How can businesses improve working capital?

Companies need to go back to the basics and understand that free cash flow management is a crucial part of any business. Properly managed cash flow not only funds business growth, but is a key lever to be used in times of crisis. Managing your receivables and inventory correctly is the key to achieving a successful cash flow. This process starts by understanding the metrics that matter most, such as DIO, DSO and DPO. Ensure that your whole finance team understands the importance of these metrics and their role in keeping them healthy.

This is not to say that responsibility for a positive cash flow sits solely with the finance team though. A robust credit control process should be understood and embraced across the business. Start from the top down - ensure your leaders are educated on the importance of working capital, and cascade down from there to individual responsibility. As an example, sales representatives can be clear with customers about payment terms and where appropriate, have some portion of their commission payments made when the customer has paid. This is not to say that sales representatives should lead with payment terms when talking to customers, they should just keep in mind that it’s no good selling a product if you don’t get paid for it! As another example, product managers, particularly in wholesale, also hold some responsibility. If they create or source the wrong products, then stock just sitting on shelves will have a huge impact on cash flow.