Blog, Pricing

Cash is King!

By Stephan Liozu
April 13, 2020

The global Coronavirus crisis is here to stay for a while and its stressing business models. Right now, most businesses have implemented drastic actions to protect the business and they are securing enough cash flow to get them through the crisis. And those companies are the fortunate ones. So, it’s “all hands-on cash!”

Traditional cash management efforts focus on working capital (accounts payable, accounts receivable, and inventory) as well as Capex programs. If you are working in pricing today, you cannot sit on the sidelines to the emergency cash protection programs now underway. There are several things pricing can contribute to these efforts. Here are 8 ideas you can start working on now.

How pricing can support cash protection programs

  1. Support procurement team with vendors’ pricing actions: Collaborate with your procurement team as they face pricing actions from vendors. Help them manage pricing increases and decreases. Talk to them about de-bundling vendor offers and selecting just what is needed. Educate them on the need to align vendor’s SaaS value metric with your company’s value metric. Right now, the focus is not necessarily on obtaining discounts. It is more about extending payment terms and requesting assistance in programs such as consignment stock programs for example.
  2. Provide analytical support to the accounts receivable team: Analyze with the team account profitability and historical payment behaviors. Help them identify discount triggers that may encourage customers to pay faster. Finally assist them in identifying accounts that be close to default or bankruptcies by searching the internet for relevant news.
  3. Lend input to finance teams on projections for cash flow planning: Your finance team is busy preparing cash flow projections. They will need quick iterations of business data including volume and price assumptions. Be responsive and supportive in the scenario planning process. Get involved in the process and learn the science of cash flow management. This is a skill of the future.
  4. Unbundle packages and make items available á la carte: Customers might not want to buy complex bundles and solutions at this time. They might be more interested in critical products and supplies to keep operations running while reducing cash flow outlays. Quickly identify the verticals and customer segments that may be in this situation. Unbundle these offers and provide a new price menu offering more flexibility to customers that need to continue operations.
  5. Suggest trade-offs between payment terms and discounts: You might be solicited to identify the levels of discounts and incentives to encourage your customers and distributors to pay faster. Prompt payment and cash payment discounts can often help optimize accounts receivables and accelerate the cash conversion cycle.
  6. Get rid of slow-moving stock ASAP: Most vendors that produce physical products have a portion of inventory in slow moving status. They must eventually depreciate them and get rid of them for different reasons. Unfortunately, they weigh on working capital requirements. Now might be a good time to get rid of them to recover cash using deep discounts and cash payment incentives to avoid the associated write offs. In time of crisis, it’s always good to know who the bargain hunters are and to contact them with opportunities.
  7. Design and launch more affordable offers: If you have a good/better/best approach, you might consider launching another package under the good as an introductory and affordable offer. Instead of giving discounts on the “good” option, you might substitute it with a right-engineered offer without requiring long qualification activities or without incurring cash-burning actions. The key here is speed and simplicity.
  8. Move to the SaaS and PaaS world quickly: Consider launching your current offers in a subscription package without going through the traditional subscription development process. You might be able to target a few relevant customers who are ready to purchase but have no capex budget. A bit of cash is better than no cash at all. The issue is that you cannot offer this to your entire customer base at once as it impacts your cash situation. But a more surgical approach to this innovation might make sense right now.

Everyone plays a role in managing cash flow. These difficult times are  a good reminder that any business should be cash flow positive and control their cash outflows. In times of crisis, cash is the real king to stay in operations. Everyone needs to pay attention and to contribute to the cause. I encourage all pricing professionals to roll up their sleeves, raise their hand, and support the business and finance teams. The reality is that we all play a key role in managing for cash and protecting the business through severe turbulences.

For more advice on how to accelerate your organization’s recovery during and after this crisis, reach out to our Vendavo business consultants. They are offering free consultations

  • B2B Pricing , cash protection , payment terms

    Stephan Liozu

    Stephan M. Liozu, Ph.D. is the Chief Value Officer of Thales Group and is the Founder of Value Innoruption Advisors, a consulting boutique specializing in pricing, value, and change management. Stephan holds a Ph.D. in Management from Case Western Reserve University where he researched the topic of transformational change and leadership in pricing.