On today’s episode of Thriving at the Crossroads, I introduce Nicolas Christiaen, one of the co-founders of CashForce. CashForce is a software that provides cash flow management and forecasting insights, typically for businesses generating between $100 million and about $10 billion in revenues. We talk about the importance of working capital, how CashForce actually works, and how it helps with solving cash flow issues.
Listen to the episode here:
May the CashForce Be With You, with Nicolas Christiaen
Welcome to Thriving at the Crossroads. I’m your host, Amber Christian. Today, it is my pleasure to welcome one of the co-founders of CashForce, Nicolas Christiaen. Nicolas and I are not related. CashForce though is based in Antwerp, Belgium. Welcome to the show today, Nicolas.
Hi, Amber. How are you?
Wonderful. We are very excited to have our first company from Belgium. It’s a topic near and dear to my heart as you do a lot of cash forecasting and working capital. For our audience, why don’t you talk a little bit about CashForce and describe the problem that you guys are attempting to solve with CashForce.
Thank you very much first of all for inviting us on the podcast. We’re honored to be here. What we do at CashForce, CashForce is actually a software that provides cash flow management, cash flow forecasting insights, typically for businesses generating between $100 million and about $10 billion in revenues. Imagine yourself, a distributor or a manufacturer generating about $1 billion in revenues. The treasurer, group treasurer or the controller department, tries to get their head around the fact, “What is going to be our cash on all of our bank accounts in the coming three to six months? How is that affecting basically our relationship with the banks, our creative facilities? What’s our working capital position?” All of those questions that I ask today are in a lot of environments still solved by Excel spreadsheet all around. That’s basically because of a very, I would say, complex structure that they have in place with the company that has welded underlying systems that not necessarily talk to each other.
You’re really working on the heart of this working capital beast that we talk about. Working capital can be so challenging because it spans the whole organization. What you’re building with CashForce, how are you starting to help companies get their arms around it because of the sheer breadth of the problem with working capital?
Amber, as you say, working capital is sometimes called a container subject because there’s so much involved in this specific bird itself. You can look at it from a very balance sheet perspective and say, “It’s just the AR and the inventory and the AP. That’s it.” In fact it’s spanning the order to cash forecast to fulfill and purchase to pay process. Basically, everything that you buy from different vendors, the things that you manufacture that run through your warehouses and then go to your customers through a specific delivery process, all of, basically, these processes, there’s a lot of cash involved in these processes. It’s exactly that cash and making transparent how much time does each step take and how much cash is involved in each step, making that transparent is very valuable for a lot of companies.
Because if you have tracked cash, that cash you cannot use to invest to grow the company, and to be able to actually get a part of that tracked cash out of there is absolutely very important. Getting a visibility first, and that’s the first thing you need to do, you get to have a visibility on that tracked cash, is the problem for a lot of companies. For that, you need to get your way around different processes, but also different systems that harvest all of the data involved in these processes, going to the transactions that drive your customer payments, transactions that drive your orders, your purchase orders. Getting access to that data in a very easy way is not always easy. That’s what we basically unleash with CashForce.
Let’s talk about the process that happens when an organization wants to start looking at information and start looking at their cash. Because for a lot of multinational organizations, they have cash all over the place. How does that process work? Do you start with their bank accounts and work your way backwards? Someone that’s going to utilize CashForce, where do they begin in their working capital management journey?
The first step is just to get a little bit of your head around the actual structure of the company, how many entities, how many bank accounts, how many cash pools, what currencies that are trading. Just get a little bit of global picture on the actual case at hand. Typically, the next question is, where actually is all of the working capital transactions, be it orders, be it invoices, be it payments, where are they actually stored? Getting your head around, what are the systems where these things are actually stored? What we’ve done is we’ve built a model that will get all of data, whether coming from ERP System One, the SAPs, the Oracles, the Dynamics, all of the other major ERP systems, whether it come from one system or another, it doesn’t really play a role in our game because we basically would transform that data into what we call insights. The working capital insights. We’d give you almost a direct view on where actually is sitting, that trapped cash. Is it in one continent? Is it in a particular country? Or is it sitting at a specific business unit with that client?
