Short-Term Cash: A Broken Record
Is it just me, or are fed statements (and my subsequent blogs) since 2008 sounding like a broken record? And in making this statement I have just done three things:
- Dated myself.
- Dated you by whether or not you truly understand the reference (from experience)!
- Highlighted an interesting truth and phenomena we are seeing happen before our very eyes.
If you have ever owned a record, then you remember sitting across the room or in another part of the house only to have the needle hit a scratch and start skipping…playing the same section of music over and over again. And if you were like me in the era before you could control music from your iPhone, you probably let it go, at least for a little while, hoping the problem would correct itself and save you from getting up and walking over to fix it. (Yes, not only am I about 150 years old, I am also apparently lazy!)
But the thing about broken records is that eventually people did fix the problem. In the short term by getting up and changing the song but more importantly, realizing that this was a recurring problem, someone ultimately invented new technology that solved the underlying issue by improving the delivery system. And, after realizing the advantages of the new technology (CDs, now iTunes/MP3/Streaming), people adopted it until the old way became obsolete or marginalized, and the new became the standard.
Having been on the vanguard of the industry for the past seven years, I think we are seeing something similar happen with regards to collaborative finance and buyer-supplier cash flow.
Seven years ago, when I first began speaking and writing about dynamic discounting and collaborative cash flow solutions, I felt like a voice crying out in the wilderness as often the only speaker at conferences on the topic, with very few attendees at the sessions of whom most were hearing about the subject for the first time.
Now, seven years, one massive global liquidity and credit crisis, a Great Recession, and years of flat-lined interest rates later, collaborative cash flow tools like Dynamic Discounting, Receivable Finance and Supply Chain Finance are becoming more the norm than the exception! Conferences are full of breakout sessions regarding these subjects and, more importantly, more and more companies are realizing the benefits of the Networked Economy to collaborate over cash flow.
Large organizations with lots of cash are investing in their supply chains through dynamic discounting rather than letting their cash sit idle in a bank (and are earning significant returns as a result). While small and medium companies are tapping into these tools to accelerate their cash flow, turn over their A/R and lower their DSO without having to turn to expensive traditional means or incur debt.
While I don’t think traditional means of cash flow and financing are going the way of the LP altogether, I do believe collaborative cash flow solutions like dynamic discounting have taken hold because they represent new networked technology that solves the underlying problems of return on short-term cash and non-debt access to cash flow.
So forgive me for sounding like a broken record here, but Dynamic Discounting rocks!