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Total working capital management best practices and insights

The ACT Working Capital Conference in London yesterday covered much of the standard ground in WCM but also came up with some important best practices and insights:

  • working capital management is not the number one priority in most corporate treasury departments
  • cash flow forecasting is still a major problem: of the corporate's attending,  only 53% of had 90% certainty of their 1 week cash flow forecast, 28% - 1 month, and 20% - 6month.
  • Tips for improving forecasts included:
  1. having a dedicated person who is really interested in forecasting as part of the team
  2. don't just rely on the cash flow forecasting module in your TMS, but also have a external spreadsheet checking that the forecast is sensible and reasonable
  3. using ‘big data solutions’ to bring all the data together from around the group to generate a cash flow forecast
  • most cash management banks today have a range of working capital management tools and solutions available , the problem they are finding is generating interest in the corporate's to use them, i.e. to see the opportunities
  • even in a low interest environment, which is probably going to continue for many years, it is still vital to improve working capital practices as few companies run out of cash and survive 
  • working capital management benchmarks need to be handled with care taking into account the differences between companies, regions and types of business. Also see
  • beware of processes that can so large and complicated that you have no time to improve your working capital management programme, e.g. one company has 100s of WC KPI, but no time to review and use the lessons
  • Excel is the tool of choice in cash flow forecasting (80% of attendees) and TMS a distant second (15%). However there is a growing understanding that 'big data' type systems that bring everything together are now available and producing great improvements in cash flow forecasting which may require a new education for the corporate treasury department to really be able to use these tools effectively
  • some companies have a disconnect between working capital management practices and company profit 
  • working capital performance is now a topic analysts ask about
  • working capital discipline and excellence gives companies’ the ability to pay down debt, increase certainty in an increasingly uncertain business world, 
  • not surprisingly, every speaker said, in different ways, that the key ways to improve working capital management are: reduce receivables, reduce stock and increased payables performance
  • secure your supply chain by paying suppliers efficiently: improve your internal processes with the e-invoicing, etc. AND ALSO REMEMBER to make sure that your supplier is billing you effectively, e.g. quite often the date on the invoice is many days (one example quoted was 11 days ) before it is actually received in the payables department
  • some corporate attendees are increasingly aware of the reputational damage that an aggressive extension of DPO can have when introducing a supply chain finance program
  • procurement and treasury departments need to work closely together for effective WCM, examples of how to achieve this included treasury staff taking professional procurement exams, but in reality there is little co-operation between treasury and procurement 
  • there was little agreement as to who should be accountable for working capital management, but all agreed that there should be a working capital champion (three attendees had appointed a director of working capital)

The key problem and the solution

There was general agreement that the key WCM problem is how to sustain improvement in working capital practices after the initial enthusiasm for the new programme. This requires:

  • leadership and constant attention from the top
  • good working capital practices need to be deeply embedded in the very fibre, the culture, standards and processes of the company
  • the appointment of a dedicated working capital champion.

CTMfile take: Working Capital Management is critical but often ignored part of cash and treasury management efficiency. Done superbly it can make your whole company financially secure and sound.

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By john mardle on 23rd Nov 2016:

Absolutely right on all aspects although the emphasis should be on the impact of FinTech (blockchain and bitcoin et al)and how accounting roles will disapear and the need for ‘strategy accountants’ re the ACT will be paramount for company reporting.

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