Improving efficiency in the payments process is always a top-of-mind topic for treasury teams. Over the past 18 months, though, many organizations have increased their emphasis on extending payment terms with their suppliers, as working capital optimization has become crucial to survival in many industries.

"In the past, when we would look to create shareholder value, we'd typically think of increasing profits and getting a better return on capital investments," says Andrew Church, CFO of Woodstream, a manufacturer and distributor of pest control and other animal-related products. "Obviously, those areas are a great place to start, but it doesn't make sense to focus exclusively on P&L management. We've learned that to improve shareholder value, we should dedicate just as much rigor and attention to the balance sheet—specifically, to working capital—as we do to improving our profit margins."

The innovative, award-winning projects of Woodstream and our other three 2021 Alexander Hamilton Award winners in the category Working Capital & Payments substantially improved the companies' payment processes and cash conversion cycles:

• Bronze Award (tie):  Woodstream has a highly seasonal business, so the company historically borrowed in the winter and early spring to ramp up production, then paid off these revolving credit facilities as revenue flows increased later in the year. To smooth out those cash flows, Woodstream extended its payment terms while using supply-chain finance to give suppliers control over when they receive their funds.
• Bronze Award (tie):  Microsoft's device businesses provide some of their suppliers with raw materials, which means that the company simultaneously runs A/R and A/P balances with the same vendors. The Microsoft Global Treasury & Financial Services (GTFS) group wanted to reduce costs and reconciliation workloads by netting those balances. Bringing that idea to fruition required major process, technology, and contractual changes—and resulted in tens of millions of dollars a year in working capital improvements.
• Silver Award:  Business services provider Sodexo saw the Covid economy shrinking many of the market sectors it serves. The company took a multipronged approach to improve working capital in this environment: It offered a supply-chain finance program to large-volume trading partners, while paying smaller suppliers via a streamlined payment card process. Both projects improved A/P efficiency at the same time they extended Sodexo's days payables outstanding (DPO).
• Gold Award:  As it processes transactions in more than 190 markets around the world, eBay temporarily holds buyer payments in 'for benefit of' (FBO) accounts. The treasury team chafed at the volume of FBO funds that eBay's European shared service center was holding in cash, but putting that money to work for eBay operations would require safeguarding it in a way that met regulatory requirements. eBay researched its options and achieved regulatory approval for using surety bonds to safeguard the FBO funds—a solution that was unique in that particular European market.

All four of these highly creative initiatives succeeded due to the project leaders' collaborative approaches and willingness to think outside the box.