Treasury managers need to take a closer look at dynamic discounting

Treasury managers need to take a closer look at dynamic discounting

Corporate cash balances are at a record high and with poor returns on treasury bonds not to mention the uncertainty generated by the turmoil in Europe, treasury managers are struggling to find a safe home for all that cash. Perhaps it’s time to look closer to home because their own supply chains could be the safest place to put their cash.

If ever there was a case of not seeing the wood for the trees it this. According to Bertram Meyer, CEO of Taulia, writing in GT News, corporate cash balances of US non-financial corporations were close to US$2 trillion dollars. That’s an increase of 36% since 2009 and the ratio of liquid assets to short-term liabilities hasn’t been so high since Elvis first appeared on TV!

Purchasing Insight logoAs Bertram comments: “The trend of cash outgrowing strategic liquidity requirements has also sparked investor interest and chief financial officers (CFOs) are increasingly feeling the pressure to deploy or distribute this excess liquidity. However, as consumer demand declines and there are no external demand drivers on the horizon, good investment opportunities are difficult to come by. At the same time, in the current environment of high uncertainty, high volatility and potential merger and acquisition (M&A) opportunities it is perfectly understandable that CFOs prefer holding more cash to distributing it via dividends or share buy-back programmes”

But here’s the thing. It’s perfectly possible to use the concept of early payment discounts to generate a high-return investment opportunity and at the same time, maintaining the financial flexibility vital to the CFO.

Now is the perfect time for organizations with surplus cash to look in detail at dynamic discounting and how it can be deployed to make best use of cash balances.