The 3 Fundamental Treasury Concepts: Working Capital Management

17-11-2022 | Vasu Reddy | treasuryXL | LinkedIn |

The 3 fundamental treasury concepts being discussed currently include Working Capital Management, Bank Relationships and Treasury Transfer Pricing which are pivotal pillars for effectively and efficiently optimizing cash, liquidity,  funding and managing risk for any Treasury function to support the achievement of the organizations business objectives and strategy. In the current blog of a series of 3, Vasu Reddy explains the best practices and benefits of Working Capital Management.

Trade and Working Capital Management Products offered by banks

Working Capital Management involves working with supply, purchase, procurement, production, delivery and sales.

What are the best practices to improve working capital balances?

  • Letter of Credits for imports, Bank Guarantees instead of cash prepayments, Documentary Collections
  • Trade loans, overdrafts
  • Structured Trade and commodity finance
  • Supplier/commercial Finance – including ESG – Green Bonds 
  • Bills & LC Discounting to improve cash collection
  • Receivables Discounting to monetize cash and reduce past dues with poor paying customers with no recourse
  • Securitization of receivables on customer contracts executed mainly by Mobile operators 
  • Selling Debt to off-taker/3rd parties with minimal haircut  
  • Procurement/Travel credit cards

Benefits from these practices

  • Trade finance improves working capital Efficiency, reduces borrowing costs and enhances cash flow.

What are the best practices for Cash and Liquidity Management?

  • Implementation and use of Online banking –Centralized single banking platform across region of operation
  • Robust cash planning and forecasting policies to ensure accurate cash flow forecasting by  working with Accounts Receivables, Payables and FP&A teams including businesses to submit monthly forecasts with post month-end review discussions to understand any material variations and investigation thereof. This must be CFO Endorsed to get overall Treasury, Finance, business collaboration. 
  • Overnight/Money market deposits – Invest excess surplus cash 
  • Structured Cash Sweeping/Cash Pooling arrangements for all LE’s – to minimize having excess cash in one country and simultaneously having borrowing in another country
  • Interest Optimization structures with Regional/Global banks to take advantage of wallet size 

“Cash is the life blood to sustain operations”  Vasu Reddy

Benefits from these practices

  • Reduced Borrowings/overdrafts, increased income 
  • Cash Visibility and improved  reporting and financial planning– Group Level 
  • Strong credit rating – improved Shareholder relationship/Returns
  • Strong positive cash flow and Balance sheet – Higher Dividend distribution
  • Cost savings, reduced manual interventions – errors, reduced head-count

Thank you for reading!


Vasu Reddy

Corporate Treasury, Finance Executive