BETTER WORKING CAPITAL EFFICIENCY: AN APPROACH TO CONTINUOUS IMPROVEMENT: Companies that make working capital efficiency part of their culture have the opportunity to generate more of their working capital internally.

This is the third in a series of informative monthly articles for North Carolina businesses from PNC in partnership with Business North Carolina magazine.

Companies that make working capital efficiency part of their organization's culture have the opportunity to generate more of their working capital internally, thereby lowering costs, improving their performance and boosting their competitive position.

When outside capital is needed, good cash flow and working capital management will make it easier to find and less expensive no matter what the economic cycle.

But even the best companies can do better. The key is not to treat the pursuit of working capital efficiency as a limited project that ends at implementation, but to realize that implementation is just the beginning of an ongoing process.

ESTABLISH GOALS & DEVELOP AN ACTION PLAN

The first step is to establish "best in class" performance goals around central issues--like the length of your cash conversion cycle--and develop metrics that measure actual performance against the desired outcome.

Continually monitor performance against your goals and analyze gaps to determine their root causes.

Then, develop and execute detailed action plans to address and remedy performance shortfalls and uncover additional metrics or measures that should be tracked.

The key is not to treat the pursuit of working capital efficiency as a limited project that ends at implementation, but to realize that implementation is just the beginning of an ongoing process.

Your action plan might include establishing a "closed loop" procedure to link cash management processes across departments. This move can improve control and decision-making and increase operational flexibility.

Consider reinforcing the importance of working capital efficiency throughout the organization. For example, you might tie management and employee bonuses to working capital metrics, sending the message that they are just as important as revenue and profitability goals. In order for this strategy to be effective, you will need to make the tracking of performance measures transparent throughout the organization.

ASSESS & IMPROVE COLLECTIONS PROCESSES

Treasurers today have access to timely information that can enable them to reduce such items as Days Sales Outstanding (DSO).

Analytics are also available through lockbox programs that can help to drive down unauthorized discounts and deductions by tracking and managing exceptions faster and more...