Weekly insights on how to perform when it matters | High-stakes decisions. Real situations. No BS. | 👇JOIN +2k readers 👇
You first 100 Days - Cash Management
|
Someone went on holiday. Nothing particularly unusual about that. Except that this person had to approve an invoice. And without that approval, the dark accountant at the agency did not even know he had to make an important payment. Without the payment, the SPV would not have enough cash to meet its obligations. Yes… pay your debt is really important in these cases. So, a billion dollar project was suddenly exposed to an insolvency risk because one person went on holiday. Fortunately, we had built a five-day buffer into the process. We discovered the problem. Escalated it. Found the right people. And solved it on Day Four. One day later and we could have made the news. Look. Prior to financial close, everyone spends enormous amounts of time discussing the financial model. But the financial model does not approve invoices. It does not check supporting documents. It does not tell you that someone with delegated authority is sitting on a beach without access to their emails. Cash flow management sounds boring. Until the cash does not arrive. On projects where the client must make regular payments to the SPV, the payment process must be designed, agreed AND tested during the first 100 days. Everyone involved must know: When the payment request must be submitted. Who prepares it. What supporting information must be provided. Who checks it. Who approves it. What happens if that person is unavailable. When the client’s internal payment cycle closes. Who confirms that the money has been released. And who must be contacted when something goes wrong. None of this should be guessed along the way. And it definitely should not be invented again for every invoice. The process must be documented. The dates must be in the calendar. Market in red. And… AND, ATTENTION lawyers drafting agreements… There must be enough buffer to resolve a problem before it becomes an emergency. Because the SPV’s obligations do not go on holiday. Payroll still needs to be paid. The contractor still expects its money. The lenders still expect debt service. Insurance premiums, taxes and operating costs still fall due. Common sense in steroids. A “I thought someone else had approved it” will not protect the project from default. It will not satisfy the lenders. And it will not help the directors if the SPV becomes unable to pay its debts. This is another of the 18 critical things I believe every major infrastructure project should complete during its first 100 days after financial close. A financial model tells you whether the project should have enough cash. Cash flow management makes sure the cash is actually there. They are not the same thing. Use this information at your own risk. To discuss about your project… click below. ONLY 4 SEATS - First arrived, first served.
PD 1: If you liked this email, don't keep it in secret and forward it to a friend. They will thank you enormously one day. PD 2: If somebody has sent you this email and you want to receive emails like this yourself, visit vicentevalencia.com PD 3: If you want unsubscribe, click the link below. |
Vicente Valencia
Weekly insights on how to perform when it matters | High-stakes decisions. Real situations. No BS. | 👇JOIN +2k readers 👇
After financial close, everyone wants to get moving. Mobilisation plans. Design programmes. Construction schedules. Reporting templates. Hundreds of meetings. And a few parties. But there is one document I would want agreed before almost anything else. The Crisis Management Plan. And I mean agreed. Not another document that’s written for the sake of it and forgotten in a drawer for the duration of the project and that only sees the light in the annual quality audit… No. But something like a...
This anecdote is so good that I couldn’t resist. Apparently, a Brazilian steakhouse once took the US Government to court. It wanted to bring Brazilian chefs into the country because they knew how to prepare meat in a very particular way. They had not learned it at university. They had learned it growing up. At home. From their families. Inside their communities. Just as Spanish people learn how to appreciate the good jamón ibérico… Well… US immigration said that was culture. Not “specialised...
UK’s largest infrastructure project. In June 2018, High Speed 2 or HS2’s main civil contractors issued a warning. Their early estimates were showing significant cost increases. That was not a rumour. Not an anonymous complaint. Not some junior engineer being negative. It came from the contractors building the bloody thing. The project continued. Reviews followed. Committees met. Reports were written. PowerPoints were probably magnificent. As usually they are…specially when consultants are...