How to optimise cash flow in today's business environment

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How to optimise cash flow in today's business environment


Working capital is the lifeblood of any financial organization trying to provide business agility. If your working capital needs are too high, you may miss out on acquisition or equity opportunities, not to mention poor shareholder satisfaction with a sub-optimal balance sheet.

While many people look to treasury and fancy cash management principles and even currency hedging, the main culprit of poor working capital and the easiest way to fix it lies in your financial operations. Or, as Ray Wang, principal analyst, founder and president of Constellation Research, mentioned in our recent Q&A session, it can make the difference between becoming a high-performing financial organization or becoming part of the 52% of Fortune 500 companies that go bankrupt.

Where to start optimising working capital

There are many ways to optimise your financial operations that can help, such as improving accounts receivable and collections, reducing prepayments and exchanging discounts for payments at a later date, maximising early payment discounts.

But if you are smart, you will ask yourself, "Where is the easiest place to fix that would have the biggest impact on the business?" And, "How can I make this change lasting, so that it is not a one-off adjustment that will revert to the same bad behaviour in a few months?

Avoiding early payment of invoices

One of the quickest measures is to stop paying invoices before they are due. If your payment terms are 30 days, why pay an invoice 15 days after receiving the goods? This may seem obvious, but we see this happening (unintentionally) with many of our customers, and the root cause is friction in their procure-to-pay process.

Often, such prepayment is an error resulting from inaccurate due dates on an invoice. Even a simple change in the required delivery date can cause an unnecessary prepayment, and the impact can be enormous.

For example, on $857 million in invoices, if paid 15 days after "goods received" instead of 30 days, an additional $27 million in working capital is needed. At a conservative 7% cost of capital, this equates to $1.9 million in additional working capital costs. And this is a conservative approach - it does not even take into account the opportunities lost by not using the $27m for the benefit of other areas of the business.

Obviously, paying early is not done on purpose, but is the result of friction in your systems and processes. What if there was a way to proactively identify invoices that are going to be paid too early, alert the accountant to these invoices and recommend action to ensure that invoices are paid exactly 30 days, all in real time?

Paying on time, every time, with process mining

This is what we offer through our Celonis Frictionless Finance solution and pre-built accelerators. We have developed a specific solution to help finance managers optimise working capital, improve productivity and reduce compliance issues.

The solution includes several pre-built accelerators to speed up your time and reduce friction. Our process extraction technology identifies common friction points in your financial processes, and then we use machine learning and business rules to recommend the next best actions to your finance and accounting associates.

It's an elegant and fast way to kick-start that working capital initiative and restore agility to your organization. And it's fast to get value, with pre-built connectors and content from over 2,000 customer projects, you can start getting those millions back tomorrow.

About the Author: Southard Jones, VP, Product Marketing

Southard Jones is vice president of product marketing at Celonis. Prior to Celonis, Southard held a number of executive product and marketing positions at enterprise software companies in the business intelligence, analytics and data science market, including Domino Data Lab, Birst, Right 90 and Siebel Analytics.

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