AFP

October 2000
M.AFPonl i ne.org ;;"'"ff:",,
FaCilitating BZB E-COmmefCe:
.*, The Treasrirer's Dilemma
.7
I
Association for
Anthony J. Carfang, Partnen
F i nancial Profess i ona I s
Treasury Strategies
ow does corporate treasury facilitate a business
unitt electronic commerce initiatives without
stalling or impeding them? Obviously, business
units need speed and flexibiliry to excel in their electrontc
conunerce (EC) markets, and bureaucratic delays can be cost-
ly, if not fatal. Business units need to experiment with multi-
ple e-business models and the cost of suboptimizing is small,
compared to the potential upside. But the case for corPorate
ffeasury involvement is nonetheless compelling:
.
EC business models are evolving at avery rapid rate and
service providers are entering and exiting markets daily.
Tiaditionally, the treasury department is best posirioned
with the corporarion to keep tabs on these changes.
Someone at a strategic level needs to differentiate
becween transitional and end-game solutions.
.
Business unit decisions at the onset ofan EC strategy
will impact future cusromer payment practices. In turn,
these practices will impact working capital requiremenrs,
days' sales outstanding, credit risks, payment terms, liq-
uidiry and cash forecasting. (One of our clients had a
business unit that was about to guarantee irs customers'
credit to third parties as an inducement to use its'Web
site. \7e caught this just in time.) Tieasury can bring per-
specrive and discipline to this process.
.
We estimate working capital requirements could
DECREASE by as much as 40 percent as a resulc of
well-considered electronic commerce initiatives. This
is because liquidiry may move off a companyt balance
sheet and into the capital position of a vertical exchatrgc;
receivables may give way to condt' ruous llet scttlement
within an exchange; a:rd credit risks wili shifi.
.
There is always a danger of a business unit entering it-rro
a long-term, exclusive relationship with
"imaynot-
betherenextweek.com." Again, treasury can bring per-
spective to a business unit project team considering such
relationships.
There are a number of ways in which the corporate trcas-
urer can successfully navigate these uncharted lvaters:
.
Articulate a set of key EC principles
(not procedures or
rules) for the firm. Principles surrounding the revising of
credit terns, trading partner guarantees. capital contribu-
tions to EC exchanges, financial securiry and privacy all
need to be addressed.
.
Organize a team of intemal and external experts to be
deployed as an EC financial S\7AT te;ul to xsisr busi-
ness unit initiatives. Team members must be facilitators,
not bureaucrats.
Reprinted with permission from the Association for Financial Professionals
(AF'P).
E-Conmrcrce Reportinsertof AFP Pulse, October 2000.
Copyright O 2000 by AFP All rights reserved.
AFP
Develop modeling tools to help business units assess
the myriad of income statement and balance sheet
impacts of EC. Severa.l areas, which lend themselves
to quantitative analytic tools, are impacted by EC initia-
tives such as cash flow forecasting, credit risk analysis,
working capital management, payment terms, and
capital structure,
Maintain an ongoing dia.logue with the firmt banks and
other EC vendors.
This is a once-in-a-generation opportuniry for treasury
to redefine customer payment practices to the significant
finmcial benefit of the corporadon. The total body of
knowledge surounding EC is changing so rapidly that it is
not
"larowable."
However, through its considerable trework
of finurcial and business relationships, the treasury depart-
ment has a birdt-eye view and is best positioned to facilitate
business unit EC initiadves.
(t o ny-c atfang@ treas urys trat. c om) . e c
October 2000
M.AFPonl i ne.org
'7+'lE'
^7 I
Association for
F i nancial Professionals
B2B EC to
Quadrupl e
by 2004
ccording to a new report from Boston
Consulting Group, business-to-business (82B)
electronic commerce (EC) should increase four
times over by 2004 and represent $4.8 trillion in transac-
tions. This figure includes dollars generated from electronic
data interchange networks and Internet-related revenue.
"B2B
e-commerce is advancing quickly in terms of
penetrating the total procurement market, but at the same
time, remains fairly immature in its development," said
Andy Blackburn, BCG's vice president.
Despite this predicted increase, the firm found that
traditional selling methods wili endure the electronic
hype. Blackburn remarked that online purchirsing will
account for 40 percent of total purchasing, and only I I
percent of all purchases will involve online price negotia-
tions rypical to
rVeb-based
exchanges. r,r
Reprinted with permission from the Association for Financial Professionais (AFP).
E-Comnrcrce Reportlnsertof AFP Pulse, October 20fi).
Copyright @ 2000 byAFP All rights reserved.