In today's volatile economic landscape, it's not just about enhancing your sales techniques or improving staff performance. While these are essential, your business' bottom line can benefit significantly from some basic housekeeping—optimizing your working capital. This article dives into the nitty-gritty of working capital management, focusing on its three main components: Debtors, Creditors, and Inventory.
What is Working Capital?
Working capital is the lifeblood of your business; it's the cash needed to keep daily operations afloat. It essentially consists of three pillars:
- Debtors: Money owed to you by customers.
- Creditors: Money you owe to suppliers.
- Inventory: Goods you have in stock.
Customer to Cash (C2C): Manage Your Debtors
Streamline Administration: Evaluate if all the administrative steps from order to payment add value. Can you expedite invoice creation?
- Follow BEBO: Bill Early, Bill Often. The sooner you get your invoices out, the faster you can expect payment.
- Address Complaints Promptly: A speedy resolution of customer complaints can minimize payment delays.
- Check Credit Control: If your overdue debtor book exceeds 10% of your total, scrutinize your credit control processes.
- Know Your Customer Profitability: Not all customers contribute equally to your bottom line. Know who does what.
- Sales Team Communication: Make sure your sales team is aligned with your credit control department.
Purchase to Pay (P2P): Scrutinize Your Creditors
- Use a Purchase Order System: Ensure all purchases are authorized within pre-agreed levels.
- Negotiate Terms: Always look to renegotiate terms with your suppliers.
- Avoid Early Payments: Unless there's a financial incentive, do not pay early.
- Implement a Clear Sourcing Policy: Make sure you know where your products are coming from and at what cost.
Demand to Fulfilment (D2F): Optimize Your Inventory
- Measure Stock Turn: Know what’s moving and what’s not. Eliminate slow-moving items.
- Link Marketing to Demand: Optimize stock levels based on marketing-induced demand.
- Minimize Transit Damage: The cost of returns is usually higher than you think. Look for ways to reduce them.
- Consider JIT Delivery: Can your suppliers hold the stock and deliver it on a just-in-time basis?
Communication is Key
When everyone is engaged in generating demand, developing new products, fulfilling orders, and managing post-sales relationships, you can expect a substantial impact on your bottom line.