Laura Schroder
Vice President, Global Product Marketing

If we’ve said it once, we’ve said it a thousand times…and now it’s more true than ever: working capital and cashflow make or break a business. Sometimes we just need reminding of that.

Because, after all, it’s easier said than done. The ‘networked’ CFO of the modern business is constantly pondering on the issue of optimising working capital…how can she get more from the purchase-to-payment process that governs so much of the cash that moves through the business?

There is an answer, and it’s a four-part one involving a lot of collaboration and integration across functions.

To achieve working capital optimisation in the supply chain, businesses need to be innovative and improve collaboration between different departments or functions. They also need to be willing to invest in simplifying processes and ensure compliance to see the biggest improvements. Once they have done this, they will be able to optimize payment and collection strategies by leveraging spend analytics and innovative new financing options.

So, how can financial decision makers optimise working capital in the supply chain? The four-part answer is:

1. Harmonize processes

B2B networks have converged with P2P, which means the information and financial supply chains are more in focus. Rich information must be seamlessly exchanged between buyers and suppliers, supported by process automation and analytics. Once the P2P process is simplified, buying and selling becomes quicker and easier.

2. Collect money earlier

It seems a simple way of making more money, but it requires the first step to have been taken. You can’t collect money earlier if you don’t have a harmonised process that ensures accuracy. Incentives may be required, but that can be factored into any decision. To achieve this, e-invoicing and AP automation speed up the process, getting invoices in front of customers more quickly. Having robust financing options available can then help facilitate quicker payments. 

3. Pay less

Another seemingly obvious statement, but more difficult to achieve. Everyone would like to pay less, but finding the conditions that are right in order for your supplier to accept less, requires a tight grasp of all of the moving parts of the supply chain. Spend analytics and the ability to negotiate discounts on a sliding scale make this process easier than ever before.

4. Pay later

Sometimes, you just need to delay the point at which cash leaves your business…but your suppliers won’t be around for very long if you just don’t pay them. That means finding the right forms of interim financing that keep all parties happy. Faster payment services are crucial here, paying later and paying late are two different things. Paying later is good, paying late is not!

The reason that the CFO must take on this task is that there is a balance that must be found across finance, procurement, AP and Treasury. Only the CFO will have that broad overview and insight.

Once the new P2P process is in place and operating effectively, companies have been able to achieve as much as 90 percent spend under management and improve payment cycle time by 13 days. More importantly, the finance team is now positioned to optimize payment strategies and working capital with analytics and flexible financing options.

We have produced several helpful guides to help the networked CFO work her way through this change.