Working Capital Management

Proactively increasing liquidity for your company

Why working capital management is important?

Working capital includes the following accounts:

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Cash is the lifeblood for any company, it is more important than ever to optimize this fundamental measure of liquidity to support organic growth or via M&A activity. When a company does not have enough working capital to cover its obligations, financial insolvency can result and lead to legal troubles, liquidation of assets, and potential bankruptcy. 


But how do companies generate cash? The short answer: an improved Cash Conversion Cycle (CCC). In other words, the CCC, as illustrated below, is the engine that can help boost liquidity.

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Where:

 

  • Days inventory outstanding = (average inventory/cost of goods sold) x 365, i.e., the average number of days it takes for inventory to be sold. A lower number is generally desirable while still ensuring that sales demand can be met.

  • Days receivable outstanding = (average accounts receivable/sales) x 365, i.e., the average number of days it takes for a company to collect invoices from customers. A lower number is desirable while ensuring that the organization does not put itself at a competitive disadvantage to other potential suppliers through overly aggressive payment terms.

  • Days payable outstanding = (average accounts payable/cost of goods sold) x 365, i.e., the average number of days it takes a company to pay its suppliers. A higher number is desirable, but a balance needs to be maintained between delaying payment and retaining the goodwill of suppliers or taking advantage of any early payment terms.

Global experience in the underlying processes that support working capital management

With professional experience working in over 30 countries, ECM Consulting Group brings best practices, metrics, and technology trends aimed at optimizing the operation of all the accounts that impact the Cash Conversion Cycle, namely:

 

  • Accounts receivable

  • Inventory

  • Accounts Payable

The Outcomes

Whether through continued improvement or transformation of the processes underlying accounts receivable, inventory and accounts payable, a company can expect to increase free cash flow between 15% to 25% and improve the following metrics:

Sales

 

  • Increased sales and efficiency

  • Improved customer service & retention

  • Increased profitability


Cost of Sales/SG&A

 

  • Lower operating expenses

  • Lower inventory losses

  • Lower warehousing costs


Financial costs

 

  • Lower cost of capital

  • Lower borrowing requirements


Financial position

  • Lower investment in accounts receivables and inventories

  • Increased accounts payable balance due to better payment terms

Our Approach?

ECM Consulting Group’s approach includes conducting a diagnostic and defining a future state for the processes underlying Accounts Receivable, Inventory, and Accounts Payable. The approach outlined below is intended to be flexible to accommodate the unique challenges of each company.

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Regions covered by our Firm

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To discuss how we can help you improve working capital

Managing cash during uncertain times is critical. This free Ebook provides insights for you to consider.

ECM Consulting Group | United States