You start with saying, “Hey, where are all the places you’re holding cash? What banks? What accounts? How does that structure report?” Then we work our way backwards into what we sometimes call the source data. Where do you actually keep everything that supports it? I think you highlighted an important reality for many companies, is that it seems like it’s almost a luxury to be on one ERP for a lot of organizations. There’s so many acquisitions, there’s acquisitions or divestitures. It seems like, “I can get the bulk of my entities into my ERP system but then maybe I buy another company and here my core businesses is on SAP and they’re on Oracle.” I think you have highlighted an important point, that you can end up in situations where you have multiple ERPs or even multiple SAPs or Oracles, Dynamics, whatever it is that you have. Now actually comparing that data is really challenging. I think I heard you say basically, “I start with my bank structure and then I pull everything out of my transactional systems.” You effectively harmonize that for them. Is that a fair statement?
That is absolutely right.
You give them an apples to apples, here’s effectively what you’ve got and where you’ve got it. Now that I pulled that data in, now what do I do with it? Now, where do I go?
Exactly. I think that’s step number one, is knowing the data and knowing where the data is and putting it into one model. Steering working capital is about also defining the right kind of KPIs, which ultimately affect where working capital is going. Of course, we can talk about simple KPIs such as the DSO, DPO and DIO of the business. The days of sales outstanding, for example with the DSO. These are simple KPIs, which will be already telling you a part of the story, but it can go a little bit further as well. Maybe, even the simple KPIs like a DSO, we’ve been seeing that there are so many definitions, so many ways to calculate that. We have fourteen different definitions that we’ve come across with our clients.
Getting a harmonized definition of what is DSO and how do we define it, how do we calculate it, is then the next step. Because there are two things to it. You have to define the right KPIs, define the right calculations. What are you going to do with it? How are you going to follow it up? With the way we approach typically these steps is once we define with the team that is working on this particular subject the key KPIs and how to calculate it, we’re running them through a test scenario. Let’s assume this is the KPI, this is what comes out, this is the evolution of the KPI. How will we now tackle working capital based on these? That fine tunes how they look at KPIs and working capital KPIs in specific.
You allow your customers to really be able to have influence over that KPI calculation. You don’t enforce a particular definition but you’ve got some flexibility in how you’ve built it to adjust for how they actually do their calculations, is that correct?
Absolutely. We can, I would say, harness a little bit on specific expertise that we’ve got through the time in each different industry. But in the end, the client itself will also have their influence on how the DSO or a DPO, DIO or other KPIs are calculated.
Do you see huge variability across customers in terms of, let’s take day sales outstanding, in terms of what they include or exclude? Or is it just really small little nuances? Or do you see pretty big differences across your customers?
We do, actually. A reason is, I think excluding or including certain things is the most common difference, but those are typically more small differences. Of course, the weight factor in terms of the months on which you calculate the DSO or do you work with the reverse method, that’s a very big difference that we notice between different clients. Because some clients have specific seasonality effects that they want to include or exclude. You have people that calculate the DSO even with what we call typically the WAPD method, the weighted average payment days. Then really calculate a DSO on the open receivables, to get really technical. They really look to the payment behavior of their customers historically. Very different definitions sometimes.
It is quite a nuance. You’re right, we could financially geek out for hours around some of this. As most people know, I’m pretty geeky as well and they’re learning, you are as well. We’re all friends. You’re right. I think a lot of people can resonate with this. As you move from company to company, it’s about what is their set of calculations and how do you provide that type of flexibility for the calculations? I think you highlighted some important factors. You can run into seasonality. There’s absolutely retailers and other businesses that will tell you, “Yup, we’ve got a lot of seasonality we build in our business,” but not just them. A lot of industries have those types of effects. You do see people say, “Is it based on when people are really paying or just the straight total amount of the receivables?” There’s nuances and flavors to that as well. Have you found, as you guys have gotten started, are there particular industries that are struggling with this more than others, or do you just see across the board people having challenges managing working capital?
