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Let’s Talk About Working Capital


In the FinOps Overview section of this site, I talk a bit about working capital, at least in the context of discounting and supply chain finance. But that’s just the current asset perspective on the topic. And to be honest, its usually just the purely financial asset perspective. To have a full conversation about working capital, we need to get finance and supply chain together (cash and short-term salable inventory), and we need to invite receivables to the party as well. I know that one blog post is unlikely to be the tipping point for the market, but I think it’s worthwhile nonetheless.

The reason I think it’s worth the effort is simple: we can all get caught up in the day-to-day, and miss out on the (potentially beneficial) collaborative discussions that require a bit of extra effort. When we talk about accounts payable, it’s easy to focus just on what it takes to get an invoice out the door, through review, and off for payment. When we talk about accounts receivable, it’s just as easy to get caught up in the task-work of credit decisioning or cash app. And in that everyday cycle, we’re probably not talking about inventory management and fulfillment at all.

Getting Together
I’m not sure if it technically qualifies as irony, but in traveling to different conferences touching on all of the different aspects of working capital, something struck me: it seems easier for folks from one functional area to get together with their peers from other companies than it is for them to really sit down with colleagues from other areas in their own companies.

At last October’s NESCON 2014, there were some great presentations on inventory optimization. The goal of those supply chain practitioners was to minimize resource requirements without impacting fulfillment ability — freeing up working capital. Soon after was November’s AFP Annual Conference, where I had a good number of meal-time conversations about Treasury and AP working better together. There also happened to be a larger-than-usual contingent of P2P vendors at this predominantly treasury and FP&A-heavy event. They saw the cash management impact of greater discount savings and SCF-based DPO extensions. This October, I’ll be discussing working capital and supply chain finance with the folks from FCIB at their 26th Annual Global Conference in Miami as a follow-on to a discussion begun in Madrid in April.  With that, we’ll have a topic traditionally focused on buy-side benefits front-and-center for those sell-side practitioners with a core focus on credit and receivables.

Add those to the shared services-focused show run by sharedserviceslink this past February, and the upcoming event hosted by payments provider Nvoicepay, and we complete the circle.  We have every individual function talking about the topic in mostly discrete groups, outside of the office. As is the case with most conferences, I’m sure that attendees left with the best of intentions. If those intentions translated into action a bit more reliably, we might see some speedier progress with inter-departmental collaboration. Of course, if it were easy then anyone could do it.

A PSA from BAR
Since this is a blog and not a research report, I’ll keep the objective simple: a humble reminder of the good ideas and best intentions that fade too quickly once we’re back in the office. Procurement can tee up great opportunities by negotiating extended terms and discount opportunities with suppliers. AP can deliver on that promise by being efficient enough to capture them. Supply Chain can streamline operations to cut down inventory investment without sacrificing customer service. Receivables can optimize collections to decrease DSO and supply more cash for operations. And Treasury and Finance can coordinate, providing the higher-level oversight to balance potentially-competing objectives. In an ideal world, of course.

The biggest hurdle is the last point. In a siloed environment, individual groups have individual goals — and usually individual incentives. Procurement may not put much stock in negotiating discount opportunities if their only incentive (and management directive) is to decrease year-over-year cost reductions. Credit and Sales run into similar, perhaps even more frequently discussed, conflicts. These aren’t problems that resolve themselves without intervention by someone in a position of authority higher up. Commission clawbacks for sales that turn into bad debt. Holistic incentives for procurement that look at price reductions and discounts together. There are ways to gain alignment.

To the extent it helps, here’s another outside voice offering support and encouragement to take a few minutes and start that internal conversation. It’s just a first step, but it’s the most important.


Until next time,


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