Current uncertainties in the global economy and financial markets are putting increasing pressures on companies and their supply chains.
In these times of economic uncertainty and reduced access to credit, working capital remains an obvious and key source of finance - it is the cheapest source of cash and it is available to most businesses.
The fundamental principles of working capital are clear: reduce inventory and receivables whilst increasing payables balances. Companies which excel in their management of working capital will have a real competitive advantage.
Working Capital Management ("WCM") initiatives release working capital and increase liquidity which companies can use for strategic investments or debt reduction. In addition, it enhances profitability due to an efficiency improvement in the processes and a reduction in capital cost.
Improving working capital also inevitably leads to a sustainable increase in Economic Profit / Return on Capital Employed (ROCE) and to a higher corporate value.
Unfortunately, many companies lack a systematic approach to managing their working capital and treat the issue in an ad-hoc and decentralised way. As such they find it hard to optimise working capital.