Working capital is vital to a having a healthy business. Just as we measure our health by looking at cholesterol levels and blood pressure, working capital is an indicator of a healthy business. At the moment we are looking a bit unhealthy.
Working capital is made up of stock or inventories plus debtors (those who owe us money) minus our creditors (people we owe).
Our stock and debtors are like saturated fats – we need to keep them as low as possible to keep healthy.
Our creditors are like green veg – we need lots of them to stay healthy. We need to keep creditors in our working capital for as long as possible to maximise the time before we part with our cash.
So what can you do to reduce our fat intake and increase our veg??
- Resolve customer queries so there is no excuse for our customers not to pay us on time
- Encourage more customers to pay by direct debit
- Keep spares stock to a minimum or arrange consignment stock with the supplier – ‘just in time’ not ‘just in case’
- Use suppliers that agree to CEMEX’s standard payment terms – every exception costs us in working capital
- Encourage more suppliers to join our supplier finance scheme
- ‘Goods receipt’ in SAP as soon as you receive goods or supplies – this ensures that the liability is recorded and this helps our working capital
See the working capital presentation on the download section of UK news for more info.