It’s a Fallacy That Companies Can Fully Control Working Capital

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Optimizing working capital has taken on a life of its own within the corporate world and almost every large corporate goes through a transformation project every few years to find ways to improve their own cash positions.

They will engage benchmark consultants to show how their various ratios stack up for Days Payable Outstanding, Days Sales Outstanding, Inventory and other ratios. They will engage major consulting firms to steward the company through various initiatives. They will have fancy code names associated with projects to extend terms, such as Toolkit, Top Gun or OneFinance. The objectives tend to be simple in concept (ie, move to EFT for payment, delay taking inventory, better manage cash flow and cash projections, factor receivables or implement collection technologies, etc. ) but complex to implement, especially those that involve change management with external partners and require multiple internal department cooperation. And of course let’s not forget IT. Just getting a project on their priority list is a story in of itself.

We know this matters a lot. Large companies spend and sell billions annually. Managing the Payable spend like a financial portfolio, complete with risk / reward techniques, is an investment banker like task, complete with techniques like:

  • Advanced purchase and holding of inventory to secure discounts
  • Employ financial hedging techniques
  • Source \ hedge in multiple currencies
  • Change product design to impact high cost inputs
  • Price forecast models tied to planning, Etc.

But on the Payable side, how much of this can they control in a significant way? When you get into supply chains – it’s all about leverage and relationships. And it’s about relationship and leverage with your bigger counterparties (ie, your largest clients, your largest suppliers). We know that small business is a very small percentage of a large company’s spend.  Therefore, any large corporates working capital initiative tends to focus on bigger counterparities to yield results.

And here is where the impact can be really be felt – and where the Governance model also plays a role. I am currently looking at the challenges here and also what are some of the trends around accelerating early payment with suppliers and in particular where are we on the life cycle of Approved Payable finance.

I am currently speaking with companies in Europe and the Americas to better understand what is working here, what is not, and the relative priorities. If you are interested in having a chat, please contact me. I would be happy to share some findings if you want to chat. You can contact me at

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