Improvement in working capital

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Introduction

Companies that experience difficulties accessing finance, present outstanding credits for forthcoming months or fail to reach estimates or comply with covenants due to the drop in consumption, probably need a working capital improvement program. Efficient working capital management permits managing the liquidity of companies both in the short and long-term, obtaining visibility for future liquidity requirements, liquidity in the bearish cycle and flexibility with the parties concerned, especially with financing providers.

At PwC we have a team of experts in the efficient management of accounts payable, accounts receivable and inventory and the implementation of cash generation cultures in complex organisations. Our approach consists of carrying out a diagnostic study of working capital management that quantifies potential improvements through an internal and external analysis, designing a sustainable management model that acts simultaneously over the organisation, people and systems of the company and providing support in the implementation of such model.

Potential problems

Symptoms that represent the need to consider a working capital improvement program include:

  • The existence of a wide variety of payment terms and conditions and no clear supplier payment policy.
  • An average collection period longer than the period established in the defined policy and in accounts payable not all the information is available in the systems.
  • In B2B transactions, the average collection period is longer than the payment period.
  • Inventory rotation is low and more than 5% of the inventory has a rotation of more than 90 days.
  • The incentives of the management team and directors’ report do not establish cash as one of the main points.

How we can help

  • We establish policies and procedures aimed at generating cash in a sustainable manner in our clients through the implementation of a cash culture.
  • We establish improvement processes in collection and payment actions.
  • We renegotiate contracts with customers and suppliers, improving current terms and conditions.
  • We improve the inventory planning and management process, reducing inventory levels and work in process.

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