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Uncovering Cash Through Dynamic Working Capital Management

by Sven Lindemann, CEO, Hanse Orga

Efficient working capital management is generally known to be key to releasing valuable liquidity and to making the best use of a company’s own resources. In fact, with the right approach, CFOs can release significant levels of liquidity depending on their individual situation and on their industry sector. Working capital management is a hot topic that keeps going up and down on the corporate agenda worldwide. During times of crisis, significantly more companies are concerned with getting more out of their internal resources and focus on efficient working capital management. In times when cash is readily and cheaply available on financial markets, working capital often drops to the bottom of the corporate agenda. So, what keeps companies from taking greater control of their valuable internal resources?

One answer can be found, among others, in the source of the data that is usually reverted to in order to measure the typical working capital KPI including Days Sales Outstanding (DSO), Days Payable Outstanding (DPO) and Days Inventory Outstanding (DIO): in most cases, these are derived from the annual financial report or quarterly or monthly financial balance sheet and P&L figures. While a monthly analysis is already much better than an annual analysis, the limitations of even monthly reports become clear instantly: the analysis can only deliver a snapshot of the processes at a certain reference date. It doesn’t tell you, however, what your metrics and your cash position were like a few days or even just one day before or after that particular date. In essence, this approach lacks dynamic reporting!