The evolution of corporate treasury from a tactical to a more strategic function has made treasurers an increasingly critical part of corporate planning. Thus, it’s imperative that treasurers build cross-functional relationships throughout their supply chains to fully understand all the factors that drive working capital performance. Assessing working capital holistically enables treasurers to pinpoint strategies for improving the company’s overall financial outlook.

Working capital is the cash flow your company requires to service maturing debt and fund operational expenses. It measures operating liquidity and consists of short-term assets minus short-term liabilities — which translates in practical terms to cash, inventory, and accounts receivable minus accounts payable. Although it’s expressed as a straightforward ratio, your company’s working capital position can be an incredibly complex figure that is influenced by every step of the supply chain, from procuring raw materials to collecting payment for finished goods. To optimize operational cash, treasurers need an end-to-end organizational view that encompasses and uses data from sales, procurement, accounts receivable, accounts payable, accounting and corporate finance.

Taking a holistic approach can help treasurers understand the individual components of working capital — each driven by its respective organizational function — and see how various components of daily operations impact working capital performance. Given their increasingly strategic responsibilities and ability to see across an entire organization, treasurers are often ideally positioned to spearhead these efforts — which can include identifying competing priorities, establishing cross-functional alignment, measuring performance and applying solutions.


Companies that make decisions within functional silos rather than holistically across the entire organization frequently fall short of optimizing working capital. Understanding that different functions may actually be pursuing competing priorities is an important step to managing working capital holistically — which can create even greater financial benefits across your entire organization.

As an example, a procurement department that is focused on improving pricing and expanding margins may be at cross-purposes with a corporate treasurer seeking to improve cash flow, reduce transactional costs and increase potential rebate opportunities by adopting or expanding a card program. In this instance, procurement may have concerns that switching to card payments could spur vendors to pass costs back to the company, negatively impacting margins for goods. But in many cases, vendors accept the associated fees as a cost of doing business that is already baked into their overall pricing methodology, so there is no impact to margins.

Cross-functional communication is essential to determining what’s best for the company as a whole. By comparing notes, procurement and treasury may also find that the big-picture working capital benefits of shifting spending to a card program may outweigh the negatives of potential margin compression. Or, by aligning cross-functionally, the two departments may be positioned to offer better terms to incentivize the vendor to accept card payments without passing on the associated cost — a win-win for both parties.

Although it’s expressed as a straightforward ratio, your company’s working capital position can be an incredibly complex figure that is influenced by every step of the supply chain.

Another common instance of competing priorities occurs between sales and treasury. Sales typically is not concerned with how a customer pays for goods or services, as long as payment is received within terms. Treasury, on the other hand, may be seeking to transition from paper to electronic payments to enhance visibility, centralize control, increase cash availability (reduce float) and potentially reduce processing costs. By aligning the interests of these two departments, sales can be engaged to negotiate electronic payments as the preferred method in their sales contracts — a simple process change that can result in significant overall benefits for the company.


Evaluating where you stand by using key performance indicators (KPI) can be a crucial activity that provides insight into operational efficiency and helps establish a baseline to measure subsequent improvements. The cash conversion cycle (CCC), or how long cash is tied up in operations, is commonly used to measure cash flow and can reflect a company’s overall financial health.

The CCC is comprised of three KPIs: Days Inventory Outstanding (DIO), Days Sales Outstanding (DSO) and Days Payables Outstanding (DPO). Combining DIO and DSO, and then subtracting DPO is a simple way to measure the number of days required to convert sales into cash following payment for raw materials. Changing any of these KPIs creates a cash flow impact. A decreasing CCC is ideal, since it indicates your company is generating extra cash flow over time.

Other important KPIs include the liquidity ratio — which measures the extent to which current assets cover current liabilities — and net working capital as a percentage of sales. A weak liquidity ratio could indicate working capital inefficiencies that may make it difficult to meet current obligations. Analyzing your net working capital as a percentage of sales can allow you to understand how much cash per every sales dollar your company needs to support its operations and short-term debt obligations.


