Optimising net working capital: A guide for CFOs, CEOs and CIOs across industries

By Lasse Kobberup

A new focus on optimising net working capital

In an increasingly complex and volatile macro environment, businesses face numerous challenges that demand a renewed focus on working capital optimisation. The recent article “A dangerous working capital cocktail” highlighted the importance of having a strong working capital and cash/capital structure in the face of global events such as the pandemic, supply chain collapses and rising interest rates. As these events unfold, it becomes crucial for companies to not only understand why working capital is important but also to learn how to improve it effectively.

5 approaches to drive and automate net working capital

Building upon the insights of the aforementioned article, this article aims to provide CFOs, CEOs and CIOs across various industries with practical guidance on how to optimise their net working capital (NWC). The following five approaches exemplify how decision-makers can drive or even automate proactive improvements, manage challenges and enhance their company’s financial health in a rapidly changing world.

1. Creating transparency with deep analytics To optimise NWC, it is crucial to create transparency in the financial processes. This can be achieved by using deep analytics on transaction-level data and timelines, obtained from accessible timestamp data in ERP systems. This approach allows businesses to better understand their cash flow patterns and identify areas that require improvement.

2. Building initiative-based dashboards Dashboards are essential for tracking performance against baseline and targets. Tools like PowerBI can be utilised to create comprehensive dashboards that focus on crucial KPIs such as Days Sales Outstanding (DSO), Days Payables Outstanding (DPO), and Days Inventory Outstanding (DIO). Further than KPI transparency, the dashboards must be structured around the tangible and quantified levers for optimising NWC. These dashboards provide an overview of the company’s real-time NWC performance, enabling decision-makers to take informed actions at the point of cause and in real-time.

3. Designing dashboards for initiative-specific drill-downs Dashboards can be designed to drill down into specific areas of NWC, such as days payments overdue related to DSO. By focusing on these granular aspects, businesses can identify the root causes of inefficiencies and implement targeted initiatives to improve their working capital management.

4. AI and machine learning for predictive and proactive measures The integration of AI and machine learning technologies can further enhance NWC optimisation efforts. For example, businesses can apply machine learning algorithms to historical customer payment data to predict the likelihood of late payments. With this information, they can initiate proactive measures, such as sending friendly reminders before the due date, to ensure timely payments and improve cash flow. AI-driven systems can also monitor financial transactions and detect deviations from standard processes or inconsistencies with master data. When identified, these systems can alert the finance team, enabling them to address the issue and maintain optimal working capital levels.

5. The disruption of value for money and the cost of improving NWC One of the primary challenges in NWC optimisation is managing the deviations in people’s behaviour and processes. By leveraging AI-driven solutions, businesses can ensure proactive behaviour and mitigate the impact of such deviations. This approach disrupts traditional working capital management by providing greater value for money and reducing the cost of improving NWC.

Improve your net working capital today

Optimising net working capital is crucial for businesses across various industries. By employing deep analytics, visualisation dashboards and AI-driven technologies, decision-makers can drive proactive improvements, manage challenges and enhance their company’s financial health.

Want to learn more? If you would like customised guidance on how to improve working capital management in your organisation, please contact [email protected] (+45 8171 7375) and we’ll be in touch right away.