How to keep your working capital healthy?

Too much working capital is not sound for your company. The cash conversion cycle defines how long funds are tied up in the cycle of purchase, production, inventory, sales and receipt of payments. If each process within your operating cycle runs efficiently, your cash conversion cycle will run smoothly. You can reduce your need for working capital by building in more security.

Well-oiled machine

Efficiency on the work floor and in logistics processes, optimised stock management, an adequate policy towards customers and suppliers: it all ensures that your company is a well-oiled machine and that your working capital requirements remain under control. Every department within your company contributes to this.

How to shorten your cash conversion cycle?

You can shorten the cash conversion cycle and reduce your working capital needs by building in more security. These three building blocks will help you:

1.         Credit insurance

Trade credit insurance has a positive effect on your cash conversion cycle. It allows you to evaluate in advance how creditworthy the counterparty is and ensures you that an unpaid invoice is reimbursed up to a predetermined maximum amount. That way the cash you are counting on is available. If you opt for credit insurance, your company can safely prosper.

Learn more about trade credit insurance

2.         Guarantees

The need for working capital decreases if you make smart use of guarantees to replace cash. Two classic examples are advance guarantees and money retention bonds. If you are a company that produces long-term or capital goods (such as construction and mechanical engineering), you can fundamentally improve your cash position thanks to guarantees. In other sectors and domains, as well you can block money on an account or replace an immediate payment with a guarantee. Think, for example, of public procurement, trade in excisable goods or imports.

Find out more about guarantees

3.         Fraud insurance

Fraud, internal and external, is a risk if you want to trade safely. Fraud insurance protects your assets and covers losses caused by fraud such as financial losses, damage to systems and reputational damage by your own employees or people from outside your company. In this way, you protect your cash position in order to continue doing business.

Learn more about fraud insurance

 

The working capital whitepaper discusses the importance of optimal working capital management in detail. Discover numerous practical tips that will help your business move forward.

Do you have any questions or would you like advice? Feel free to contact us.