Unleash Your Trapped Cash With Technology

Working Capital Cycle

The header itself can induce Melatonin, a chemical in our system responsible to make us feel sleepy. Yes, the topic can be quite dry, but what if we tell you that paying close attention to it can unleash 71 billion ringgit worth of trapped cash?

According to a study conducted in 2017 by PricewaterhouseCoopers, up to 71 billion Ringgit worth of “trapped cash” can be unleashed from 367 publicly listed Malaysian companies if they make improvements to their working capital cycle. 

Despite the sampled population, this scenario is not exclusive to big public listed companies. In fact, the study found out that bigger companies manage their working capital a lot better than smaller ones, hence, smaller public listed companies and SMEs will likely be worst off in terms of the amount of cash that are inadvertently locked. 

An updated report from the same big-4 outfit in 2020 below indicates that delays in the collection have gotten worst which is no surprise considering the economic climate that everyone is in today. 

So What Is Working Capital Cycle?

It is the operating cash flow that a company can convert or derive from its net profit. *BEWARE* There are many instances where you wonder why is there little to no cash available when you are registering healthy profit! Have you looked at your ageing report lately?

Working Capital Cycle is predominantly these three components:

  1. Days Sales Outstanding [DSO]
    • Process of contracting with customers through to making that sale and eventually making a successful collection of payments
  2. Days Inventory Outstanding [DIO]
    • Process of converting raw materials into finish goods and then keeping the goods until the point of being sold
  3. Days Payable Outstanding [DPO]
    • Process of contracting with suppliers, through to receiving of the goods and services and eventually making the payments to the suppliers

If you look at the chart below, the key to unlocking that trapped cash lies entirely with the DSO and to some extend – the DIO. 

Source: https://www.pwc.com/my/en/assets/publications/2021/pwc-my-2020-2021-working-capital-study.pdf

So, What Can Be Done? How Do We Unleash The Cash?

According to this excellent article from PwC, the remedies are 3 fold

  1. Processes: Agile and aligned to business objectives
  2. Technology: Greater monitoring and visibility of the business environment
  3. Cash Culture: Critical to be embedded throughout the organization for sustainability. 

 Processes and culture, especially the latter, can take a lot of time to plan, implement and cultivate. They deserve a fully separate section and discussion on their respective roles to unleash your trapped cash.

Technology, on the other hand, is not only the most tangible of the three but also the quickest to implement. By and large, it also automatically deal with sets of new, enhanced or improved processes during its implementation.

A dedicated software application for accounts receivable professionals is largely ignored by giant software providers locally and overseas. There are only a handful of international players and only one serious player locally. 

The reason lies in the fact that every ERP and accounting software would already have a comprehensive general ledger and invoicing module, which are used in combination with disparate email, sticky-note, Excel, and CRM systems by every collection departments throughout the country.  

An investment into Accounts Receivable Solution on the cloud will not only eliminate a tonne of inefficiency but it will ultimately help you COLLECT MORE DEBT in LESS TIME while incurring LESS COST

Where Can I Know More? 

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