Many organizations are currently re-examining their working capital metrics, looking to uncover untapped sources of cash. CFOs, controllers, and treasurers are investigating new procedures and systems to enable a leaner back-office. But they still want access to fast, actionable information about current and future cash flows and working capital requirements.
APQC analyzed best practices from several large organizations intent on improving working capital management. Included in best practices are those that center on streamlining the accounts payable and accounts receivable function.
- 1. Centralize and standardize financial transaction processing to drive maximum efficiency and to draw meaningful insights out of underlying data.
2. Use data from an enterprise resource management (ERP) system to inform daily credit and collection activities.
3. Conduct real-time analysis of cash flow drivers to ensure reliable forecasts and optimize spare cash.
4. Design custom measures of working capital management that are relevant to their business models.
5. Identify and resolve data discrepancies on the front end of the process.
6. Conduct transactions electronically whenever possible and work with vendors so they can do the same.
APQC also found that in addition to using traditional working capital metrics, best-practice organizations also develop individual metrics tailored to their business needs. For example, the metric “average days deficient”, the difference between the actual DSO and best possible DSO, enables the organization to evaluate how many of its receivables accounts are deficient at the end of each month.
As organizations continue to seek more efficiencies and lower costs in back-office processing, the principles found in APQC’s Improving Working Capital Performance can provide insight into how other organizations are approaching improvement.