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In Working Capital Management the disciplines remain the same, while focus & technology change

The UK ACT’s annual working capital management conference yesterday (NatWest main sponsor) was the best yet - probably. It proved yet again that the disciplines in working capital management remain the same, it is the focus & technologies that change, not the disciplines. Today CFOs and corporate treasurers are now much more focused on WCM than ever before as the world economy is buffeted by all sorts of political, market and environmental issues and pressures. Not only this, the new technologies are opening up all sorts of opportunities and problems. For once WCM is an exciting place to be, but the disciplines continue year after year. There is no escape from having these WCM disciplines and the need for a cash culture. This was all to see at the ACT Working Capital Conference yesterday in London.

Over the coming days, CTMfile will be reporting on the highlights.

Embedding a cash culture – creating sustainable change

One of the standout presentations was by Jenny Shutt, Director – Corporate Advisory Service, BDO who has been advising on WCM practices for many years. One of her primary concerns is how to sustain the disciplines and practices in effective in WCM. It all starts with the culture in an organisation which she defines as “a system of shared assumptions, values and beliefs which govern how people behave in organisations.”

A cash culture is needed to drive the working capital levers:

  • Procure to Pay (P2P)
  • Forecast to Fulfil (F2F)
  • Contract to Cash (C2C)

The key to working capital optimisation is to embed a ‘cash culture’ within your organisation.

Shutt recommends answering these questions to drive and embed your working capital management programme:

  1. Executive leadership and sponsorship
    1. What is the message conveyed by the board and management team? How important is this to your organisation? Where does sit on the list of strategic priorities?
    2. What is the nature of the CFO’s role in the initiative?
    3. Who is involved in the doing project management committee?
  2. Measurement and accountability
    1. Do you know you know how you are performing and what are the opportunities to improve?
    2. Have you got an understanding of the potential of your organisation and associated targets?
    3. Do you have metrics to monitor working capital performance?
    4. How readily available is data to calculate metrics?
    5. Are metrics and incentives in place to hold all the relevant function or individual accountable?
  3. Organisational alignment and collaboration
    1. Is working capital optimisation the sole remit of one team or is it a business-wide initiative?
    2. How are your teams structured?
    3. Are functions aligned on the organisational strategy, e.g. procurement negotiating discounts and agreeing reduced payment terms?
  4. Awareness and training
    1. Do people know what the impact of their actions house on the working capital position of your organisation?
    2. Do you have clearly defined policies and procedures?
    3. Does training ensure that skills are aligned to best practices and instil an awareness of optimised processors
  5. Action planning and execution
    1. Does your organisation have initiatives to improve cash flow?
    2. What areas are covered by your cash flow initiatives?
    3. Do you have a structure to consider continuing improvements to working capital?

These are the main questions you should ask yourself/your organisation on embedding WCM as part of your culture, but also don’t forget that you need to refresh your programmes. Letting WCM culture and programmes die is all too easy.

CTMfile take: The common sense and experience that backs up these questions is impressive. Recommended. A really illuminating session.

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