Sean Choksi is the Senior Vice President of Strategy at Advantage Solutions.
In today’s economic landscape, the emphasis on working capital is becoming increasingly paramount for companies. Amid the difficult macroeconomic backdrop with interest rate challenges, the adage “cash is king” resonates more than ever. With liquidity now a crucial determinant of a company’s resilience and long-term viability, optimizing working capital has reemerged as a fundamental strategy to achieve financial efficiency and maximize shareholder value.
Companies that efficiently allocate capital are better positioned to invest in opportunities that yield the highest returns, ultimately driving growth and profitability. In a business landscape characterized by intense competition and economic volatility, capital allocation and balance sheet management are critical to maintaining agility, enabling quicker decision making and execution of strategic initiatives.
Persistent inflation and a historically tight labor market provide an additional layer of complexity, influencing companies’ contract-term negotiations and the role working capital plays in these negotiations. More than ever, companies are focusing on a holistic approach.
Finding Common Ground
Building long-term relationships with customers starts in the negotiation phase. While negotiations are often considered adversarial, they need not be. Instead, consider them as a platform for identifying shared interests and acknowledging each company’s unique cost of capital. Negotiations, therefore, become a path for finding common ground, enabling both parties to address their most pressing needs.
Every company has a different cost of capital, influenced by industry type, debt profile, margin structure, capital sources and geographic exposure. Because of this, both sides must factor those considerations into payment terms and pricing agreements, ultimately determining how cash-flow timing is valued versus margin dollars.
At Advantage Solutions, capital optimization is a component of an ongoing business transformation strategy aimed at establishing more rigor across the business and unlocking value for customers, investors and employees. With a workforce of 70,000-plus associates working inside many major U.S. retailers, optimizing capital is a central component of our commitment to simplifying operations and enhancing the company’s financial discipline.
Our engagement with customers is rooted in mutual understanding. We strive to understand customers’ capital optimization needs and, in turn, encourage them to understand ours. This reciprocal appreciation allows us to devise solutions that benefit both parties.
A Three-Step Process
To arrive at mutually beneficial solutions in your negotiations, consider following this three-step process that our company uses. First, identify all the variables that comprise the contract. Second, determine which variables matter more for each party and prioritize accordingly. Involving the finance team in contract negotiations is crucial to ensure that both sides fully understand the proposed benefits. Finally, collaborate to formulate a solution that addresses the priorities of each party involved.
Examples of potential variables include the price per hour for the services rendered, the total number of guaranteed hours to perform the agreed-upon services, the length of the contract (i.e., project versus ongoing), payment terms and termination conditions. In this increasingly complex business environment, this approach of weighing each variable relative to each party’s capital considerations allows you to devise robust, tailored solutions that help both parties navigate potential concerns.
Ultimately, this customer engagement strategy is more than just reaching a mutual agreement. It’s about fostering a partnership built on understanding and trust. By considering the variables that comprise each contract, involving both parties’ finance teams alongside the sourcing and sales groups and putting customers’ needs at the core of your considerations, you can formulate solutions that yield mutual benefits. This approach strengthens relationships with customers and enables all parties to thrive in an otherwise challenging environment.
Forbes Coaches Council is an invitation-only community for leading business and career coaches. Do I qualify?
