Treasury Today Country Profiles in association with Citi

Making working capital work

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Treasurers are increasingly playing a more central role within the organisation when it comes to optimising working capital. Where are the opportunities for treasurers to drive improvements in this area – and which challenges are likely to arise along the way?

Working capital management is a perennial concern for companies around the world – and in today’s environment, corporate treasurers are paying closer attention to this topic than ever before.

“This is a subject that is on every corporate client’s agenda,” says Michael Vrontamitis, Head of Trade, Europe & Americas at Standard Chartered. “Treasury is becoming much more focused on working capital management as technology evolves and we move into the real-time world. This is being driven by the emergence of real-time payment systems and real-time information, particularly in Asia where developments like Alipay, WeChat and others are blazing the way.”

There are considerable opportunities to tackle this area more effectively. Varoon Mandhana, Senior Advisor, APAC Solutions, Treasury Services, J.P. Morgan, explains that companies that are able to optimise the use of capital through effective working capital management are able to generate higher return on capital employed (ROCE) by reducing their overall capital base and improving shareholder value. “Cash released though working capital optimisation presents an opportunity for companies to potentially retire expensive debt, internally fund projects and acquisitions as well as pay back shareholders,” he adds.

Taking action

There are many reasons for focusing on working capital management – but how can companies tackle this area effectively?

For one thing, it’s important to look broadly at the different components of working capital: days payable outstanding (DPO), days sales outstanding (DSO) and days inventory outstanding (DIO). Companies can improve working capital in a number of different ways, such as by taking longer to pay supplier invoices – and, conversely, by collecting payment faster from customers.

“In the past, a lot of companies have focused only on getting benefits on the payables side by delaying payments to their suppliers,” says Venkat ES, Head of Asia Treasury Product Global Transaction Services at Bank of America Merrill Lynch. “But increasingly companies are focusing on receivables and inventory as well.”

Getting it right

There is plenty that organisations can do to optimise their working capital – and, equally, there are a number of challenges that can arise, and pitfalls that may need to be avoided. After all, a project which fails to meet its original goals – or which sees staff reverting to old processes over time – is unlikely to deliver the fullest possible benefits.

“When we implement these programmes, they are perennial,” says Vrontamitis. “It isn’t a case of implementing the deal and then having service reviews every six months. You’re constantly on-boarding suppliers onto the programme – and, of course, the purchasing needs of the company will change over time.”

  • Focusing on the basics. “My suggestion is to focus on getting the basics right,” explains Vrontamitis. “For example, if you are looking to increase payment terms from 30 to 60 days while adopting a payable financing programme, you first need to make sure that you have consistent processes in place for approving and paying invoices.”

  • Collaborating on KPIs. Also important is making sure that companies are applying key performance indicators (KPIs) consistently across divisions where working capital is concerned.

  • Organisational change. The entire organisation needs to pull in the same direction when improving working capital – and this requires effective change management.

  • Securing buy-in. Vrontamitis emphasises the importance of having buy-in from all relevant stakeholders when using techniques like payables financing and pre-shipment financing.

  • Achieving consistency. Vrontamitis notes that the regulations in Asia vary from market to market, meaning that solutions that work in some markets may present challenges in others.

  • Technology and data. Mandhana says that companies are starting to focus on data management and data visualisation tools that can bring the required visibility and insights into working capital management.


From promoting a cash focused culture to centralising cash management, treasurers can play an important role in creating the conditions needed for working capital success. Key to achieving success in this area is overcoming the possible obstacles by putting consistent processes in place, applying clear KPIs and gaining buy-in from everyone involved – as well as making the best use of the technology and data available.