Three top findings

Benefit from these findings from our WCM consulting activities

The WCM experts from PostFinance help companies to analyse and implement WCM measures. These three findings were gained from years of working as consultants.

First finding: high potential for impressive WCM results

Experience from our consultation activities shows that there are ways of optimizing working capital in virtually every company, be it in terms of receivables and liabilities or with regard to inventories in commercial and manufacturing companies. Impressive results can be achieved by implementing the appropriate solutions. This can be seen for example in the following cases from PostFinance’s WCM consultation activities:

Case 1: in a manufacturing company with a sales volume of 150 million francs a year, factoring enabled tied-up capital to be reduced by 25 million francs, and finance charges to be cut by 6 percent (WACC) to 1.2 percent (see illustration, figures for illustrative purposes only).

Numerical example of factoring for a manufacturing company

Case 2: in a major corporation, dynamic discounting led to an improvement of the financial result of over 2 million francs, and procurement costs were reduced by more than 2 million francs (see illustration, figures for illustrative purposes only).

Numerical example of dynamic discounting for a major corporation

Take advantage of the potential of WCM for your company. It’s well worth it.

Second finding: the more individual the solution, the greater its effect

In order to achieve the greatest possible effect with WCM measures, they must be individually tailored to your company. The accounting aspect is an important point to consider, for example. Particularly with banking solutions, you should check that the effects of the working capital measures can actually be achieved in practice. The auditors must be prepared to accept amounts as trade accounts payable and not to declare them as financial liabilities in the case of a factoring solution, for example. To ensure that this is possible, a great deal of experience is needed with regard to WCM consultation. An individual solution also guarantees optimal compatibility with your current tools and systems. Last but not least, by introducing an individual solution, you can avoid unnecessary additional expenditure. This requires a creative approach with a constant focus on user behaviour and expenditure. It can be worth implementing WCM measures for major invoice items only, for instance, while ignoring smaller invoice amounts.

Third finding: working capital must be evaluated appropriately

In our capacity as WCM advisors, we find that companies use a wide range of different methods to evaluate working capital. While some assess working capital according to the external financing rate, others use the weighted average cost of capital (WACC) or even the Libor for evaluation purposes. And others still apply a constant percentage of 10 percent, for instance – regardless of interest rate levels. A common method for assessing the cost of working capital is to take the weighted average cost of capital and calculate how this corresponds to the periodicity of inventories, receivables and liabilities, and the periodicity of interest. Items tied up in the short term are evaluated using short-term interest rates, and those tied up in the long term with long-term interest rates. By applying this method, you will soon find that working capital is associated with relatively high costs – and that solutions such as factoring or reverse factoring represent a good way of reducing these costs. Solutions of this kind also allow you to generate effective win-win situations along your value chain.

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