A SIMPLIFIED VIEW OF WORKING CAPITAL OPTIMIZATION IS WIDESPREAD AMONG RUSSIAN COMPANIES

Despite the fact that some companies were able to reduce the amount of working capital and release the necessary funds in times of crisis, there is a tendency for the situation to worsen. An analysis of working capital management in Russia has revealed many problems, some of which are a projection of unsolved problems of European and American companies, while others are specific to the Russian market.

The key problems are the low reliability and timeliness of historical data, despite the fact that companies use both accounting and management accounting data. Management accounting data are not always comparable with accounting data, often do not contain all the components of working capital in the required detail and may contain only information in physical terms. For example, within the framework of management accounting, working capital can be understood as the volume of raw materials and finished products in physical terms in warehouses ("inventories") and shipped to customers ("accounts receivable"), which at the same time do not correspond to the amount of inventories and receivables in accounting.

The results of the analysis of major players in various sectors of the Russian economy show that a simplified view of working capital optimization is widespread among companies. Thus, the most common means of optimization in our practice was the deferral of payments to suppliers. Another disadvantage is the approach of working capital as a set of components - inventories, receivables and payables - without taking into account the complex relationships between them and their role in the capital turnover chain. It seems more effective to consider three interrelated processes: from the purchase of raw materials to their payment to the supplier; from production planning to its organization; from receiving the order to paying for the finished product by the buyer.

This integrated approach allows the individual components of working capital to be considered, taking into account their interrelationships and their impact on other processes in the value chain.

As in European and US companies, in Russian companies, the procedures for optimizing and monitoring working capital are perceived as the functional responsibilities of specific specialists and/or departments. At the same time, uncoordinated actions of other departments can nullify efforts to release funds from working capital. To remedy the situation, it is necessary to implement a culture of cash and working capital management throughout the organization, from junior employees to the board and board of directors.

It is important to monitor and control cash flows. Liquidity should be kept under constant review, especially when there are signs of economic recovery. Previous economic upswings have shown that companies often have problems with cash flow when trying to respond to an increase in demand, because working capital increases and limits the freedom of maneuver. Therefore, it is necessary that when the first signs of economic recovery appear, companies act rationally. In some cases, a slight increase in the number of orders may be just a consequence of customers replenishing their stocks after a reduction, and not a consequence of a revival of trade.

Constant attention to the issue of improving the accuracy of short-term cash flow forecasts will lead to the emergence of an effective management tool that allows you to predict what will happen in the economic activity of the enterprise in the coming months. This will allow the management to control the expected sales volumes and avoid increasing production in the event of a deceptive revival of the situation.

One of the biggest challenges to improving working capital management is overcoming resistance to change within an organization. Saying "We've always done it this way" is not acceptable as an excuse for not wanting to change anything. Companies that are genuinely seeking to dramatically improve their working capital management force their managers to review the existing operating model and look for other, less cash-intensive ways to work, from contracting with customers to determining whether it is better for the business to produce certain products in-house or to buy them from third parties. analyze all aspects of cash flow and assess opportunities for improving their management. In addition to debtors, creditors and inventories, it is necessary to analyze what work is being done with indirect taxes, transfer pricing, excise taxes, property treaties in different regions of the world, and pension financing. It is also necessary to carry out operational control of advance payments in order to assess the possibility of their postponement to a later time.

Achieving lasting improvements in cash management is not easy. First of all, working capital management should be handled by the entire organization, which requires well-coordinated interaction of all departments and the desire to achieve a common goal. Many financiers point out that if the finance department does not put constant pressure on other departments, then improvements in working capital management are short-lived.

Source (in Russian): https://rg.ru/2011/07/26/likvid.html