Liquidity from your own resources: Why working capital management makes the difference now!
In tough economic times, the first question is not: “Where can we cut costs?” Rather: “Where is our tied-up capital – and how do we get it back?” The answer often lies in an inconspicuous but powerful concept: working capital management (WCM).
What sounds sober is actually an effective lever for cash flow, efficiency and resilience – provided that WCM is not seen as a short-term measure, but as part of strategic corporate management.
The ICV guide: Practice meets systematics
In response to the 2008/2009 financial crisis, the ICV worked with company representatives, academics and consultants to develop a practical guide to working capital management. Three years of work, one clear message: WCM is not an optional extra – it is a duty.
The guide offers:
- Conceptual clarity and knowledge of key figures
- Procedure models for the introduction
- Checklists for responsibilities
- Best practices from companies
It has been translated into six languages and is still regarded as the standard work for practical WCM.
What is working capital all about?
In simple terms, working capital describes the capital tied up in day-to-day operations: inventories, receivables, liabilities. These are all items that fluctuate on a daily basis – and this is precisely where the opportunity lies.
If you manage to negotiate payment terms wisely, keep inventories lean and actively manage payment terms, you can free up capital – without any bank discussions or restructuring.
But be careful: WCM is not just a financial issue. It is an interdisciplinary task that only works if purchasing, sales, production, accounting and controlling all pull together.
The top key figure: cash-to-cash cycle
The cash-to-cash cycle (CCC) is the pacemaker in working capital management. It measures the number of days that elapse between paying suppliers and receiving money from the customer.
The formula is simple, the effect enormous:
CCC = days in inventory (DIV) + days sales outstanding (DSO) – days payable outstanding (DPO)
A short CCC means that capital circulates quickly, is less tied up and is available again sooner. A negative CCC – in trade, for example – can even mean that suppliers (co-)finance the business. Clever.
Three levers for more liquidity
Receivables management (reduce DSO):
Those who collect faster have faster cash. A good dunning system, active customer communication and clear payment targets help.
Stock optimization (reduce DIV):
This is often where the greatest treasure lies. If you know your production and sales processes, you can avoid excess stock and significantly reduce capital commitment.
Extending payment terms with suppliers (DPO):
Naturally in dialog, not by dictation. If you extend payment terms intelligently, you create financial leeway – but without straining the relationship with the supplier.
The underestimated power of the process view
Many companies still optimize from the perspective of individual departments. However, WCM requires end-to-end thinking: from ordering from the supplier to warehousing to payment by the customer. This is the only way to uncover frictional losses and blind spots.
Typical stumbling blocks:
- Sales promises delivery times without knowing stock levels.
- Purchasing orders too much “in stock” – without reference to demand.
- Accounting posts late – which distorts cash flow forecasts.
In short: without common goals and coordinated processes, WCM remains a numbers game without effect.
Why this is important now
Studies show: 490 billion euros could be freed up in European balance sheets through better working capital management (source: Ernst & Young). And the potential can often be realized quickly:
5% sales optimization – half of it within a year.
But the real benefit lies elsewhere: in the flexibility that is created. If you tie up less capital, you can invest faster, react more intelligently and act more independently.
Conclusion: Working capital is more than controlling
It is a strategic lever for corporate management, cash flow and competitiveness – especially in turbulent times. The ICV stands for Controlling Excellence in practice – and WCM is a prime example of this.
So: keep an eye on CCC, break down silos, network processes! Liquidity lies within the company. You just have to free it!
You can find out more about the guide here.
And the Working Capital Management expert group is still working on the topic 😉
