Published Wednesday 13th January 2021

According to the latest UK business survey by Deloitte, increasing cash flow is a priority for 87% of companies, while only 49% of companies expect this to come from operating cash flow. That would imply that the remainder will either need to borrow additional cash or reduce working capital.

The cost of borrowing for major corporates with excellent debt ratings has never been cheaper. Banks and other financial institutions have been more than happy to forward additional funds to these companies in 2020 and look likely to continue this trend in the following year.

But for companies that don’t have the best debt ratings or those smaller corporates who don’t have easy access to market capital, it is more likely to be difficult to attain additional funding at a reasonable cost or any access at all. In these volatile times, the only alternative is to reduce working capital. For those with a distressed customer base, reducing receivables will prove to be more difficult than in previous years. High levels of inventory are already a problem for those with depressed sales volumes. Therefore, payables might be the area to focus on in 2021.

The good news is there are many things that can be done. Very often payables is the last component of working capital to be addressed. Many will complain that they do not have the market power to dictate supplier terms and therefore there is no point in taking any major actions. We would disagree with that statement since we have vast experience of identifying and realising many opportunities that were right under everyone’s noses.

We have access to the payment term database that can help compare the payment terms that you have agreed with your suppliers with the payment terms that those same suppliers have offered someone else. This information is vital in determining how realistic payment term change can be and serves to challenge the naysayers who are always looking for excuses to keep the status quo.

We will help you to optimise payment runs including what day of the week is best to pay suppliers. We have developed mathematical formulas that can precisely determine the cash flow effect of paying on particular days of the week. We use your data to compute an exact result based on your payment history.

How often do you pay suppliers early? Many companies do not know since it is rarely a standard report. The truth is that there are always exceptional circumstances where early payment is the right thing to do and that all companies pay something early at some point. But how many of these early payments were really necessary? Our analysis can point the way to truth.

Do your terms and conditions of payment make full advantage of the law? We will examine your payment conditions to understand the compliance of your payment practices with the latest legislation. Often this can highlight further opportunities to reduce working capital.

The best news is that our analysis is both free and non-invasive. Our data-driven approach means that we can answer all the above questions without disturbing your organisation. Answers are based on facts and not anecdotes. Opportunities are identified and the path to execution is established. Please contact us and we will be happy to deliver quick results that will start the path of working capital reduction.

About the Author: Harvinder Rattan, is an energetic business leader with more than 20 years’ experience in banking, finance and areas of working capital. His excellent people skills allow him to quickly and easily engage stakeholders to drive effective change.