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Working Capital Management: Are You Taking the Right Approach?

by Robin Bergholm, Head of Working Capital Management, Wholesale Banking, Nordea

Working capital management is a critical function of business — maintaining smooth cash flows may sound simple but for today’s sophisticated, multinational organisations, it becomes a hugely complex task.

Vital, but misunderstood

Surveys show that leaders recognise the importance of working capital management. For example, it was ranked as a “significant priority” for CFOs in Protiviti’s 2014 Financial Priorities Survey1. It is easy to see why: companies that manage their capital well benefit from better cash flow; they enjoy greater return on their invested capital; and they minimise the cost of borrowing.

But Nordic organisations are having a tough time of it. PwC’s 2013 survey2 of working capital performance found an overall 7% deterioration in working capital ratios in the Nordics, while the rest of Europe improved year on year. Working capital in the Nordics stands on average at a 21% of sales, far higher than many European counterparts.