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Four ways to improve working capital

Every business wants more working capital, but not all businesses know that many of their current practices are getting in the way of achieving that goal.

All too often smaller companies think that process improvements are only for the big guys. The reality is that any company, regardless of size, can see an improvement in its working capital by doing a few simple things.

  1. Eliminate silos in your organization: The old cliché about knowledge being power is true. When you keep information in siloes you are less likely to get creative solutions. There is a trend in high performing organizations towards a convergence of procurement, accounts payable and accounts receivable. Create a more holistic environment and you will see more collaboration between departments and functions that will lead to more innovations along with improved and streamlined processes.
  2. Automate receivables: If you have not already started to automate at least some of your back office procedures, you are tying up money that could be put to better use. Automation eliminates delays in the invoicing process. Remember, the faster the invoices are delivered accurately to customers, the more quickly they get paid. Time really is money when it comes to receivables. Your days to pay should shrink when you automate the billing process.
  3. Set up an e-payment procedure: Moving to an automated or digital payment process leads to cost reductions and optimized working capital. E-payments allow you to work with suppliers to create more advantageous payment schedules giving you more control and management of your working capital.
  4. Review indirect spend: It’s estimated that between 20-40 percent of a company’s spend is for indirect products and services. Do you put as much effort into managing indirect spend as you do your transportation spend? By reining in that indirect spend you could save up to 25% annually. A savings that means more available capital to do the things you want and need to do to grow your business.

Managing working capital is vital to the long-term financial health of your fleet. To start increasing your working capital, take a look at where you are at today and review KPIs like cash conversion cycles, days sales outstanding, days payables outstanding. Then create a plan to bring some financial process automation to your fleet and watch your working capital improve.

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