Improve the working capital
|Improving the working capital is a key objective of most of companies. Only few of them manage to get paid by their customers before having to pay suppliers and other charges.
The working capital requirement has a direct impact on cash available in the company and on its financial capacities to growth.
There are three main axes to improve working capital requirement:
» Reduction of receivables,
The prerequisites for engaging a WCR action planThe work on the WCR is a transverse activity concerning all sectors of the company. It "challenge the processes", which can cause internal tensions and resistance to change.
To be effective, it is necessary that:
» That management involvement is strong and is associated with a general awareness of the value of the reduction in working capital for both liquidity constraints and profitability, but also organizational effectiveness.
Reduction of accounts receivableIt can be obtained by:
Reduction of inventoriesIt can be obtained by:
Increase of suppliers debtThis debt is a very important source of financing for businesses. It represents thousand of billions euros around the world! It is pertinent to consider it in the day to day management but also on a more strategic perspective:
Which activities should be carried out internally and which can be done externally? Outsourcing of secondary activities (which are not the core business of the company) is often beneficial from a working capital perspective. Indeed, the costs associated with outsourcing are advanced by the partner (subject to negotiations made) and the subcontractor benefits of a payment term.
Increase suppliers debt can be obtained by:
DPO calculation tool which allow to manage the DPO which is a key indicator for working capital performance.
DSO calculation tool which allow to manage the accounts receivable performance from a cash and working capital standpoint.