At the start of every new financial year, CFOs in every organization has one common KPI to fulfill for the year- Reduce Working Capital Costs!
Modern businesses that have opened up different verticals from manufacturing to Ecommerce have experienced a steady rise in their working capital costs with the passing of every year.
However, in 2021, there is a proven way how CFOs, CEOs, and other high-ranking executives can lower working capital costs- Technology!
In this article, we are going to discuss three major things-
- Define Working Capital Costs in Modern Businesses
- Identify technologies that can help in reducing Working Capital Costs
- Discuss the Future of Technological Integrations into Modern Businesses
If you are someone looking to optimize the performance of your B2B business, you should pay attention to the contents of the article.
Working Capital Costs: Meaning and Definition
In very simple words, working capital is the amount of money a company needs to handle its expenditures. These can be your day-to-day expenditures, a once-a-month expenditure, or any other unforeseen emergencies.
According to experts, working capital is calculated by subtracting the company’s total current assets from its current liabilities. Assets are then further divided into liquid and non-liquid assets.
Liquid assets are cash-in-accounts, securities, and other financials that can be diluted quickly to raise cash and pay for expenditures.
Different types of businesses have varied working capital cost requirements. For some companies, like tech, the sales cycle is not very long. Whereas, for many manufacturing businesses, the sales cycle can be pretty long.
This creates stress on the working capital costs- you need to sell something to earn. If the selling takes too long, the earning too will be delayed.
How Technology can help B2B Businesses reduce Working Capital Costs
There are three major ways or applications where technology can help in reducing working capital costs-
Financial Data Analytics and Real-Time Solutions
A company that is aware of where it stands in terms of its cash flow is in a much better position to handle its working capital costs. In most situations where problems come up, business owners and higher management officials are not aware of where they stand on the financial front.
Having transparent and timely knowledge can help in consolidating finances, take the right business decisions, cut down on expenditures during difficult months, and allow for easier cash flows. This also includes working with HR to understand recruitment costs.
AI and ML Enabled Inventory Management Solutions
One area whose effective management can prove to be a gamechanger for reducing working capital costs is inventory management. Most businesses suffer from severe problems regarding the same. Working with obsolete stock, problems with restocking, delays in sales cycles, etc, are all common problems that good inventory management software can address.
Verusen, a leading name in the industry states that reducing B2B working capital costs is also about taking into consideration the omnichannel presence modern businesses have. Everything, from offline to online channels and platforms need to be taken care of.
Improve Stakeholders Coordination and Integration
As a B2B business, you do not want to have many loose ends. In other words, every loose end for a business means more time, effort, and delayed financial payments credited into bank accounts. It is important that technological help is sought to improve coordination and integration.
Using GPS-enabled tracking systems on transportation vehicles, allowing vendors to maintain contact on workflow task assignment software, etc. can all help in improving coordination and fasten the output for a B2B business. This, in turn, can have a positive effect in reducing sales cycles and helping in cash flows in an organization.
The Future of Technology Applications in Modern Businesses
Technology in order to realize its effective vision in business applications needs to be affordable, understandable, and scalable in its intent. There is no doubt that using technologies can open new areas of opportunities for modern businesses. However, technology should ensure that regardless of the scale and size of the business, innovation is helping develop better, faster, and more efficient trade and commerce.