Releasing Working Capital
To free up as much liquidity as possible from the working capital, finance directors and corporate treasurers aim for an optimal Cash Conversion Cycle. The aim is to maximise Days Payables Outstanding (DPO), whilst minimising Days Sales Outstanding (DSO) and Days Inventory Outstanding (DIO).
This needs to be achieved without harming the business viability of suppliers or spoiling relationships with customers. See Procure to Pay Cycle, Order to Cash Cycle, Inventory Cycle and Total WCM.
Using Financing to Release Working Capital
There are several financing options for releasing working capital:
•dynamic discounting: suppliers offering discounts for early payment
•factoring receivables, e.g. major French drinks company freed up €400m using factoring
•invoice discounting and securitization: using receivables as collateral to raise finance
•trade finance: supply chain finance, etc.