Shifting day-to-day decision-making and organisational thinking to achieve the transformation agenda.
Cash flow and working capital performance are among the many financial metrics that treasury teams monitor closely. For treasurers, these are key metrics to analyse and watch closely, but do they receive the attention they should be getting throughout the organisation?
To improve working capital performance within an organisation in a sustainable way, the focus has to move from simply implementing “a solution” to treating working capital as a strategic priority. Working capital should not be viewed as a defensive measure, but as a strategic lever and a way to gain a competitive advantage.
This shifts the focus from protecting cash to using it to support growth and allow the organisation greater flexibility in the event of supply chain disruptions. In a crisis, resilience is not just about maintaining sufficient liquidity. It is about having the flexibility to access and deploy liquidity, supported by an organisation that is aligned and able to act quickly.
For organisations engaging in a transformation project with the aim of improving cash resilience and cash flow, it is important to change how people across the organisation think about cash. Start by highlighting the importance of cash flow metrics at board level. The focus should be to make it a strategic objective of leadership. Leaders should establish it as a top priority and ensure there is accountability throughout their organisation.
However, as is often the case, a simple top-down approach is rarely effective, especially if buy-in has not been received from all stakeholders. Ownership should therefore incorporate not only the treasury and finance departments, but also sales, customer service, operations and procurement departments. This is because multiple stakeholders influence receivables, payables and inventory metrics.
Manage cash impact and operational discipline at portfolio level
To improve working capital, one of the core levers is operational discipline. This means optimising collections and reducing days sales outstanding, improving overall billing accuracy and dispute resolution. It also involves actively managing inventory turnover and reviewing payment terms with suppliers.
Working capital metrics should be reviewed at a portfolio level as well as at a project level. A project may look attractive in isolation, but several cash-intensive initiatives which have the same start time can create significant liquidity pressure. Understanding when projects will generate cash and balancing cash-intensive investments with faster payback opportunities supports liquidity across the business. Cash management should not just focus on the operational metrics but also take the combined liquidity impact of business decisions into consideration.
Focus should therefore shift from simply preserving cash to making better decisions, especially when commercial and financial priorities don’t align.
As an example, a decision might make sense from a sales, operational or procurement perspective, but it might not be the best decision for the overall cash position of the organisation. Alternatively, it might make sense at times to accept a short-term cash outflow if it is the right decision from a commercial perspective.
The principle is that “every little helps” and collectively all these levers can drive significant improvements in cash generation and capital efficiency.
Bring cash into everyday business decisions
The goal is to embed working capital into an organisation’s overall business approach. Business cases often focus on the P&L but pay less attention to actual cash implications. Instead, focus should be on the temporary impact of inventory build-up from promotions, upfront investment in projects (which are not immediately cash-generative and lock up cash), the liquidity impact of longer receivable cycles, and the company’s overall payment terms strategy across its supplier base.
Working capital metrics should form part of the decision-making around pricing and commercial models. Billing frequency, upfront versus deferred payments and subscription or usage-based models can all materially change the timing of cash flows, even where the underlying commercial economics remain unchanged.
Use data and technology to reinforce better decisions
To implement this, an effective approach can be to increase transparency through dashboards and provide departments with detailed working capital reporting as well as P&L reporting. Customer-level visibility on receivables, inventory transparency and capital tracking can enable improved forecasting accuracy and allow faster remedial action if required.
Many organisations still underestimate how important data quality is. If the underlying data is unreliable, forecasting becomes more challenging, and it is more difficult to evaluate the overall working capital impact. Reliable data also enables more effective use of AI tools, which can in turn help improve liquidity forecasting.
Technology can increasingly support this process through automated billing, collections prioritisation, reconciliation and analytics. However, technology should be an enabler and not replace operational discipline or human oversight.
Make cash part of the company’s business culture
A company-wide mindset change is critical to achieve lasting results. The approach should not only be top-down but also include bottom-up engagement.
Leadership should ensure that working capital metrics are adhered to across all relevant teams, reflected in their overall objectives and reinforced through a relevant incentive structure. In addition, corporate teams need to receive adequate training and tools to measure and review agreed parameters on an ongoing basis. Getting the balance right is critical and will allow financial and commercial objectives to align with overall business objectives.
It is important that employees at every level of the organisation understand how their daily decisions affect the company’s cash position. The goal is that employees consider the cash impact when planning projects and making everyday decisions. For example, sales teams should consider payment terms and customer payment behaviour when negotiating contracts. Operations and supply chain teams should challenge unnecessary inventory build-up and assess the cash implications of operational decisions.
Create clear ownership and governance
To ensure these changes are implemented throughout the organisation, it is important to establish clear ownership and governance. A regular cross-functional working capital forum can help remove blockers and resolve competing priorities between departments. The objective should be to ensure that issues which cannot be resolved within individual functions are escalated and addressed quickly rather than being ignored or potentially missed.
To summarise, a successful roll-out of a working capital transformation project requires cultural change which is implemented throughout the company. Improving working capital over the long term requires lasting changes in how decisions are made, rather than treating working capital improvement as a one-off project. Cash should be seen as a shared resource across the company rather than something which is solely managed by treasury and finance.
