Working capital optimisation
Working capital reflects the excess of current assets over liabilities, comprising of accounts receivable, inventory minus accounts payable. It represents the liquidity a business requires for day-to-day operations. The working capital requirement should be managed with respect to firm-specific operating conditions exerting broad influences on the operating cycle. Given that operating conditions are outside of management’s control, focus should be brought to the following three fronts.
- Purchase-to-pay can generate significant working capital reductions by increasing the visibility of all aspects of you different suppliers which can in turn increase negotiation power and improve payment terms.
- Forecast-to-fulfill by adopting an additional finance view to inventory management new initiatives can be undertaken aimed at reducing inventory while not undermining customer satisfaction.
- Order-to-cash by increasing the rigor of the collection process and better understanding the requirements of the customer, the strategic relation with the customer can be strengthened resulting in a reduction of working capital.
By focusing on the processes to shorten the cash conversion cycle (payables, receivables & inventory), companies can reduce their working capital requirements by as much as 35 to 40%.
Deloitte developed a structured and collaborative approach consisting of 4 phases which lead to a successful implementation of sustainable working capital optimisation. A pre-configured —and flexible for rapid tailoring to specific company needs— working capital dashboard allows for powerful ‘on-the-fly’ analysis and navigation from top-level overview down to transaction details.
Contact
Stefan Van Thienen
Partner
+ 32 476 22 01 03
Paul Delesalle
Director
+ 32 476 49 50 08
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