Does Your Business Strike the Right Working Capital Balance?

July 3, 2018

Working capital has always proved to be a powerful indicator of a company’s operational efficiency because not only does it safeguard the company’s ability to operate and repay short-term debt, it can also influence its potential to secure additional financing. The combination of both solid working capital performance and additional financing unlocks exclusive opportunities to grow, expand and become a pioneer in a competitive economy.

With oil and commodity costs increasing, higher interest rates, and continuous pressures to expand shareholder value, it is surprising that some companies are not taking further steps to drive effective cash management and increase free cash flow. Without the appropriate working capital levels, your business could lose credibility with financial institutions, suppliers and customers, while depleting your working capital reserves can also diminish your capacity to exploit new business opportunities. Our 2017 Europe Working Capital Survey revealed that the cash conversion cycle (CCC) slipped 3.6% last year among Europe’s top 1000 non-financial companies while net working capital expanded. These companies lost the use of over €1 trillion, which remained tied up in net working capital.

When a company is suffering from a working capital deficit that cannot be resolved through internal measures, there are a number of external options that should be analysed carefully. As it is not always easy for executives to see how they can improve their cash flow, REL – a division of The Hackett Group – recommends that expert advice is sought outside the organisation, which will typically help them with a thorough assessment by looking at key areas, such as: sales cycle, inventory turnover and credit terms for suppliers and customers.

With over 40 years of experience, REL, has helped many of the world’s leading businesses release billions through process transformation that drives sustainable working capital improvements while reducing operating costs. In turn, these results have helped our clients to produce the liquidity necessary to fund acquisitions, product development, debt reduction, share buy-back and other strategic initiatives.

Read more about the work we have done to influence working capital performance here: