Working Capital Optimization

Recently, companies have again been increasingly focusing on working capital management. Working capital management aims to improve processes relating to the management of liabilities and receivables as well as inventory management within the framework of optimizing cash flows. One reason for decision-makers’ growing interest is the increasing pressure on margins due to intensifying competition and unsatisfactory cash flow performance. This is why companies are constantly looking for new internal sources of financing. However, working capital management has not become a focal point exclusively for the reasons mentioned. Rather, decision-makers also have their eye on the possibilities for optimization that can result from an examination of working capital for essential business processes. Effective management and monitoring of working capital is therefore increasingly becoming one of the central strategic corporate goals.

Active Working Capital Management Secures & Increases Corporate Success 

Regardless of the overall economic situation and the respective company situation, active working capital management is an important building block for efficient controlling. Significant improvements can be implemented through targeted optimization solutions with regard to order-to-cash, purchase-to-pay and the total supply chain process.

The advantages are obvious. The optimization of working capital releases tied-up capital for internal financing, improves liquidity and balance sheet ratios, leads to better creditworthiness and ratings, and reduces both the financing costs resulting from the tied-up capital and the ongoing process costs. If the working capital is optimized, it increases the profitability and thus the success of your company.

Three Relevant Processes for Working Capital Management 

Optimization in the Order-to-Cash Process

The order-to-cash process covers all steps from the customer’s order to the receipt of payment. This includes pricing, payment terms, risk management, contract administration, invoicing and complaints management.

The main objective of all optimization recommendations is to reduce receivables or release tied-up capital. This can be done, for example, by a more systematic implementation of the reminder system, the standardization of payment conditions or the use of factoring.

Optimization in the Purchase-to-Pay Process

The purchase-to-pay process comprises the sub-processes of ordering, incoming goods inspection, vendor management, invoice verification and the final payment run.

The general goal of optimization with regard to the purchase-to-pay process is to increase external financing while at the same time taking advantage of discount options. Since the extension of payment terms is heavily dependent on the negotiating power of the company, it seems sensible to use alternative methods in some cases. Improving transparency in terms of payment and purchasing conditions can help to sustainably reduce process costs. But also the use of collective invoices and the targeted utilization of bank holidays as well as the use of reverse factoring lead to visible cost savings.

Optimization in Total Supply Chain Process

The total supply chain includes all the steps from development to the shipping of the goods.

The balance sheet item of inventories represents a critical target metric for optimizing working capital. Essentially, all improvements in this area are aimed at reducing inventories without causing disruptions in supply at the same time. Against this backdrop, it is particularly important to emphasize that incidents in the company’s supply chain also have a direct impact on financial processes. For example, disruptions in supply have a direct impact on inventory assets and are therefore immediately reflected in the corresponding key performance indicators. Measures must therefore be weighed against a risk assessment.

Our Approach for the Implementation of State of the Art Working Capital Management

Our working capital approach has four dimensions: methods, processes, organization and IT systems. Based on classic project implementation, we will accompany you as a client holistically from the analysis of the current situation to the sustainably anchored implementation.

We use innovative diagnostic software to analyze the entire financial value added chain with you in order to then derive individual recommendations for action and process adjustments. In addition to our many years of industry experience, we rely on a set of instruments consisting of 150 strategic, commercial and procedural levers with the aim of implementing a sustainable capital management approach for you.

If you are interested or have any questions, please contact us.

 Jürgen Diehm Partner
 Nikolaus Färber Member of the Board/Partner