Working Capital Management: Not just a balance sheet issue
What is Working Capital Management?
Working Capital Management (WCM) aims to determine the ideal levels of working capital needed for a business. By implementing various WCM strategies and protocols, organizations can unlock and regenerate significant amounts of cash that would otherwise be tied up. WCM programs result in rapid reductions in invested capital, increased profitability, and enhanced shareholder value.
In today's uncertain global economy and market, the importance of working capital management cannot be overstated. Cash is becoming a scarce resource, and many organizations are not fully utilizing the cash potential in their balance sheets. Instead, they rely heavily on external financing which ultimately eats into their profit margins.
Our view on Working Capital Management
Successful Working Capital Management means shifting the view on working capital from a pure reported balance sheet item to an operational responsibility. This typically takes time and includes going through several stages of increased awareness and organizational maturity.
To improve working capital performance the key root causes and structural drivers needs to be identified from four working capital levers:
Commercial terms
- Full understanding and transparency of all commercial terms in place
- Commercial terms matched with size and nature of contract
- Preferred commercial terms based on internal and external best practices
- Model to use in negotiations and term adoption
Process Optimization
- Understanding of each end-to-end process
- Individual process steps continuously challenged with the purpose to reduce working capital and maximize cash flow impact
- Processes, organization and systems changed accordingly including training of staff
Compliance and Monitoring
- Analysis of operational data to measure terms, policies and procedures compliance
- Understanding of key drivers for non-compliance and evaluation of changes needed to ensure compliance
- Relevant working capital management KPIs to ensure traceability of operational performance and continuous improvement
Cash culture and management
- Accountability and responsibility for working capital management
- Cash and working capital included in performance measurement
- Top managers involved from a monitoring perspective
How PwC can help you
- Identify the underlying factors contributing to high working capital throughout the entire value chain
- Customize your working capital strategy to align with your unique operating model
- Establish working capital targets that strike a balance between supply chain resilience and cost considerations
- Facilitate a cross-functional approach within your organization to effectively address working capital measures
- Provide support for effective working capital governance and the rigorous execution of improvement measures
