Q&A – Carl Barnes, DHL

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In these parlous financial times each and every penny counts – and, as Carl Barnes, CFO of DHL’s International Business Services UK, explains, there may nicely be some extremely low-hanging pennies locked up in your systems. This interview also looks at the UK’s Late Payment Act and how organizations can leverage it to make sure prompt payment from debtor organizations.

Q: Carl, in the present financial climate it’s completely paramount that firms increase and guard their operating capital. At DHL you’ve managed to claw back an impressive total from a couple of fairly straightforward wins – amongst which has been a profitable audit check on your A/P technique. Can you give us far more data on that?

Carl Barnes: A single of the initial items that you do when you are trying to boost your money-flow is to take a look at the terms that you have with your suppliers. Normally speaking it is very a long, drawn-out method to go back to every supplier and try to extend the terms that you have with them from, say, the common 30 days to 60 days. But there is one thing you should do prior to you commence – or in truth in parallel to – that distinct activity, which is to take a look at the database you have got inside your personal A/P method, and check that that database is constant with the contracts you’ve already had negotiated by means of your procurement division.

It really is amazing how many men and women, when they do a mass update onto their method when moving from one particular ERP to another, just default everything to a standard 30 days – and just performing that audit, and checking to make certain you have got everybody recorded at the extended terms that you have negotiated is properly worth performing. And undoubtedly at DHL we’ve observed situations where we’ve been paying our suppliers faster than we’ve agreed to do.

So anything I would recommend straight off is: do that audit.

Q: Can every organization operating shared services follow your example here and are there any price implications other than the labour price of conducting the audit itself?

CB: Yes, they all can – though there are some items that could hold you back. If you have got centralised procurement, then doing that audit is going to be considerably less complicated than it otherwise would be. But at the really least you can get in touch with the numerous divisions within the business, show them a list of the suppliers you have got recorded, and state what the terms are – and you will be surprised at how a lot of time the organization partner will come back and say, “You know what? We negotiated 60-day terms with this supplier!” And then you can record that reality into the A/P method and make positive you do not pay people also quickly.

Q: One more location that you’ve looked into, as I understand it, is the gains that can be had from an understanding of the UK’s Late Payment Act. Can you explain to our network what this Act is and how it can be utilised to help ease the pressure?

CB: The Late Payment Act is a piece of legislation that was passed more than ten years ago in the UK. It is anything which is mimicked in lots of countries round Europe – it actually stems from a European piece of legislation – and what it enables you to do is, for your organization-to-company consumers, to charge an administration fee and interest at 8% above the Bank of England’s base-rate to these customers who pay you outside of their standard terms. So for instance if you normally have 30-day terms with your customers, you happen to be in a position to say to them “Right after a single day late we can levy an admin charge” – which varies depending on how a lot they owe you from about £10 to £70 or much more on very big balances. And you can in fact levy this per invoice.

This isn’t really a way to make additional funds, but what it does do is concentrate the thoughts of the consumer who is liable to one thing which you are allowed to apply by law. And it is a extremely helpful tool to educate customers that they require to spend on time. Now, it’s not a quite widespread practice inside the UK at this point but I assume that with the financial climate that we’ve got, much more and far more organizations are going to take benefit of the Late Payment Act due to the fact of the importance of cashflow to their survival.

Perhaps some of your network can be ahead of the game, as we’re exploring with DHL: trial it with some of your smaller customers, talk about it with your big consumers – but often make confident to do some form of communication to them to give them fair warning that you’ll be applying the Late Payment Act. You know, you’ve nothing to lose in this atmosphere: everybody understands the importance of payment on time, and this if you like is a excellent time to introduce something like this.

Q: Are there any other speedy wins which you can recommend?

CB: One of the issues to be very cautious of in this distinct climate is the financial strength of some of your clients. Naturally there are a lot of individuals out there who are able to carry out credit-checking on your behalf, for new consumers or existing customers… I assume if you happen to be a organization that subscribes to these sorts of services, then it is worth generating positive you have completed a sweep of your clients lately – but I actually think that for smaller customers credit-checking on their accounts in this atmosphere is not going to give you especially up-to-date information I assume the issue to check more than something is whether any of your customers have disqualified directors. And yet another factor to look out for is, truly examine the paying patterns of your customers. So if you had clients paying bang on time for the final twelve months, and you start seeing it going out by a day or two, perhaps that is an alarm bell you should be paying attention to.

Q: Certainly, longer-term, a lot of people in shared services will be looking to renegotiate terms – with both suppliers and purchasers – as a result of the significantly greater require for working capital. But there is a danger, isn’t there, that as well significantly pressure on existing contracts may lead to smaller parties getting unable to continue trading because of their own money-flow issues? What methods can big organisations like DHL take to get the most helpful terms feasible from their partners without truly endangering the financial wellness of these partners?

CB: I think you happen to be right it is a extremely schizophrenic image that large businesses are painting appropriate now since they are applying really strictly the payment terms that their customers want to stick to, while on the other side of factors trying to stretch how long they have to pay their suppliers. What I’d say is that – generally speaking – if you’ve got centralised procurement you almost certainly will have paid close consideration to the financial stability of your suppliers. I think it’s worth reinvigorating some of those discussions perhaps directly with your suppliers just to check the situation they’re in. There is no such factor as Blue Chip any far more: we all believed the banks had been bulletproof but naturally that is proved to be not correct in this specific climate.

So my suggestions would be: preserve cautious communication with your bigger, much more essential suppliers, and with the smaller guys, be sensible. The smaller guys need that cash to continue to provide you with the services you want. And once more I believe it’s around communication: I think you can get a lot of cash-flow benefit simply by managing to the terms you have already agreed, and then becoming able to negotiate longer terms with much more stable, far more financially-sound suppliers. But the smaller guys appropriate now, you just need to have to play fair by them. And just make confident you happen to be paying them bang on time – don’t pay them early, but spend them on time – and encourage a dialogue.

Q: Ultimately: politicians the globe more than have been really cautious all through the crisis to emphasise their help for tiny and medium enterprises. Do you foresee any legal or regulatory adjustments to existing credit and collections frameworks as a result of the crisis and consequent slowdown?

CB: Actually I think that – going back to the Late Payment Act – there’s going to be far more publicising of that sort of tool that is available to all commercial enterprises. But what we may possibly see is an extension of the sort of factor that you see in places like France exactly where in haulage, for instance, you have to pay invoices on 30 days and no longer, or there are prospective penalties that go directly to the directors of the businesses that are late paying. So you could find that there are certain sectors or segments of the industry that get some specific protection. Personally I’m not sure that that would be a negative thing – I assume it really may well be a excellent point in the lengthy run. And I wouldn’t be surprised to see more of that type of point happening.

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