We did a survey, it was four years ago, across the market on what were the industries or the verticals where you have more attention to working capital. I think it’s not really amazing to see that distributors, manufacturers, are the typical, I would say, target ones that are really looking to improve working capital. It has been always a subject. I think most recently, we’ve been talking to a lot of clients and industries, which we thought were not really focused too much on working capital historically, but now actually have shifted their attention to it. For example, if you look to the retail industry, which some retailers continuously try to grow, so extra capital is needed. They need to invest an awful lot.
In a sense, they are cash rich companies, but because they grow so fast they basically are continuously in a merger and acquisition mode. They need a lot of capital. They also turn their attention to improve their working capital process to generate even more cash. Same in telco actually, working as well in the telco industry. I thought, to our survey, the interest wasn’t really there four, five years ago with some of our clients. Today, there is a huge interest.
I think you’re highlighting an important point that a lot of people might not realize about working capital and why it’s such a conundrum. If you’re a growing company, working capital’s often a problem. Because in order to grow, especially like a retailer, you’re talking about, that means I probably have cash outlays for the stores of some type of leasing arrangement. I’ve got to buy the inventory. I’ve got all these outlays of cash that I’ve got before I ever see a dollar of revenue. If I’m growing fast, it’s like I constantly have all this cash that can get tied up in inventory so that I can open that store, so that I can turn more profit. It becomes a little bit of a monster. To grow, you’ve got to have the capital. It’s very challenging. An average person might not really think about that, to realize, “Oh, okay.” You hear the old adage, “It takes money to make money.” Kind of, in this case. You can’t grow if you don’t have any excess to the capital.
Tell us a few success stories you’ve had with some of your customers. Any particular insights any of your customers have had? Or they looked at something and was like, “Wow, here’s an easy slam dunk quick win.” Can you share a few success stories from your customers with us of using the CashForce tool?
Maybe one that’s interesting, tied up into the working capital topic, is when working with distributors, one car distributor in particular, they were actually getting their products, which were cars in fact, from all overseas. The interesting bit in this is that if you get your car from overseas, you need to sell them all across the different European countries. They’re basically a car importer. That particular business is very working capital intensive. You need to get a good visibility on the full chain, from the moment that the car is manufactured at the plant all overseas, getting that car onto the boat is time basically that goes by. Because if you need to pay the car when the car gets on the boat, you need to wait until the car basically arrives. Then it goes to a parking lot and then it goes to the dealers and then it can really be sold basically to the end customer.
All of that time, typically there’s a lot of working capital stuck there. You planning out the different purchases of the different colors, brands, types of the different cars is crucial to make sure that you’re working capital basically is managed in the right way. Basically, what we did there is by installing order to cash visibility across the full chain for purchasing department, sales department and finance department, we let basically the three departments talk to each other in the same language, talking about the same subjects, talking about the same plans. It sounds a bit stupid, but it’s as simple as that. Getting everyone tied up in the same framework, looking at working capital from one version of the truth based on a lot of the source data that they have in the company, that we’ve freed up cash, that as well a lot of more time to actually even further analyze and improve the cash position.
It feels a little silly to have to say just us all getting on one system helped. But you’re right, in a lot of cases, that is exactly what helps. You do need to get on the one system because it’s too hard to speak the same language. When you’re able to take a purchasing function that has certain vested interest and roles and things that they need to accomplish. Purchasing is trying to drive down costs in a lot of cases, they’re still being measured on that. Or provide more value or ensure service or diversify risk. Purchasing has its set of thing it’s doing, sales has its set of things it’s doing, finance is the keeper of what’s going on with all of these groups. I think you’re right to say we have to all get on these common systems, because purchasing needs to be able to speak the same language when they’re talking with sales and finance and be using that common framework.
