Working capital refers to the current assets and liabilities of a company. In order for a company to operate efficiently, its working capital must be monitored and managed effectively. In a fast-paced market environment, with heavy competition and new products in the market every day, managing cash and maintaining sufficient liquidity becomes difficult. For companies to manage their short-term liabilities and long-term investments, they must be able to have sufficient cash in hand. A company must monitor its current assets and liabilities regularly and be able to make timely reconciliations and debt payments to ensure healthy liquidity. Sound working capital management practices go a long way in ensuring a healthy build-up of cash reserves and low debt obligations for the long-term.
The main aim of working capital management is to maintain sufficient cash flows at all times. At any time, the working capital for a company is calculated as the net value of its current assets minus its current liabilities. Extra cash, accounts receivables, investments, and inventory, all account for current assets. On the other hand, current liabilities include pending debt payments and operational expenses (opex).
Maintaining a positive working capital at all times is difficult but a good way to manage healthy cash flows is by closely monitoring accounts receivables and accounts payables. For many companies though, the onset of more sales, although indicative of growing revenues, actually means incurring more expenses in terms of operating and manpower costs. The profit margins for growing companies are low as they need to pay for the running or overhead costs corresponding to an increase in production and sales. Also, if receivables are delayed, there is a delay in cash inflows, making it difficult to pay-off debt and invest in future opportunities.
There is hidden cash in document-dependent processes within accounts payable and accounts receivable that can be tapped into through process optimization. Technology is an enabler and if applied correctly, can usually streamline processes to function optimally. There are several perks to digitally transforming document-dependent processes that both small and mid-sized companies (SMBs), as well as large corporations, can take advantage of to ensure consistent financing and cash inflows in the long-term.
Apart from infrastructure maintenance and service, the cost of running operations includes manual paperwork. These are typical running costs that can be controlled and monitored for efficiency.
Accelerating Invoice & Order Processing: a major portion of accounts payable operations goes into performing tons of invoice data entry and data validation work. Slow invoice processing can delay payments to vendors, and you could end up paying late payment fees. Delayed vendor invoicing, payments processing, and reconciliations can lead to a slow build up of debt, not ideal for maintaining a positive working capital. To reduce bad debt, businesses must accelerate invoice processing and ensure they pay vendors on time. Timely debt reconciliations will also increase vendors’ trust in you, enabling you to purchase raw materials and goods from vendors at competitive prices. Maintaining your payables at a minimum will help you get clarity on the pending liabilities that must be reconciled and prepare you to handle your finances accordingly.
Order processing, like invoices, is another highly document-intensive, time-consuming manual process. A sales order is generated every time a customer places an order with your company. Processing orders on time will help you deliver and fulfill customer demand on time, but most importantly, by accelerating sales order processing, you will be able to prompt the customer to pay you for the goods and services provided without delays.
Intelligent process automation lowers the dependence on manpower to perform mundane, repetitive tasks in accounts payable and accounts receivable. Typical paperwork in AP/AR like invoice processing and customer sales order processing involve a lot of data entry and document processing work. It must be noted that apart from the savings achieved with early payments and faster fulfillments, optimizing and accelerating these processes will help companies lower the burden on the employees to implement these repetitive tasks and have them focus on more strategic tasks. Reducing the number of employees required to implement document processing in AP/AR will help lower the costs of hiring them, and subsequently free up cash.
Mobilizing Inventory: inventory sitting in your warehouse is a lost opportunity for sales, revenues, and business mobility. Also, the longer it takes to dispose or sell off inventory, the longer you’ll have to pay for the real estate and management to maintain that inventory. These are lost dollars that could hurt your working capital greatly. Data on inventory stock and logistics is very important to proactively manage inventory flows. This data is best cultivated, accessed and processed using technology.
Intelligent process automation software removes a lot of the inefficiencies and delays in processing documents and capturing data. The software utilizes digital transformation technologies like AI, machine learning, robotic process automation, intelligent data capture, and even powerful recognition software like OCR/ICR to capture, extract, validate, and verify data from transaction and source documents. What this does is it helps companies capture data and transaction information right at the source where it is generated like say, a sales order received by a retail facility. This data, when digitized and uploaded into a suitable workflow automation solution, makes it centralized, and highly accessible and visible to all concerned parties. For instance, a new sales order at a retail facility may trigger the concerned personnel at an inventory location to source, package, and ship the order to the retail outlet or directly to the end customer, depending on the logistics drawn out by a company.
Intelligent process automation captures business and transaction data at the source, processes it to make it useful to concerned parties along a process chain like say, an inventory management unit, and ‘repurposes’ that data for reporting and analytics, like say, understanding the current state of working capital and the way forward for businesses.