Benchmarking for Working Capital Strategies
Benchmarking for Working Capital Strategies
Many companies seek to differentiate themselves and achieve success primarily through new technologies or unique product or service offerings. Companies that apply best practices go beyond this by gaining competitive advantage through stronger and more efficient internal business processes. The role of cash management can vary greatly from one company to the next, making an apples-to-apples benchmark comparison of how corporations collect, disburse and invest cash an arduous task. Good to excellent businesses frequently attempt to optimize their company 's cash management function by incorporating best practices to reduce external financing cost, lower bank charges, minimize risk and manage long- and short-term liquidity. These companies approach working capital management with a goal to lower costs and free up resources for investment and growth. They take full advantage of myriad opportunities to strengthen cash flow and cash budgeting, settle payments quickly, reduce working capital liabilities, negotiate favorable payment terms with suppliers, establish clear accountability in accounts payable and receivable, increase the value of collections personnel, and gather better information to support strategic decision making for long term opportunities (Murray, 2006). Working capital optimization is inherently complex, as it touches many business processes and people within an organization. It is a balancing act, and companies must manage it carefully to ensure that they optimally employ their working capital and have the critical resources they need to do things like fund product development, produce and deliver their products, and provide high levels of customer service. The ability to impact the bottom line through working capital optimization is tremendous. For this reason, this paper will focus on key best practices for improving financial effectiveness in the realms of optimal working capital
Many companies seek to differentiate themselves and achieve success primarily through new technologies or unique product or service offerings. Companies that apply best practices go beyond this by gaining competitive advantage through stronger and more efficient internal business processes. The role of cash management can vary greatly from one company to the next, making an apples-to-apples benchmark comparison of how corporations collect, disburse and invest cash an arduous task. Good to excellent businesses frequently attempt to optimize their company 's cash management function by incorporating best practices to reduce external financing cost, lower bank charges, minimize risk and manage long- and short-term liquidity. These companies approach working capital management with a goal to lower costs and free up resources for investment and growth. They take full advantage of myriad opportunities to strengthen cash flow and cash budgeting, settle payments quickly, reduce working capital liabilities, negotiate favorable payment terms with suppliers, establish clear accountability in accounts payable and receivable, increase the value of collections personnel, and gather better information to support strategic decision making for long term opportunities (Murray, 2006). Working capital optimization is inherently complex, as it touches many business processes and people within an organization. It is a balancing act, and companies must manage it carefully to ensure that they optimally employ their working capital and have the critical resources they need to do things like fund product development, produce and deliver their products, and provide high levels of customer service. The ability to impact the bottom line through working capital optimization is tremendous. For this reason, this paper will focus on key best practices for improving financial effectiveness in the realms of optimal working capital
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