12 déc. 2011
Improving working capital has become a focus for every chief financial officer (CFO) and is crucial to business growth and profitability. Yet current strategies often fail to recognise the role accounts receivable (A/R) can play in reducing the cost of working capital, while also having a positive impact on customer relationships and even the wider economy.
Sustainable working capital provides a company with the flexibility to expand and enhance its operations, improve liquidity, maintain or increase profitability and respond to challenging economic conditions. Yet all too often money can become tied up in the accounts receivable (A/R) entry on the balance sheet, something that firms looking to optimise working capital have often overlooked as part of their financial strategy.
The importance of unlocking funds in the A/R entry is exacerbated by the economic climate and the continued reluctance of banks to lend. Indeed, innovative firms are looking internally to raise funds by taking a customer-centric approach to improve A/R and therefore optimise working capital.
Historically, firms have looked to optimise three key aspects of working capital - namely cost cutting, inventory management and by obtaining best possible returns on cash reserves while prolonging the accounts payable (A/P) process. These functions are already considered strategic, yet A/R, often the largest entry on a balance sheet, has traditionally been more of an administrative concern. However, as the fourth key factor of working capital, A/R offers an untapped opportunity for innovation in optimising working capital. A rethink is required to ensure that the credit, collections and complaints functions unlock the true value tied up in A/R and therefore become a strategic concern. If done successfully, this will not only keep cash flowing through a business, but will free up funds for investment in future growth.
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