Otherwise, we’re talking passed each other in a lot of cases, or we can’t see the same information and we make a different set of decisions because we don’t have that same framework. There’s also silos that exist. If we’re really honest, we can get really siloed in our functions. We’re in finance and we do our finance stuff, sales does their sales stuff. It all rolls downhill at the end. We call purchasing when we’re desperate and we need them just to push some purchaser through. Of course, worst case scenario. This hopefully is not how it’s working in most companies. If we’re honest, it happens a fair amount. With that visibility, purchasing can say, “Hey, here’s what’s going on in sales. Where’s my role?” You start to open up those conversations I think in that process and start to allow everyone to see the same sets of information. That requires a little risk, for people to be a little bit brave, “I’ll show you my data if you show me yours.”
Absolutely. It’s the technical barrier, it’s a human barrier that you need to get over before you can even start.
Exactly, in the processes. You’ve been on your journey for a few years now. Why don’t you tell our audience a little bit about how long you’ve been around and how Cashforce is setup? We’ll talk about customers next here.
Just on the history of CashForce, we’re about five years on the market. We actually started the company with three cofounders. Myself, having the technical background and then came into the finance world. Another cofounder is actually the interim CFO who’s worked at a lot of private equity owned companies, for the private equity clubs. We came up to the idea because we actually were working on the cash flow management, cash flow forecasting and working capital related topics. We were amazed that there wasn’t really, I would say, something useful that was around there to consolidate a lot of the processes on working capital into one environment where it was a bit more handy than Excel. That’s really how we started.
We built the company from the ground up. It was 2012 when we officially started the company. I think it ranges from three people to fifteen people now. I think the first three years were all about finding our right spot into the market because it’s a complex market space, it’s a complex environment really to operate in. We really did our job of interviewing I think about 100 CFOs, group treasurers, on what exactly they were looking for. After those two years I would say, of investigation, we took the great move of launching our product out there with a lot of hoops that we needed to jump through. After a couple of months, it turned out there was traction and we needed to raise money. We raised money around $1.1 million from European investors to start basically building a team. We really were three people until one year and a half ago, and then it really started growing faster. We have eleven, twelve people today.
As your company is growing, and now we’ve changed over this New Year, we’ve got some interesting geopolitical things going on with Brexit and elections in the US, are you seeing that’s affecting the interest in your product all of a sudden?
Absolutely, it is, Amber. I think January 2017, this month has been absolutely a very interesting month. I would say crazy because there’s so many people thinking about the subject more than they were last year. I think as you mentioned, there’s a lot of things going on geopolitically. A lot of uncertainty that raises the interest in better cash management, get better cash visibility, better visibility on the working capital. Absolutely right. From the business side, it’s really interesting. There are other issues as well in the market there. From the business side for us, it’s a really interesting thing to see that people want to get hold or want to get a grip on it. That basically is good for us to see.
In terms of your customer base, because you have been around for a few years now and we have a customer rating scale of ABC as alpha beta customer. As you’ve described, I know you’re already passed that. With category D being, “I have one to five live customers on my product.” Category E being, “I’ve got an existing customer base of more than five clients.” Where are you guys at in terms of your life cycle and your growth cycle?
I think we would qualify for category E. We have around 22, 25, 30 clients, something in that range. Primarily in the European headquarters base, we always start at the headquarters of corporate companies in the space of about $100 million to $10 billion. Interestingly, our first US customers are also getting on boarded right now. That’s interesting for us to see. At the same time, we’re also seeing, in 2017 specifically, communities and verticals. Really, industries, which require a specific approach, focusing for ourselves on retail, manufacturing and telco and distribution industries.
Perfect, wonderful. We were so happy to have you on the podcast today. I have one final question for you. As a traveler, I love to travel, and so do a lot of our listeners on this show. I always like to ask people as the last question, can you tell us your favorite travel destination you’ve ever been to and why?
Difficult one and interesting question as well. I have to say, I’ll go for South Africa. I’ve been there last year. I will always remember it as an absolutely marvelous place with beautiful weather, very interesting people and the nature is absolutely world shattering. I think the food and the wine that I got to taste there were topping on the cake. I have to go with that one.
Fantastic. You came back a few pounds heavier that you went, huh?
Sounds like a great vacation. Thank you so much Nicolas, for joining us today. It’s been an absolute pleasure to have you. Wish you the best of luck with CashForce in the future.
Thanks a lot, Amber. It has been a pleasure.