One Rapid-Fire Way to Optimize Working Capital Today

Working capital is the lifeblood of any finance organization trying to provide agility to the company. If your working capital requirements are too high, you can miss out on acquisition or capital opportunities, not to mention the poor shareholder satisfaction with a less than an optimal balance sheet.

While many folks look to the treasury and elegant cash management principals and even currency hedging, the main culprit in poor working capital and easiest way to fix it lies in your financial operations. Or as Ray Wang, Principal Analyst, Founder, and Chairman of Constellation Research, mentioned in our recent Q&A, it can make the difference between becoming a top-performing finance organization, or becoming one of the 52% of Fortune 500 companies to go bankrupt.

Where to Start Optimizing Working Capital

There are many ways to optimize your financial operations that can help, like improving receivables and collections, reducing early payments, and trading cash discounts with payments at a later date maximizing cash discounts.

But if you are smart, you will ask yourself, “What is the easiest place to fix that would make the largest business impact?” And, “How can I make this change last, so that it isn’t a one-time adjustment that reverts to the same bad behavior in a few months?

Avoid Early Invoice Payments

One of the quickest is to stop paying invoices earlier than you should. If your payment terms are 30 days, why pay an invoice 15 days after you receive the goods? This may seem obvious, but we see this happen (unintentionally) in many of our customers, and the root-cause is friction in your procure-to-pay process.

Often that early payment is a mistake resulting from inaccurate due dates on an invoice. Even a simple change in the required delivery date can often cause an unnecessary early payment—and the impact can be huge.

For example, on $857M in invoices, if you are paying 15 days after “Goods Receipt” instead of 30 days, you require an additional $27M in working capital. At a conservative 7% cost-of-capital, that equates to $1.9M in excess working capital costs. And this is a conservative approach—it doesn’t even factor in the opportunities you missed from not using the $27M to benefit other areas of the business.

Obviously, paying early isn’t done on purpose, it’s a result of friction in your systems and processes. What if there was a way to proactively identify invoices that are going to be paid too early, alert the accountant to these invoices, and recommend an action to ensure the invoices are paid at exactly 30 days—all in real-time?

Pay On-Time, Every Time with Process Mining

This is what we are offering through our Celonis Frictionless Finance solution and pre-built accelerators. We have developed a purpose-built solution to help Finance leaders optimize working capital, improve productivity, and reduce compliance pain.

The solution includes multiple pre-built accelerators to speed up your time to reduce friction. Our process mining technology identifies common friction points in your financial processes and then we use machine learning and business rules to recommend next-best-actions to your finance associates and accountants.

It’s an elegant and fast way to get a jump start on that working capital initiative and put some agility back in your organization. And it’s fast to realize value, with pre-built connectors and pre-built content from over 2,000 customer projects, you can start getting back those millions tomorrow.

Southard Jones

VP, Product Marketing (former)

Southard Jones is the former VP, Product Marketing for Celonis. Prior to Celonis, Southard held various executive product and marketing roles at enterprise software companies in the Business Intelligence, Analytics, and Data Science market, including Domino Data Lab, Birst, Right 90, and Siebel Analytics.