Ask a budding entrepreneur in the UK, the CFO of a technology giant in Silicon Valley and a humble toymaker in a rural town of India the most crucial commodity to keep their businesses afloat in times of economic adversity. The response will most likely be unanimous: working capital or quite simply the cash that they need to support their day-to-day operations.
Irrespective of size, sector and geography, working capital sits at the epicenter of all global trade and offers companies a cash opportunity of 1.1 trillion euros if tapped and optimized to its full potential. Uncertain times in the economic and political sphere have been timely reminders for companies to free cash from their own balance sheets and ensure there is enough cash flow to meet its short-term obligations and operating expenses. Closer to home, there has been a significant improvement in working capital performance in Indian enterprises with C2C dropping by 6% in 2014. A majority of Indian companies (60%) are becoming increasingly aware of its value and working capital management has climbed to its rightful place on their list of priorities.
However, the process becomes more complex when companies scale up rapidly and attract more suppliers and employees. Companies have to strive to straddle the situations of having too much and too little working capital. In essence, the agilest and resilient companies manage to find the sweet spot between the two and literally, make their working capital work for them.
Where do companies struggle with working capital management?
Working capital management is no longer solely the responsibility of the finance department of a company. It has now evolved into a dynamic function which requires all the components of the business such as supply, planning, manufacturing, procurement and logistics to move like a well-oiled machine. In order for companies to be their efficient best and ensure their suppliers and employees are paid or reimbursed in a timely manner, every one of these departments understands how their trade agreements will impact their working capital. Ultimately,it is vital for working capital to be under the management’s radar as a strategic focus through the year and needs to be treated as a crucial operational issue to be addressed..
How can companies harness automation to resolve their working capital woes?
There is much to be learned from companies who have their working capital management down pat. But the one that they all would vouch for is that nothing must be left to chance. For instance, their CFOs are not just guardians of the balance books; they make key decisions on cash planning and mobilizing resources based on accurate cash flow forecasts. Process automation solutions are taking over the marketplace, automation and finance being the latest trend. However, those that stand out are those that get their entire organization on board to use it as an enabler of their business. They can always stay on top of balances, load or withdraw funds, view transaction summaries and approve expenses on the go.
Functions such as invoicing and expense management, though seemingly simple are no longer put in the hands of a human being (even the most diligent and thorough kinds). By going the paperless route, companies will not only save the costs and hassle of hard copy documents but will eliminate human errors completely. Automation succeeds in making an organization paperless in its finance processes through electronic data capture and coupling them with electronic payments tools. These tools allow companies to centrally track and manage all spends from the admin dashboard.
Armed with automation tools, companies have been successful in optimizing their working capital by 68% with 0% cash leakage and minimum cost of courier and stationery.
Given the volatility of the current economy, no business can afford to let their existing working capital go to waste. The time has arrived for companies to re-think their business strategies to be more inclusive of Automation. After all, it is where the future of working capital lies.
If you enjoyed reading this post, you may also like our petty cash management guide and e-book on fraud prevention.
How does your company foster a culture of working capital management? Share your experiences with us in the comments below.