) vs. a 30 day invoice

** Assumes invoice paid 15 days prior to term, with remaining 14 days of P-Card’s 29 day DPO accruing to Buyer

*** Reflects early payment of 20 days in exchange for a discount with a high APR

1/10 Net 30 = 18% APR

0.5/10 Net 30 = 9% APR

Check Print

Working Capital has Achieved Increased

Importance Over the Last 3 Years

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

500

550

600

650

700

750

800

850

900

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11

Cash on Hand Net Working Capital EBIT/Revenue %

1 2 3 4

STEEP DECLINE CRISIS RESPONSE VOLATILE RECOVERY GROWTH

WC reduction <

rate of business

decrease

WC increase <

rate of business

increase

Corporate

Response:

Focus on Cash Focus on cost Focus on growth

Working capital

decreases as

revenue drops and

focus shifts to

increasing cash

Executive focus on working capital as cross-

functional solutions are implemented to keep

working capital growth low as revenue

recovers

Source: REL 2011 US Working Capital Survey

Economic

stage: $B

illio

n

Working Capital Performance

Source: REL 2013 US Working Capital Survey

Best/Worst % Change in DWC

Performance by Industry

Source: REL 2013 US Working Capital Survey

Benchmarking Analysis

Median and Benchmarking Quartiles have been rounded and are based on

sample listed competitors financial information sourced from CAPIQ, based on

latest publically available financials

Leading Lagging 4th 3rd 2nd 1st

DSO DPO DIO CCC

1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th

Median 32 40 8 -4

Telecom A 34 56 14 -8

Telecom B 40 52 9 -3

Telecom C 41 34 10 16

Telecom D 30 29 7 9

Telecom E 18 79 0 -61

Telecom F 14 22 0 -8

Telecom G 37 46 5 -4

Telecom H 23 20 24 27

Peer Benchmarking

The Problem • Top 29 financial institutions will each have $20B

shortfall to comply with Basel III

• Average bank will need $6B retained earnings to

meet shortfall

• 90% corporate treasurers say forecasting is

important, only 6% very satisfied with accuracy of

forecasting

Sprint’s Goals • Visibility into all cash at any given moment

• Maintain liquidity and increase yield

• Reduce costs through creative use of ECR

• Manage counterparty limits

• Achieve best practices via active benchmarking

Liquidity Landscape

Sources:

Federal Reserve and SEC research, published in the New York Times and Wall Street Journal in August, 2012

FitchRatings.com

Reflecting on the Future, A Study of Global Corporate Treasuries, Ernst & Young, April 2012

Earnings Credit Rate: Evolving the Concept

• Bringing the relationship between operating

business and ECR balances to its full

potential:

• Horizontally: add new services to offset

• Vertically: include balances outside the US

• Three dimensions: apply incremental value to

those balances, even if interest bearing

• ECR standalone or as a “yield optimization”

tool to grow overall relationship

• Taken to its full potential: services outside of

traditional banking sphere – link between

receivables purchasing agreement and ECR

Global fee and balance

offset across geography,

currency and products

Global balances

offsetting US-based

services

Offsetting US

services

beyond cash

management with

US-held balances

Treasury Transformed into Super Heroes

• Business units now utilize the Treasury/AP database as a management reporting tool to assist with budgeting, executive presentations and vendor discussions

• Treasury has been brought to the table and now participates in direct relationships with several key vendors in discussions on credit lines, payment terms, discounts and reviewing spend analysis

• Treasury involved in Business Development projects as SME to advise on “everything cash” crossing functions from SCM, AP and Treasury

• Treasury was “loaned” to a strategic partner to assist them with building a startup organization

• Treasury has been instrumental in building a culture of “cash minded individuals”

Enhanced Role of Treasury

We’d Like to Hear Your Thoughts

It’s 5 O'clock Somewhere, Which

Can Only Mean…

Contact Information

Jennifer Dale

Sprint Communications

(703) 433-4458

jennifer.dale@sprint.com

Amy Beninato

J.P. Morgan

(212) 552-2184

amy.beninato@jpmorgan.com