How to manage Working Capital even better and about our Working Capital tool!!

Working Capital (“WC”) is one of the hottest and one of the most neglected topic currently. With all the focus on bad loans and the liquidity squeeze in the economy, we believe that the Management should start managing their WC wisely.

Typically once any sale is done, the acquisition team / Client Relationship Manager’s role is termed to be completed. However, the transaction is only completed once the cash is collected, this needs to be understood by the organization. Difference between cash collection numbers and than P&L statement numbers must be scrutinized. Chase cash more than profits in the current VUCA world.

Pro-Tip
At every stage of introducing changes to manage the WC better, communicate with all the stakeholders why there is a need to manage the WC better, why a particular action is taken, be soft-yet-firm in your handing, make them feel responsible for the WC – this is perhaps the single most difficult part that the team thinks and works like a cohesive unit otherwise this whole exercise will be a futile one. It requires a mindset change and it would not be an easy one.

So here are some of the tips we advise our clients to manage their working capital better: –

• To start with, try to find what comprises your working capital, just the break-down
• Once you have the break-down, figure-out what are the levers which impact the working capital
• Have a treasury policy ready (even broad strokes are good)
• Measure the usage of WC and start making goals which are very difficult to achieve (you would realize it’s importance when you actually implement it)
• Have drivers and riders of the WC – what are the items which would create an impact (‘drivers’) and what the items which would be impacted when there is a change in the drivers (‘riders’)
• Have really good data points and good quality of data inputs from all departments especially finance – finance should be pro-active in have real-time data entry
• Monitor WC periodically (like weekly/fortnightly) not later than that
• Have all the KPI’s amended to include the impact of WC. Example, the profitability per sales employee should consider the WC cost of the sales made by him/her.
• Reports for each person who is blocking WC about their status.
• Keep an eye on DSO (Days of Sales Outstanding’)
• Have some incentives for Debtors to pay soon
• If you have multiple bank accounts, it is advisable to have a cash pooling
• Invoicing on time and monitoring the unbilled sales for each client/project

Remember, managing WC is a continuous process and therefore should on your priority list not for today or tomorrow but until such time that this becomes a part of the WC of the organization.

How does our tool help you?
Our tool address all the issues related to WC and creates a dashboard for the management and other stakeholders. It tries to automate most of the activities, thereby not impacting the regular working hours of the team members.

For any queries/help, please get in touch with me at piyush.hundia@hpassociates.in