Risk & Credit

Working Capital Management: That's how it works and why it's so important


Working Capital Management ensures the cash flow in every company. That's important, because without money there is no business. The way to more liquidity is to actively manage your receivables, payables and stock. In this article we give you an overview of Working Capital Management so that you always have enough cash for investment and growth - and reserves in case things get tight. Download our free infographic now.

Nothing works in the business world without liquid funds. Every company, whether a large corporation or a sole proprietorship, always needs enough money to pay invoices and - more importantly - to invest and grow.

Liquidity shortages are particularly life-threatening for SMEs. 9 out of 10 companies go bankrupt because they don't have enough cash. However, there are other disadvantages of scarce liquidity. Especially the creditworthiness, the credit standing of a company, suffers greatly if the money does not flow reliably. Credits can only be taken out at poor interest rates. This in turn reduces profit - and liquidity. A vicious circle.

Poor liquidity directly means low self-financing power. It is difficult to make investments from one's own resources in addition to maintaining business operations. This is a major problem, especially for growth-oriented SMEs.

In simple terms: Better liquidity provides more room for manoeuvre and security.

Working Capital Management helps you to manage your debtors and creditors according to uniform standards and thus ensure liquidity. Professional Working Capital Management therefore means: More liquidity, higher profitability and better process efficiency.

That is how Working Capital Management works

Working Capital Management consists of three pillars: Accounts Receivable Management, Accounts Payable Management and Stock Management. As financial director, the first two areas are particularly relevant to you: Get the most out of receivables and payables.

Simply and understandably summarised for your management: “Collect from debtors quickly, pay creditors late."

Below you will find an overview of the Working Capital Management procedures that help you and all Swiss SMEs to secure their liquidity.


Looking for a quick overview of Working Capital Management?
Download our free infographic now.

Download the infographic now


1. Accounts Receivable Management

No money, no business. As simple as it sounds, as difficult it becomes when the flow of money runs dry. Credit Management is therefore equally important for large companies and SMEs.

The WCM encompasses all processes related to the creation and processing of receivables from customers. In your credit policy, you record how you operate your national and international Accounts Receivable Management. In this way, you explain to the management and the owners how you set the correct payment targets and how you enforce them correctly.

Before you grant your customer a supplier credit, i.e. deliver goods on invoice, always check the customer's creditworthiness. Use both internal and external sources. This helps you to define the optimal credit limit for each customer. You will then no longer supply customers who either do not pay your invoice or even go bankrupt. In the worst case scenario, this will lead to your own insolvency. The bankruptcy of a customer is the cause of 10% of all company bankruptcies, according to a study conducted in 2015.

Working Capital Management: Forderungsmanagement ist die erste Säule des WCM

Discounts increase the payment speed. They provide a real and interesting incentive for the quick settlement of outstanding invoices.

Sometimes, despite credit checks and cash discounts, you still have to deal with defaulting payers. A quick and tight dunning process helps here. Make sure that the process is recorded in the credit policy. Remind bad payers quickly and decisively, even seek personal contact in serious cases. This will help you get your money faster and improve the payment period.

Switzerland expects an enormous boost in digitisation in Accounts Receivable Management in the coming years. It automates many liquidity management processes such as invoicing, payment processing and the evaluation of default risks. Digitisation will thus help SMEs to operate even more efficiently. 

2. Accounts Payable Management

The second pillar of Working Capital Management: The management of your creditors. Always make sure that you get the most out of your suppliers' payment terms. This requires negotiating skills or cash discounts granted by the supplier.


Are you brave? Then you deliberately pay the less important bills late. But be careful, though. Because the later you pay, the worse your creditworthiness will be. Not that a supplier or a bank suddenly refuses you a credit.

3. Stock Management

The third and last pillar of Working Capital Management: Stock Management. Large stocks tie up a lot of capital. Companies in industry, construction and trade know this very well.

Working Capital Management: Lagerhaltung ist die dritte Säule des WCM

The most important key figure in this area is the cash to cash cycle. It measures the capital tie-up period in days between payment to suppliers and payment by customers. The lower the value, the better it is for liquidity. For this, however, it is necessary to actively manage the stock..

Working Capital Management: that's why it's so important to the CFO

The principles of Working Capital Management ensure sustainable liquidity.

As CFO, Working Capital Management treats both debtors and creditors uniformly and fairly, as well as according to standardised conditions that are optimal for your company. Your colleagues in the management as well as the owners will appreciate it if you exemplify "Best Practice" in your area.

Working Capital Management is not only important for large companies. It is an absolute must, especially for SMEs. Only in this way can they release tied capital and always have sufficient financial resources for internal growth and investment.