Are you taking maximum advantage of your working capital? In the process of achieving maximum profit, some operational savings can be neglected. So what should you consider in order to make your money work most effectively for your company?
Take a look at the complete chain, from the most efficient design of your product to the optimum manufacturing process. Then analyze the sales and sales support process. Are all your processes streamlined and simple, and do they eliminate waste?
In a recent document for QFinance, Patrick Buchmann, Managing Director at Thyssen Krupp, and Udo Jung, Sr. Partner at Boston Consulting Group, examine techniques for optimizing inventories, receivables, and payables. They reference how to manage the operational components of net working capital. The best practice document gives an in depth explanation and also covers the following areas:
Inventory reduction as an overlooked source of cash flow. By streamlining internal processes, as well as processes surrounding suppliers and customers, inventory can be minimized throughout the value chain.
- Correct and accurate customer forecasting/demand planning helps reduce inventory and improve delivery
- Advanced delivery and logistics concepts with suppliers
- Optimized production processes to reduce non-value-adding time
- Service level adjustments and variance management
Speed up receivables collection. The article discusses how many companies pay their suppliers early and collect from their customers late. Manufacturers of large products with lengthy production cycles can have cash flow problems because of this mismatch of timing between incurred costs and customer payments. A sample of suggestions included:
- Getting invoices out to your customers in a timely fashion
- Frequently reminding to your customers that payment is due
- Negotiating payment terms and sticking to them
- Setting up payment schedules to cover incurred costs
Frequently review payment terms with suppliers. Negotiate the best payment cycle, avoid paying early and look at all the terms presently in use to see if there is any possibility of re-negotiation.
The detailed document concludes with thought that a holistic approach, where there is not random cost reduction, but that all trade-offs are considered with costs and capital employed to optimize company value.
Invoice factoring can certainly help create a smoother invoice collection process. There are always times when customers pay late, and late payment on large invoices can play havoc with your working capital management, no matter how well you streamline process. Bay View Funding has been helping manufacturing businesses, as well as other industry specific companies grow since 1985.