3 ways to improve working capital

How does your franchise shape up when it comes to working capital? Only eight percent of Australian organisations have real-time working capital and cash visibility. Is your franchise among them?

Matt Goss, ANZ managing director, Concur looks at the issue.

Visibility into working capital is essential to manage cashflow and ensure the business can remain a going concern. Yet research shows that many companies potentially miss quarterly working capital forecasts by up to 23 percent.* Businesses must address this inaccuracy as a matter of urgency.

Working capital is a measure of the operating liquidity of an organisation and is critical in all industries.

Without a clear picture of your organisation’s current and future financial position, it’s very difficult to make optimal decisions about cash on hand, lines of credit, investments and other factors critical to achieving your business objectives.

Businesses need to optimise internal processes, which can rein in operating costs and improve cashflow. Essentially, this means finding ways to automate processes wherever possible.

Research shows that 71 percent of Australian companies have visibility into their 60-day cash position and 34 percent don’t have visibility into their 30-day cash position. Only eight percent of Australian organisations have real-time cash visibility.

The study also found that this lack of real-time visibility and predictability of the cash situation is due to these organisations not having appropriate cash management processes, systems, or tools in place.**


1. Automating processes

The first step that organisations can take to automate their accounts payable processes and improve the visibility of their cash position is to capture invoice data as soon as invoices are received.

More than 50 percent of invoices are still received in paper format and more than a third by email so it’s critical that the information on these invoices is captured at the time of receipt, rather than at some later stage in the process.***

2. Activating workflow

Capturing invoice data earlier lets organisations establish an automated workflow system to bring down operating costs in processing and paying invoices. Aberdeen Group has calculated that the best-in-class organisations with automated invoice systems average 4.1 days to process an invoice from receipt to approval. That compares to an average of more than 16 days for a manual invoice process.****

3. Establishing connections with virtual card providers or payment aggregators

Virtual card providers or payment aggregators are “payments-as-a-service” providers, which give organisations access to credit facilities, streamlined processes and payment terms from the banks to pay suppliers. These providers can improve an organisation’s days payable outstanding (DPO) metrics. Financial institutions provide a virtual card to businesses as a secure payment mechanism for online business-to-business transactions.

Better management of working capital is critical for business success. CFOs must prioritise cashflow strategies and technology is a key mechanism to help businesses achieve this.

* Working Capital: Successes, Challenges, and 2012 Objectives, The Hackett Group, Inc.

** The 2014 Visa Cash Flow Visibility Index study

*** Institute of Finance and Management, 2016

**** AP Invoice Management in a Networked Economy, Aberdeen Group, May 2012