This post is the fourth and final in a series based on the research report Working Capital Management by the National Center for the Middle Market. It outlines best practices for improving working capital management and freeing up more cash in your business. Download the full report here.

As our latest research implies, most middle market companies are sitting on an enormous opportunity to improve working capital management and uncover sizable sums of hidden cash in their businesses. That cash can be used to improve the profitability, competitiveness, and value of their companies.

That’s intriguing, you say--but there’s no such thing as easy money.

While dramatically altering the way your firm approaches payables, receivables, and inventory—the three keys to working capital management—takes work, even minor modifications to how you approach and manage cash can put a lot more of it in your accounts.

Here are just a few steps you can take to make a real bottom-line impact in short order:

  1. Clarify the concept. While the idea of working capital may be a bit abstract, everyone understands cash. When all of your associates, and not just top leaders, comprehend the ways in which business can use cash better (collect faster, pay more slowly, reduce unnecessary inventory, etc.) and the benefits of more cash in the business (less stress, greater job security, bigger paychecks, more opportunities to grow) they are more likely to get on board to help you find more of it. Your employees’ actions directly affect cash flow, so it’s in your interest that they understand their role in the process and how they can make a difference.

  2. Share your financials. If you want your team involved in finding more cash, show them the bottom line. Give managers access to financial statements and regularly review with everyone how much cash your business has. Teach all employees how the business makes money. When employees know and understand the numbers, they will be much more committed to helping.

  3. See how you measure up. The Center’s research shows that only half of firms currently use benchmarks to measure working capital management success. But since you can’t manage what you don’t measure, failing to find out where you stand compared to your peers is a major oversight. If you want to improve your benchmarking efforts, you can start by comparing your numbers to those provided in our full research report, Working Capital Management: How Much Cash Is Your Business Tying Up? Or use our Working Capital Benchmarking tool. You can also access financial information for publicly-traded companies in your industry, use the figures to calculate days sales and payables outstanding and days in inventory, and see how your own numbers stack up.

  4. Review your policies. How you manage receivables, payables, and inventory has a direct impact on cash flow. Making some adjustments, such as taking full advantage of payment terms, billing promptly, setting favorable payment terms, and learning lean production techniques to keep inventory moving can go a long way toward putting much more cash in your coffers.

  5. Assign specific responsibilities. Once you have policies in place, empower employees to uphold those polices and achieve goals. Give them the decision-making authority to enforce the rules.

  6. Track and reward performance. Establish KPIs to measure how employees are doing in terms of payables, receivables, and inventory. Then reward them for achieving their goals. The fastest-growing, best performing middle market businesses are much better than their peers when it comes to designing appropriate incentives to drive improvements in working capital. And they are more likely to link employee compensation to capital management KPIs.

Discover more working capital management best practices.

Implementing the tips above can help your business begin to create a cash culture and put policies in place to maximize your cash flow. For more specifics on how to uncover cash in your business, see the Center’s full research report, Working Capital Management: How Much Cash Is Your Business Tying Up?

Others in this series
Post 1: Cash Is King: How Good Working Capital Management Practices Can Help You Get More of It.
Post 2: Your Working Capital Management Approach: Is Good Enough Really Good Enough?
Post 3: Millions of Dollars in FREE Cash? What’s Your Working Capital Management Financial Opportunity?






This post is part of a larger research project by the National Center for the Middle Market. Get the full picture through the resources below: