What is working capital management?

Working capital programs work to reduce supply chain risk and optimize cash flow to meet enterprise liquidity needs through payables finance and receivables finance solutions. These programs allow organizations to fully leverage their supply chain and optimize payment terms, while also improving the relationship between buyer and supplier.

Offering suppliers the ability to take early payments for invoices on demand supports and protects suppliers, shields organizations from shocks, and allows suppliers the ability to do more business. With a working capital program in place, organizations can easily tie sustainability objectives with financial incentives to encourage better behaviors as opposed to punishing suppliers for negative behaviors.

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Payables Finance Solutions

Payables finance solutions enable treasury and finance leaders to boost free cash flow and improve net income with payment optimization solutions to support payables term extensions or improve cash on return. Different payables finance programs include the following 3 solutions:

  • Supply Chain Finance – improve cash flows by optimizing payment terms to suppliers
  • Dynamic Discounting – optimize excess cash by paying suppliers early in return for a discount
  • Hybrid Dynamic Discounting – switch between third party funding and self funding solutions, dependant on cash position at any given point in time

Payables Finance Diagram

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Receivables Finance Solutions

Receivables finance solutions enable sellers to access early payment on outstanding receivables, while remaining in control of obtaining the most efficient funding sources for its receivables.

These types of programs provide the following benefits for suppliers:

  • Increased sales
  • Reduced credit risk position
  • Improved organizational cash position

Receivables Finance - Cash Flow Model

Working Capital for Financial Institutions

Financial institutions in particular can benefit from offering working capital programs to their corporate clientele. Such a program can differentiate a financial institution from the competition and foster better relationships with corporate clients.

Banks will often partner with technology vendors to create white label programs for supply chain finance. Some of the reasons banks choose to partner with vendors is because the SaaS environment eliminates the need for technical hardware and support, they are highly-configurable and can easily adjust to programs (by buyer, funder and jurisdiction requirements), and offer automated processes for loading files, e-notifications, sell offers, purchases, early payments and final settlement.

Choosing the Right Solution

The right solution is critical to the success of working capital management, regardless of if an organization uses a payables finance or receivables finance program.

When evaluating software and vendors to support these programs it is imperative that organizations look for a solution with expert teams, a multi-funder platform, program flexibility, supplier onboarding and a complete workflow — including cash visibility, forecasting, payments and pre-built ERP integration.