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Unlocking trapped cash within a business can be the difference between thriving and merely surviving. Businesses are facing relentless headwinds; rising interest rates, intensified by inflation and geopolitical shocks, have made the cost of capital soar. Now more than ever, cash truly is king.
Yet, for many organisations, the most critical question is not necessarily how much cash they have, but where it’s tied up and how to liberate it. For example, in retail, businesses often operate with high inventory levels and tight margins, making them especially sensitive to cash flow constraints. Manufacturers face long production lead times and capital-intensive operations, which tie up significant working capital in raw materials and work in progress.
Meanwhile, automotive and consumer goods companies must navigate complex supply chains and promotional cycles, where even small inefficiencies in payables or inventory can have outsized effects on liquidity. In these sectors, optimising working capital isn’t just a financial lever – it’s a strategic necessity. This is where working capital optimisation becomes an imperative, and an opportunity that cannot be ignored.
The cost of capital has increased since 2021 due to higher interest rates (see figure 1), lowering working capital helps businesses improve financial performance and ensure that every unit released from trapped working capital is earning a return elsewhere – or used to reduce debt.
To mitigate these external factors, companies are looking internally to optimise their financial performance through better management of working capital components, especially inventory (as discussed in this previous article) and payables.
For CFOs, particularly in listed companies, a relentless focus on free cash flow is critical. Analysts often scrutinise a listed company’s ability to manage cash and capital, and poor practices can significantly impact valuations. To address this, businesses need to take a more disciplined approach to bringing together cash and margin considerations during supplier negotiations, which requires breaking down organisational silos, as buyers have traditionally prioritised costs over cash implications.
However, many companies have complex and legacy internal data systems that are not integrated. Data is often poorly managed, not treated as a strategic asset, and lacks clear ownership or accountability. This results in not having a complete picture of working capital, especially around supplier terms and payment cycles. As no central team has full visibility of the data landscape, opportunities to renegotiate and standardise supplier terms or optimise payment cycles are missed.
At a client that had more than 6,000 suppliers, we were able to merge over thirty data sets from five different systems (~13 million rows) to help the finance and procurement teams develop a single source of truth.
Through the creation of a consolidated view of the overall payables landscape, we were able to identify a ~US$50m cash flow improvement opportunity for our client through a combination of:
- Alignment of payment terms: Some of the same suppliers had different terms in various parts of the business, which enabled our client to discuss this with the supplier and standardise the payable days across all the divisions.
- Simplification/reduction of payment terms: Different suppliers providing similar products/services had diverse terms, which allowed our client to commence negotiations with various suppliers on standardising payable days.
We often help clients leverage operational metrics to inform better buying negotiations. This results in achieving better financial and operational outcomes – whether that’s structuring more favourable terms, refining payment policies in treasury that help with cash management, or improving short- to medium-term liquidity forecasting.
Achieving such outcomes requires clear, consolidated visibility across data sources, surfaced to users through dashboards that bring together key data sets, enabling stakeholders to act on a full and timely picture. This not only supports working capital optimisation but also accelerates the production of higher-quality monthly management reporting, freeing up time in organisations for more strategic decision-making.