After using KPIs and benchmarking to identify areas of improvement, the next step is to identify and focus on specific goals. Let's give you an example: "If your company’s DPO is 10 days shorter than your peer average, it’s essential to examine your supply chain from end to end to pinpoint the source of the lag. Is it caused by back-office process inefficiencies, strained supplier relationships or lack of strategy on establishing payment terms? These can all be easy to fix, but may have gone undetected without benchmarking."

In this case, the company would ideally focus on ways to achieve the goal of extending DPO, or holding onto its cash longer before paying suppliers. Depending on your KPI analysis, other goals may include reducing DSO — which translates to getting paid more quickly for finished products—or improving visibility and internal process efficiency.

Even if the benchmarking exercise reveals that your company is on par with peers or best in class, taking a holistic organizational view to understand the process behind each metric can help you determine which factors are driving the performance. Similarly, cash-rich companies with strong balance sheets should not overlook opportunities to eliminate inefficiencies. Although these companies may not have an immediate need for incremental cash flow, it’s still possible that improving processes, reducing costs and or communicating cross-functionally can generate financial benefits.


Once you have identified competing priorities and measured your performance, it is essential to build a plan to align your entire organization around the objective of driving holistic working capital improvements and applying solutions. Having an executive sponsor from the C-suite is a best practice for ensuring cross-functional buy-in. Ideally, the CEO, CFO or COO will be on point for setting specific goals and holding the various departments accountable for thinking holistically.

Equipped with relevant data and cross-functional participation, your organization will be better able to evaluate and apply practical solutions to support holistic working capital management. As technology continues to evolve, companies are increasingly switching from paper-based processes to fully integrated electronic solutions that increase efficiency, reduce cost, improve controls and enhance visibility.

The best solutions frequently work across several departments to deepen cross-functional alignment. Electronic payments, corporate card and supply chain finance could potentially improve vendor relationships while increasing visibility and eliminating costs, which can deepen cooperation among accounts payable, procurement and treasury. Similarly, adopting a merchant acquiring platform can help both accounts receivable and treasury deliver on their priorities.

Incorporating specific performance metrics into incentive plans for relevant stakeholders can be another way to solve for organizational misalignment. Your company can accomplish this by linking KPI improvements with compensation for the relevant function. As examples, key individuals in procurement could be rewarded for effectively extending DPO, while appropriate sales and credit roles could be rewarded for reducing DSO. This will require you to precisely assess which participants to incentivize, determine realistic metrics and reach across your organization to engage human resources.

Once you’ve aligned treasury, finance, sales and operations into a holistic framework, set regular intervals to measure internal KPI progress, benchmark against peers and discuss results.


After identifying objectives and beginning to apply solutions, it’s essential to begin measuring the effectiveness of your efforts. This can include tracking relevant data, establishing routines and communicating progress across your organization. Consider your system capabilities and the resources required for establishing clear visibility and routine communication. One way to accomplish this is to develop a centralized working capital dashboard within your enterprise resource planning (ERP) system that enables executives and key stakeholders to continually monitor KPI trends.

Dashboard data should include all relevant working capital inputs, such as current types of payments and receipts, standard payable and receivable terms, and internal processes across the procure-to-pay and order-to-cash cycles, which will help to align cross-functional stakeholders in support of your initiative. Buy-in from the C-suite can also help reinforce the organization’s commitment to support sustainable cash flow improvements.


Although it’s possible to achieve quick improvements from initial adjustments, the most successful projects require long-term thinking. Active working capital management is ultimately an ongoing campaign. Once you’ve aligned treasury, finance, sales and operations into a holistic framework, set regular intervals to measure internal KPI progress, benchmark against peers and discuss results.

In addition to continuously honing your internal processes, it’s important to stay attuned to external events that can alter your KPIs. Unexpected market swings, emerging industry opportunities, supply chain disruptions and shifts in customer sentiment may create new challenges or require you to adjust your working capital goals. Ultimately, the financial benefits of active working capital management — freeing up cash to invest in new products, pursue a strategic acquisition, pay down debt or build a liquidity cushion — can constitute a significant return on your investment.

If you need further information regarding Working Capital Management please feel free to contact IMG.