Managing your working capital cycle

Guest Blog | Thu 30 Apr | Author – Business & Finance
Pictured: Andrew O’Leary, Lead Director, Working Capital Management, KPMG Ireland

In the first live webinar of the Ireland INC Leadership Series in association with KPMG, Andrew O’Leary, Lead Director, Working Capital Management, KPMG discussed ways for companies to best handle cash-flows, funding and the working capital cycle. 

OPPORTUNITIES TO RELEASE CASH FROM WORKING CAPITAL

In complex businesses, it can be challenging for management to see where opportunities exist to release cash from working capital. However, an understanding of this and unlocking that value can bring countless benefits which include reducing a company’s need for external borrowing and increase the amount of cash which can be invested effectively.

There should be a focus on implementing sustainable improvements, including real time solutions, in order to future-proof your cash and working capital situation. This will help position the business for long-term success and growth.

Using data and analytics, cash management inefficiencies can be identified across the full breadth of a business including Order to Cash, forecast to deliver and Purchase to Pay working capital cycles, thereby generating immediate cash savings. The output can help achieve transparency in relation to cash performance and to better align the efforts of different commercial and operational functions.

We always advise businesses against jeopardising long-term strategic commercial relationships for the benefit of immediate short-term cash benefits. In our experience, material cash-flow savings can be achieved through negotiation and both parties can leave with the relationship intact. Now is the time to consolidate, not damage, the relationships you have spent so long building with your key stakeholders.

PREPARING FOR RECOVERY

It is important to consider how businesses can optimise working capital to prepare for the recovery and increased demand that is likely once restrictions ease.

Relaunch of products and services – Businesses should consider Cash & Working Capital requirements to relaunch their products/service. This entails an understanding of whether additional funding is required and what that may look like to allow companies to capitalise on increased demand.

Customers/Receivables – Firstly, communication is key with Customers/Partners – let them know you are open for business. Secondly, businesses need to be cognisant of the balance between having cash now but maximising profitability in the future. Due to financial or operational constraints, difficult decisions may have to be made as to what orders to fulfil immediately (post-restrictions) and what partners will sell in terms of inventory in the short-term to keep revenues increasing without impacting other partner relationships.

If Consumers are buying more goods during the Covid-19 crisis, this may not necessarily indicate they are using more, they may be stockpiling. Be vigilant about investing significant resources to meet the spike in demand that might be unnatural and result in future losses.

Suppliers/Payables – Ensure communication with Suppliers to make sure orders are delivered within agreed timelines and if not, decide on new timelines. It is crucial to diversify your source of supplies so that when one supplier is impacted, you can turn to the other. What is happening now is beyond the means of any individual company to deal with.

Delay /defer orders where appropriate but think carefully before cancelling orders to avoid creating downstream damage to your supply chain.