Working Capital Optimization

Recently, working capital management has increasingly moved back into the focus of companies. As part of the optimization of cash flows, working capital management aims to improve processes in the management of payables and receivables as well as inventory management. One reason for the growing interest of decision-makers is increased pressure on margins due to intensifying competition and unsatisfactory cash flow development. Companies are therefore constantly looking for new, internal sources of financing. However, working capital management is not only gaining in importance for the reasons mentioned above; decision-makers are also focusing on the optimization opportunities that can result from an analysis of working capital for key corporate processes. Effective management and monitoring of working capital is therefore increasingly becoming a key strategic corporate objective.

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 in relation to the order-to-cash, purchase-to-pay and total supply chain process.

The advantages are clear. Optimizing 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 capital commitment and the ongoing process costs. Optimizing working capital therefore increases profitability and thus the success of your company.

Three relevant processes for working capital management

Optimization of the order-to-cash process

The order-to-cash process comprises all sub-steps from the customer order to receipt of payment. This includes pricing, payment terms, risk management, contract management as well as invoicing and complaints management.

The main objective of all optimization recommendations is to reduce the level of receivables or release tied-up capital. This can be achieved, for instance, through a more consistent implementation of the dunning process, the standardization of payment terms or the use of factoring.

Optimization of the purchase-to-pay process

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

The general optimization goal with regard to the purchase-to-pay process is to increase external financing while at the same time taking advantage of discount options. As the extension of payment terms is heavily dependent on a company's own negotiating power, it seems sensible to use alternative methods in some cases. For instance, improving transparency with regard to payment and purchasing conditions can help to reduce process costs in the long term. However, the use of collective invoices and the targeted use of national holiday as well as the use of reverse factoring also lead to visible cost savings.

Optimizations in the total supply chain process

The total supply chain covers all stages from development to dispatch of the goods. The balance sheet item inventories is the key target figure for optimizing working capital. Essentially, all improvements in this area are aimed at reducing inventories without causing delivery shortfalls. With this in mind, it is particularly important to emphasize that incidents in the company's supply chain also have a direct impact on financial processes. For instance, supplier failures have a direct impact on inventories and are therefore immediately reflected in the corresponding key figures. Measures must therefore be weighed up against a risk assessment.

Our approach to implementing state-of-the-art working capital management

Our working capital approach covers four dimensions: Methods, processes, organization and IT systems. Based on classic project implementation, we support you as a customer holistically, starting with an analysis of the current situation through to sustainable implementation.

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

Please do not hesitate to contact us if you are interested or have any questions.