Cash & Working Capital Optimization Services

Most businesses have significant cash tied up in working capital, including trade receivables, trade payables, inventories, and non-trade items. By releasing cash from working capital, companies can unlock funds for growth, transformation, M&A, deleveraging, or dividends.

In addition to improving the financial position, working capital optimization means business processes become leaner and more effective. This drives operational improvement, cost benefits and makes the organization easier to do business with for customers and suppliers.

Sustainability must be at the core of any working capital optimization program. Common pitfalls include overreliance on tactical levers for short-term gain at the expense of supply chain partners, clustering efforts in the finance function and focusing on addressing symptoms rather than root causes.

The regulatory landscape surrounding working capital management is ever evolving. Important legislation has been introduced to promote fairness across supply chains and prevent excessively long payment terms and late payment behavior, primarily to protect smaller suppliers who may face more strain on their cash flows. Directive 2011/7/EU on “combating late payment in commercial transactions” governs payment terms for transactions with individuals, businesses, and governments across the European Union. Since its introduction, European countries must apply this Directive locally, though they may continue to apply other laws and regulations that are more favourable to the creditor than Directive 2011/7/EU’s provisions as well.

In the Netherlands, default payment terms for business-to-business (‘B2B’) transactions are 30 days from receipt of invoice, unless a different payment term has been agreed by both parties, in which case payment terms of up to 60 days are allowed. Payment terms longer than 60 days may only be agreed if it can be evidenced that no negative consequences are experienced by the buyer or seller as a result of the longer payment terms.

Three exceptions are in place, being:

1.  Large businesses paying Small or Medium-sized Enterprise creditors (‘SMEs’). For these transactions, payment terms may not exceed 30 days.
2. The debtor is a public authority. Public authorities must pay within 30 days. In special circumstances, this may be extended to 60 days.
3. The debtor is an individual. Companies are allowed to choose suitable payment terms with individual consumers in their contracts or general terms and conditions, provided that the payment terms are reasonable.

In case of non-compliance, creditors are able to apply fines, seek damages and charge interest for late payment.

Companies need to install working capital management practices that enable sufficient liquidity and streamlined operations, while ensuring regulatory compliance and fair treatment of the supply chain. This includes setting suitable customer and supplier payment terms in line with country regulations and industry norms, setting up robust invoicing, collections and payment processes, and managing inventories to protect customer service levels without building up excessively high levels of safety stock. Transforming working capital management is often a cross-functional effort, requiring involvement from stakeholders including finance, sales, operations, procurement, legal and IT. 

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. Our proprietary Elevate Analytical Building Blocks (‘ABBs’) allow us to instantly analyze millions of rows of transactional receivables, payables, or inventories data to inform optimal working capital strategies. The same tools can, subsequently, be used for monitoring performance over time.

Contact one of our specialists to discuss how we can help your organization elevate its working capital management.