This page has an average rating of %r out of 5 stars based on a total of %t ratings
Ratings (%t)
Reading Time 2 Minutes Reading Time 2 Minutes
Created on 16.12.2019

Why WCM belongs on the CFO agenda

Working capital management (WCM) is a secure way to increase a company's financial flexibility. The WCM experts at PostFinance tell us what financial managers need to know if they want to put WCM their agenda.

WCM is also worthwhile if a company does not have serious liquidity problems

Companies often have a lot of idle capital – possibly because it is unnecessarily tied up in stock, or because customers pay late and the company has to wait a long time for its money as a result. Measures in working capital management are applied to accounts receivable, accounts payable, liquidity and inventories to release unnecessarily tied-up capital. This gives companies greater financial flexibility, allowing them to invest in growth projects, for example. The holistic WCM approach unlocks not only the potential of a company internally, but also across its entire supply chain. Optimization of processes makes it possible to achieve long-term cost and quality improvements. Thanks to improved margins and profitability, these directly influence a company's success. 

WCM is essentially relevant to all industries

WCM is essentially suitable for all industries, as the WCM-relevant areas of accounts receivable, accounts payable and liquidity play a role in all companies and there are many key levers for optimization here. At companies with a warehouse (typical for retail companies), WCM can be applied to inventories, which often have a great deal of potential for optimization. According to the WCM Study 2018 carried out by the SCF Lab at the University of St. Gallen, Swiss companies consider their greatest WCM challenges to be related to inventories and accounts receivable (see graphic). 

Swiss companies assess the challenges they face in the four WCM areas of inventories, accounts receivable, liquidity and accounts payable:

The graphic shows how Swiss companies classify the challenges in the four WCM areas of inventories, accounts receivable, liquidity and accounts payable: For inventories, 27 percent of those asked classified the challenges as low, 29 percent as average and 44 percent as high. For accounts receivable, 22 percent of those asked classified the challenges as low, 41 percent as average and 37 percent as high. For liquidity, 41 percent of those asked classified the challenges as low, 29 percent as average and 30 percent as high. For accounts payable, 59 percent of those asked classified the challenge as low, 39 percent as average and 2 percent as high.
Source: WCM Study 2018, SCF Lab, University of St. Gallen

WCM banking solutions are no more expensive per se than bank-independent solutions. In fact, quite the opposite

Bank solutions such as factoring, reverse factoring and dynamic discounting are always an attractive solution when a company wants to make use of the best creditworthiness in the supply chain, without making its own liquidity and balance available. WCM banking solutions generate costs just like certain bank-independent solutions. As a rule, however, these are (more than) recouped by the returns generated. As such, they are no more expensive per se than bank-independent solutions. In fact, quite the opposite. 

WCM also applies in times of negative interest rates

Many companies are currently financing themselves at very favourable conditions. But for them too, it is essential to use WCM to develop additional, more stable sources of capital and to optimize the value chain. It’s also important to remember that more external financing raises the level of debt and increases the overall company risk. WCM solutions such as factoring lead to flexible optimization of liquidity, without increasing debt levels. 

You can rate this page from one to five stars. Five stars is the best rating.
Ratings (%t)

This might interest you too