How Leaders Can Improve Working Capital and Enjoy a Strategic Advantage

Leading a business can be challenging and stressful but, at the same time, very rewarding. Would it not be great to have opportunities to grow your business, making it more lucrative by optimizing your working capital. Businesses gain strength by ensuring they are maximizing and optimizing their working capital. Working capital is a monetary metric calculated as the difference between current assets and current liabilities. Healthy working capital equals more disposable funds allowing you to pay off company debt or make strategic acquisitions. Raising working capital means you need to make money through strategic investments in the business and grow market share.

Managing your organization’s working capital and cash flow is critical to ensuring long-term financial stability. Arthur Lawrence’s Finance & Accounting services (FAS) practice has designed the following six strategies that have helped companies not only weather unpredictable economic times but allowed them to continue to thrive while others struggle. Let’s dig deeper into how leading companies optimize working capital and gain a strategic advantage.


Strategy I: Accountability, cooperation, and sharing of information


Cost-containment strategies for most organizations begin with gaining insight into spending. Those who move their research efforts away from monitoring company expenditure to collecting insights from cash outflows can assist you in making strategic business decisions. Using dashboards gives you real-time insight into your budgets. Choosing the right benchmarks and key performance indicators can help you monitor the working capital needed to support the organization.

Arthur Lawrence’s FAS team promotes openness and understanding in budgeting performance and working capital optimization. Current expenditures are equally vital, although sometimes disregarded. Our FAS experts encourage functional and departmental leaders to discuss and share essential metrics and key performance indicators that foster a fiscally responsible culture and enable your business to make better-informed decisions.


Strategy II: Fiscal governance and policies for working capital optimization


Effective communication and financial transparency are essential for successful cost-containment initiatives. Arthur Lawrence’s FAS team helps strengthen internal spending controls via governance and clearly defined procedures that will advance your efforts in optimizing your working capital. This service function emphasizes an enterprise-wide focus on minimizing discretionary expenditure by establishing authority around spending-related rules. For example, our FAS team uses business intelligence technologies to allow the organization to examine the real-time logs of enterprise-wide purchases. These analytics can also help you determine where overspending could be happening, including departmental overspending.


Strategy III: Vendor management and consolidation


Vendor management can be accomplished via supplier consolidation. Our team’s processes can help you negotiate the best prices with essential providers, resulting in decreased expenditure in areas such as freight and transportation. Our FAS experts can help you discover more optimal strategies for working with crucial suppliers. These strategies range from straightforward transactions to more in-depth data mining and analysis procedures. The Power BI dashboards can show these in-depth insights about vendor costs.


Strategy IV: Utilizing technologies for working capital optimization


Outsourcing partnerships can free you from making significant investments in technology or custom infrastructures. Technological advancement, necessary for increased competency in the industry, is easy with outsourcing. Our global delivery team uses integrated software that can automate your back office. Automated data entry solutions give you access to highly accurate financial data and cash flow figures, scheduled bill payments, collections., Thus, leading to a well-coordinated cash flow management. It will save time and bypass cash flow issues by automating your accounting processes.


Strategy V: Identify the most important activities


If your working capital is not up to par, or you are concerned about financial security, Arthur Lawrence’s FAS experts can help you revert to the most basic cost drivers that can be incredibly beneficial for your business. Therefore, it would be helpful to revise some of the significant costing assumptions in light of current economic circumstances and consider the economic prognosis.

Our team’s sophisticated working capital optimization strategies can use arbitrary indirect costing allocations to achieve your objectives. By concentrating on primary tasks, we can uncover the most responsible factors allowing for educated cost allocation choices in the future. Once your core activities are defined, you will be able to gain valuable insights that will assist in the formulation of strategic decisions. For example, our FAS team can help you determine if excessive time is being spent driving production on low-profit items. Our FAS team can use this data to navigate production to activities directly impacting new working capital.


Strategy VI: Cash conversions


The cash conversion cycle is a metric that expresses the length of time (in days) that it takes for a company to convert its investments in inventory and other resources into cash flows from sales. The shorter the cycle, the smaller the window of opportunity for reinvesting the capital back into the company. Concentrating on tactical methods to compress your cash conversion cycle is a practical approach to working capital optimization and increasing cash flows during cash-constrained business cycle stages.

As cash reserves become scarcer across the board, your clients may be hesitant or feel they cannot make timely payments on their outstanding balances. Considering this, the FAS team can design reward programs for on-time payments. This is just one component of the cash conversion cycle. There are other strategies that you can use to maximize your working capital. We can design alternative cash conversion programs.

Although we cannot undo the economic disruption created by the global pandemic, we can empower your company to prepare for the future by minimizing the effect of the pandemic in the present.

By implementing a combination of these cost-containment methods, Arthur Lawrence’s FAS teams can assist you in preparing for financial any potential financial hardships that could arise in the future.


Arthur Lawrence’s Finance and Accounting Services


An Arthur Lawrence partnership simplifies and automates critical back-office processes to better adapt to changes in a business environment. Our finance and accounting outsourcing solutions improve operations such as accounts payables and receivables administration, cash applications, account consolidation, reporting, and tax preparations. Outsourcing with Arthur Lawrence allows you to shift the fixed cost of full-time employees (a full-time salary) to a variable cost of an outsourced team. Outsourcing frees up cash flow to expand your business and put it to various uses. To gain more insights into optimizing working capital for your organization, please get in touch with our team; we would love to help you.