Cash Flow and Working Capital
How do we manage working capital, collect accounts receivables, and monitor cash use effectively?
You have to effectively collect on accounts receivable to fuel better performance. Managing the profiles of aging accounts receivable or days of sales outstanding (DSO) is a key priority. At the same time, delaying your own accounts payable is good for cash flow. To work this area to your best advantage, Finance must have keen insight into the data as well as customer and supplier preferences to ensure the bottom line does not damage valuable relationships and performance.
Working capital requirements have a direct impact on the market valuation of a business. Thus, they are also a critical area for Finance to monitor.
With the Cash Flow and Working Capital decision area, you can set planning goals and scorecarding metrics for performance management elements such as:
- Accounts receivable (AR) days (#)
- AR or Accounts Payable to Sales (%)
- Net cash flow ($ and %)
- Working capital ratio (%)
- Accounts payable ($)
- Current assets and liabilities ($).
You can analyze the goals and metrics for this working capital area by a number of dimensions to find hidden gems in the data:
- Fiscal month / year
- Cashflow lines
- Division / department.
Using the Cash Flow and Working Capital decision area
You set targets based on your goals and metrics in Cash Flow and Working Capital. You monitor your success by looking at how you measure up against your targets. Further, you dive into your results to find out more about these elements driving performance management.
- Net cash flow ($) : Is the business managing its valuable cash resources?
- A/R to Sales (%) : How does the ratio of accounts receivable to sales compare to the industry average?
- A/P ($) : Are our accounts payable days increasing?
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