Companies are, sooner or later, facing an economic downturn or maybe we already entered into it. Depending on how well prepared a company is and what strategy is used, this can be used as a business opportunity.
To maximize the possibility to come out stronger on the other side, companies must both optimize the cost structure and also secure access to capital and a good cash position well before the downturn starts.
Securing access to capital will be key to enable your company to keep evolving in times when profits are under pressure and the overall flow of cash is reduced. It will allow you to continue with strategic investments, enforce creativity and new ideas, maintain or even gain competitiveness while securing a solid foundation for the future.
Start looking within the company itself
Depending on the industry, company set-up, ownership or financial status, capital can be more or less hard to access but, a solution possible for all companies at all times, is to start by looking within the company itself. Would it be possible to release cash already at your disposal but tied up in your own operations?
Managing your working capital, i.e. the capital required for running your operations (Accounts Receivables, Inventory and Accounts Payables) more efficiently, can release cash and give you just the financial strength to continue to evolve. Why not utilize this opportunity to secure your future liquidity?
How to manage your working capital?
- Invest in leaner processes securing more efficient capital turnover
- Make use of the situation to negotiate better terms with your customers and suppliers
- Utilize bank offers to finance the supply chain
- Find effective financing options for long lead times in order for your company to be better prepared for a more difficult future.
Insights on working capital management projects
- Working capital optimization is an operational initiative, not a finance project.
- Management of working capital requires a cross functional approach. Optimizing individual working capital components separately can endanger the supply chain and customer deliveries.
- The project manager must be capable of making the whole organization committed.
- Hands on training and individual coaching are essential in ensuring sustainable results and buy-in throughout the organization. Incentives alone do not work.
Illustration from a real life project: typical key areas
DSO = Days-sales-outstanding
DIS = Days-in-stock
DPO = Days-payables-outstanding
Do you want to know how much cash you can release based on your net working capital areas? Find out and request a free analysis of your company and your competitors net working capital:
Peter Bäckius joined Capacent (Sweden) in 2019 and has 26 years of global work experience of which 11 years as procurement and management consultant, 7 years as self-employed and remaining 8 years in executive line organizational positions covering most areas within Operations (SCM, Sourcing, Working Capital, Indirect Material, Direct Material, R&D, Production).
Sara Thelin has been with Capacent (Sweden) for 6 years, starting as an analyst directly after graduation from LiTH (Linköping Institute of Technology) and now working in Capacent’s Operations practice. Sara has long experience of working capital optimizations projects with a high focus on implementation and change management.