Beyond Sound Working Capital Management
...in times of Social and Economic Immobility
Tough times call for tough measures. An economic slowdown affects both large corporations as well as SMBs in equal measure, but the road to recovery is tougher for small and medium sized businesses. That is because SMBs generally tend to focus on their core competence and rely heavily on one or two market segments for revenue generation. Large enterprises have the benefit of spreading the risk of non-performance or low productivity across different consumer markets — an engineering firm may have a strong footing in manufacturing, service, as well as consulting.
Another trouble with SMBs is that their resources are often stretched thin due to lower manpower and capital investments, and this can pose a problem in a tough economy, where a company is wholly dependent on its limited staff to sort out its financial mess.
Rather than focusing on organizational growth, SMBs often get consumed in managing mission critical tasks; this is especially true during crunch situations when businesses are only too happy to stay on top of their payables and receivables than worry about charting a definite growth trajectory.
While it is true that a negative working capital, with liabilities exceeding assets can send your company into a downward spiral very quickly, growth is not determined by how well you maintain your working capital. If organizations are to expand, they must place greater emphasis on business strategy.
Strategy comes from clarity, a clear picture of the current state of your finances and the necessary steps to be initiated to ensure allotment of funds to future projects and growth. Two of the major processes that characterize the basic business operational model for any organization are procurement and fulfillment, and the process chains that encompass these two are Procure-to-Pay (P2P) and Order-to-Cash (O2C), respectively. Each of these process flows include financial transaction, as is illustrated below:
Placing Requisition Order ⇒ Vendor Selection ⇒ Issue of Purchase Order ⇒ Invoice Reception and Reconciliation ⇒ 2-way/3-way Invoice Matching ⇒ Payment to Vendor ⇒ Reporting
Receiving Customer Order ⇒ Create Sales Order ⇒ Inventory Lookup ⇒ Delivery ⇒ Invoicing ⇒ Customer Payment ⇒ Records Management
The processes highlighted in bold constitute cash management for your company and are a critical component of your company reserves and revenues. Decline in operating cash flows indicates a need to focus on elevating working capital through optimizing cash management. This can be done with Intelligent Process Automation.
Optimizing cash management along procurement and fulfillment improves your company’s cash flows as well as sets you up for future growth.
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Having sound working capital and balancing your assets and liabilities is laborious even for SMBs. Also, these are the mission critical tasks that take up too much of your company’s resources and manpower. By taming operating costs along the process chain that deals with cash management, your company can plan for excess reserves in a tough economic climate. Process automation of your mission critical functions will help you manage your resources better and also direct your human capital towards more strategic initiatives.
The finance aspect of both these processes acts as a bridge between procurement and order fulfillment and when automated, creates a streamlined workflow of purchases and sales, all of which are visible and recorded on a common automation platform. An Intelligent process Automation platform connects you to your suppliers and buyers, giving you a holistic picture of incoming and outgoing cash flows for your company. This aspect of automation enables you to see clearly the assets and liabilities at any given point and help negotiate better deals with your suppliers and buyers for positive working capital.
Read how one company in the petroleum/energy sector leveraged Intelligent Process Automation to optimize and elevate their working capital — IPA Case Study. You will notice from the study that they were also able to free up their resources, both human and monetary, for more value-added functions, validating another fact that the benefits of streamlining core functions using Intelligent Automation are cumulative.
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