In the wake of supply chain disruptions, efficient working capital management has taken centre-stage. Arising from our experience with companies across various industries, we provide the following six key recommendations. By considering these, businesses can navigate market disruptions and build a well-positioned, agile model of working capital management for 2025 and beyond.
1. Improve cash culture and build resilience
To foster a robust and resilient cash culture, it's crucial to embed working capital management into the core of your business operations. This involves not only setting up a strong cash flow process but also ensuring that every department understands and contributes to working capital efficiency.
- Implement a stronger cash flow process with regular liquidity risk checks and KPIs.
- Adopt working capital accountability across the organization.
- Use data-driven KPIs like DSO, DPO, DIO, dispute resolution days, and cash conversion efficiency.
- Focus on risk management and liquidity stress testing to prepare for unforeseen events.
2. Establish suitable customer and supplier terms
Aligning payment terms with industry standards can significantly enhance your working capital position. By negotiating favourable terms with both customers and suppliers, you can ensure a balanced and efficient cash flow throughout the supply chain.
- Align payment terms with industry norms and benchmarks.
- Renegotiate terms to eliminate misalignments and promote efficiency.
- Tailor payment terms based on customer categories to optimize working capital.
3. Enhance the Forecast-to-Deliver (F2D) process with technology
Leveraging technology in the F2D process can streamline operations and improve inventory management. By adopting advanced tools and techniques, companies can better predict demand and optimize their supply chain.
- Use the 9-box inventory segmentation model and SKU rationalization.
- Employ technology for distributed order fulfilment and AI-enhanced quality management.
- Reconsider just-in-case inventory strategies with intelligent demand and network optimization.
4. Automate customer collection cycles
Automation in the order-to-cash cycle can greatly enhance efficiency and reduce the risk of defaults. By integrating AI and machine learning, companies can streamline their collection processes and improve cash flow.
- Utilize AI and machine learning for invoice generation, payment tracking, and collections.
- Implement contract generation and review, optimize quote-to-cash, and improve financial risk management.
5. Optimize the Purchase-to-Pay (P2P) process with analytics and AI
The P2P process can benefit immensely from the application of analytics and AI. These technologies can help identify inefficiencies, enhance decision-making, and ensure compliance with local norms and regulations.
- Adjust policies based on local norms and legislation.
- Invest in Gen AI and predictive analytics for procurement efficiency.
- Automate RFx processes, dynamic contract lifecycle management, and financial procurement.
6. Explore working capital financing
Exploring various working capital financing options can provide the necessary liquidity to support growth and operational efficiency. These solutions can help companies manage their cash cycles more effectively and build stronger relationships with stakeholders.
- Use external working capital solutions for strategic growth investments.
- Benefits include securing favourable cost of capital and improving buyer/supplier relationships.
- Consider receivables and payables financing, and inventory financing for cash flow optimization.
How KPMG can help?
KPMG provides a fresh perspective to optimizing working capital. We have insights into the latest regulations and leading practices, a hypothesis database with innovative working capital improvement initiatives, and a technology-enabled approach.
Contact us to discuss how we can help your organization elevate its working capital management.
