Three common mistakes

Avoid these mistakes in working capital management

Working capital management offers great potential, but also presents stumbling blocks. The WCM experts at PostFinance point out three common mistakes in managing net working capital and explain how to avoid them.

First mistake: leaving WCM up to individual functions

One of the major challenges of WCM is that it is always caught in the area of conflict between different functions and company units. Procurement, sales, logistics and controlling: they all have an influence on working capital – and they all pursue different goals. The principal goal of sales is to maximize turnover and service quality, for instance, while procurement is mainly interested in guaranteeing production supplies and making savings, and logistics handles low warehouse stocks. If a company leaves WCM up to individual functions, conflicts of interest are inevitable. The unit which puts the most effort into working capital management will ultimately have the greatest influence on working capital. Avoid making this mistake by developing and implementing a binding cross-functional strategy for your company.

Second mistake: not taking advantage of the best creditworthiness

In the course of our activity as WCM advisors, we regularly discover that companies are not taking advantage of the best creditworthiness along the supply chain to optimize their working capital. Avoid making this mistake by analysing creditworthiness along your supply chain so that you can detect any relevant potential. Depending on whether it is your company itself, one of your suppliers or one of your customers that has the best creditworthiness, you have the following bank-independent or bank-dependent solutions available to you:

Solutions in working capital management

Third mistake: WCM is regarded merely as a project

We find that WCM is often regarded merely as a project within companies. This results in the following behaviour: the company establishes that working capital has risen unexpectedly. Alarm bells ring. The company then analyses the figures, launches a project, appoints a project manager and implements measures. As soon as the chosen WCM solutions have brought about the desired results, the company turns its attention to other matters. And the circle begins again: working capital increases until it is time for the next WCM project. Does that sound familiar? Avoid making this mistake by putting WCM on your agenda as a permanent topic, and by making WCM a line issue.

This might interest you too