The global economy is still emerging from a difficult time. This means that enterprises, both large and small, continue to face pressure on their cash resources, and as proven time and time again, it is those enterprises with strong visibility and control over their working capital that will fare better.
For everyone else, it’s time that they stop missing out on real opportunities to generate cash and start taking advantage of working capital.
Recently, McKinsey & Company published its findings in Uncovering cash and insights from working capital. Their research found that while working capital is often under managed and minimized in importance, improving an enterprise’s working capital can provide significant advantages by adding millions of dollars to the bottom line without resorting to traditional means, like cutting costs.
Their research also found that by simply improving the management of working capital, struggling enterprises can gain much-needed access to cash while healthy organizations can reinvest for growth or improve balance-sheet flexibility. How can your organization achieve this Holy Grail of cash flow?
Choose your metrics wisely: Your metrics need to provide transparency and be relevant to your employees so that key decision makers understand the real value of working capital.
Identify and collecting your data: In order to have a true understanding of your spend - you need to know your granular data on working capital. To make this into a seamless and accurate process, enterprises should have data collection built into their core IT processes.
Think analytically: Test your assumptions and set performance targets by being analytical. The most successful enterprises first focus on areas of working capital with the largest dollar value, then estimate clean-sheet targets, and finally, focus on areas with the largest gap between incremental and clean-sheet targets.
Continually Improve: At the very least, you should maintain the momentum of your baseline programs to improve working capital, but there are many new technologies out there, like supplier financing and vendor-management solutions. Use data and analytics - and pay attention so that you don’t go backwards.
For many people, when they hear the words “improve cash flow,” they translate this to mean the simple tasks of reducing inventory and paying suppliers slower--a.k.a., hold onto your cash. Yet the reality is Accounts Payable (AP) is often the biggest culprit when it comes to draining working capital.
With automated eInvoicing and supplier financing solutions, AP departments can become a profit center by reigning in operating costs and minimizing risks commonly found in antiquated, manual processes. With the right solution, you can find millions in real cash by paying invoices early, and paying a little bit less, like PG&E who, with an early payment program, generated over $121M in discounts alone between 2011 and 2013.