Effective working capital management can have a significant impact on a company's profitability. Working capital is the difference between a company's current assets, such as cash, accounts receivable, and inventory, and its current liabilities, such as accounts payable and short-term debt. It represents the resources that a company has available to fund its operations and meet its financial obligations.
Effective working capital management involves balancing the competing interests of liquidity and profitability. On the one hand, a company needs to maintain sufficient liquidity to meet its short-term obligations and avoid financial distress. On the other hand, holding too much working capital can tie up funds that could be invested elsewhere, such as in revenue-generating activities or growth opportunities.
There are several ways that a company can manage its working capital to improve profitability:
- Optimizing inventory management: By reducing the amount of inventory that a company holds, it can free up cash and reduce storage and carrying costs. This can be achieved through techniques such as just-in-time inventory management, which involves only ordering the inventory that is needed at the time it is needed.
- Improving accounts receivable management: By speeding up the collection of accounts receivable, a company can improve its cash flow and reduce the risk of bad debts. This can be done through measures such as offering discounts for early payment, implementing credit policies, and using credit scoring to assess the creditworthiness of customers.
- Managing accounts payable: By negotiating longer payment terms with suppliers and delaying payments until the last possible moment, a company can improve its cash position and reduce the cost of borrowing. However, this must be done carefully to avoid damaging relationships with suppliers.
- Financing working capital: A company can use various financing options, such as short-term loans or lines of credit, to manage its working capital. These options can provide the company with the funds it needs to meet its short-term obligations while it waits for its assets to turn over.
In summary, effective working capital management involves finding the right balance between liquidity and profitability. By optimizing inventory management, improving accounts receivable management, managing accounts payable, and financing working capital, a company can improve its profitability and achieve long-term financial success.
Qube offers the possibility to effective working capital management by:
- Optimizing working capital using PRI® CrediSoft;
- Monetizing open account receivables through PRI® inside.
PRI® inside Platform
The fully automated solution for account receivables (or AR) financing by PRI® inside offers:
- Daily (re)purchase of invoices
- Daily portfolio analysis and portfolio review
- Daily notification of purchased receivables
- Daily settlement of credit-notes and uncollectable invoices
- Daily liquidity calculations
- Full ‘track and trace’ solution, all required steps are logged and documented
- Fully automated data-exchange after one-off implementation of data-exchange protocol
- Daily funding and settlement towards participating companies & institutions
- Fully integrated risk, operational and legal framework
Set-up for daily settlement routine is defined on automated interface between client’s financial and operational systems and Qube’s PRI® inside. Interface will be implemented and supported by Qube Servicing.
After go-live Qube’s clients will have access to all daily settlement reports with automated instructions for payments if required, resulting in a very limited work-load for clients on an ongoing basis.
In addition, PRI® CrediSoft is a proprietary receivables credit & collection add-on application supporting credit management processes serviced by Qube Servicing. The application manages and integrates collection workflows and tasks and is fully integrated with PRI® inside.
PRI® inside has been developed based on the in-depth experience with receivables finance with the objective to have a fully front-to-backend automated receivables finance platform based on historic and actual data which to provide full insight & transparency which will be evidenced by demo on request.