Working Capital Analytics
Using working capital analytics properly can fuel business growth.
The amount of liquid working capital available is one of the key indicators regarding the efficiency and short-term financial health of an organization.
Essentially, working capital is calculated by taking the value of a business’ short-term assets (especially those that can be rapidly converted into cash), and then deducting the value of the company’s short-term liabilities.
In today’s data-driven business environment, it is essential that all businesses use advanced working capital analytics tools and methodologies to analyze and improve their Days Payable Outstanding (DPO) and Days Sales Outstanding (DSO) positions.
Creating or freeing up more working capital that can be used to fund growth is effectively the cheapest form of business financing, as it reduces or eliminates the need to borrow money that must be repaid with interest.
- Accurately measure your organization’s DPO against competitors and other players in the same market or industry.
- Investigate the DPO position of other businesses (even in different industries) dealing with the same suppliers.
- Identify which suppliers may be the most receptive to extending payment terms (a slightly more expensive supplier that offers extended payment terms may be a better option than one requiring rapid payment when the cost of acquiring extra working capital is factored in).
- Calculate potential savings that can be realized from early payment discounts and contrast these against the real cost and impact of tying up working capital (or acquiring more working capital).
- Have the right information at your fingertips when it comes to negotiating more favorable payment terms with existing suppliers.
- Analyze the DSO position among individual customers or customer classes.
- Identify which customers, or type of customers, are receptive to making payment sooner, possibly in return for a small discount in order to rapidly bring in more revenue and create more working capital.