8 ways to ... improve working capital.
| Author | Bartram, Peter |
There's never been a better time for finance professionals to focus on better ways of managing their working capital, given the wide range of options available. So just how can an organisation make its working capital work that bit harder?
1 Manage working capital actively throughout the organisation
It's not the responsibility of the finance department alone. Companies should implement a cash-focused management system, argues Daniel Windaus, a senior director at REL Consultancy, which advises on working-capital issues.
The way to make sure that cash-focused management happens is to use key performance indicators (KPIs) on working capital all the way down the business to operational level. Ensure that the KPIs are aligned with individual managers' responsibilities.
Cash management should be an active process, linked to improvements in working processes, Windaus says, 1,37 but making better working capital a Lie company-wide mission takes time.
"Provide awareness training at management level and activity training on new processes at operational level," he advises. "Changing habits does not happen overnight, so firms will need to provide ongoing support in order to run these processes successfully."
2 Consider alternative funding
The banks' unwillingness to lend, especially to SMEs, has put a strain on the working capital of many businesses. John Alexander, an insolvency practitioner and partner at accounting firm Carter Backer Winter, says it's best to meet the bank sooner rather than later to increase a credit line.
FDs who've had the brush-off from one of the 'big four' banks could consider moving to one of the up-and-coming business lenders, such as Santander or Aldermore Bank, which opened in 2009 and has lent more than [pounds sterling]1bn to 12,000 small businesses.
But bank loans and overdrafts aren't the only source of working capital. Firms are turning to asset-based finance such as invoice discounting, while others are harnessing the power of the web to raise finance. Rupert Honeywood, for instance, raised [pounds sterling]71,500 from crowd-funding sites to start his business, the Personal Development Bureau.
3 Pay your suppliers on time
Now there's a counterintuitive way of improving your working capital. But Clive Adolph, a partner with PBA Accountants, argues that companies that pay on time develop better relationships with suppliers and are in a position to negotiate better deals.
"If you don't have a good relationship with...
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