This is not easy; it requires involvement of all parts and levels of the company and all departments - finance, treasury and business units - plus incentive programmes to encourage the new disciplines, see. At long last, more and more companies are setting up working capital committee or councils, like Hewlett Packard’s. The drive is on for releasing cash to fund the company’s growth.

Consultant support

For consultants it is clear what their role is in helping companies release trapped cash permanently. Sustainable new working capital practices are essential otherwise the bad habits return and the working capital expands back to previous levels. Most consultancies have developed a methodology for doing this, e.g. PwC’s grandly titled ‘Our holistic approach to sustainable working capital’, see figure:

Source & Copyright©2014 - PwC 

Bank support for working capital improvement programmes

The problem for banks is determining what their role should be in helping their corporate clients to release working capital. It is no longer a pure product play. It has to be much more, which is what Deutsche Bank are doing.

Deutsche Bank’s new working capital group accept that there is nothing new in releasing working capital programmes, it is rather applying the established processes and methodologies in a sympathetic way to meet the specific requirements on each client’s situation. James Binns, Head of Working Capital Advisory EMEA & Germany, Deutsche Bank, explains, “My first job is to understand, from a client’s perspective, what their story is, what is their corporate strategy, and what they are trying to achieve in the short, medium and long term. Next to determine how they can use their Working Capital Cycle and the various levers within it to achieve their objectives, rather than just sell them one of our products.” 

Some of the key questions Deutsche Bank’s working capital advisory group are asked by corporates around the world, include:

• My suppliers are facing a rising cost of borrowing/FX and are finding it difficult to invest in increased production. How can I build closer relations with my suppliers and mitigate the risk of increased working capital costs in my supply chain with a cheaper, more sustainable source of finance and/or currency translation?
• We have aggressive sales targets to hit. How can we use working capital levers to increase our sales in order to meet our targets?
• Our sales are growing rapidly. What impact will this have on our working capital requirements and how can we sustain this growth from a funding and cost perspective? What KPI's should we be using?

These questions are great examples of today’s major working capital management issues and where the opportunities lie.

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*PwC Global Working Capital Annual Review 2013.

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CTMfile take: Working capital management is core to the financial health and well-being of every company. Corporates can only benefit from banks taking a holistic and strategic view of their offerings and determining how they can help improve the client’s overall working capital cycle.