Efficiency on the work floor and in logistics processes, optimised stock management, an adequate policy towards customers and suppliers: it all ensures that your company is a well-oiled machine and that your working capital requirements remain under control. Every department within your company contributes to this.
You can shorten the cash conversion cycle and reduce your working capital needs by building in more security. These three building blocks will help you:
1. Credit insurance
Trade credit insurance has a positive effect on your cash conversion cycle. It allows you to evaluate in advance how creditworthy the counterparty is and ensures you that an unpaid invoice is reimbursed up to a predetermined maximum amount. That way the cash you are counting on is available. If you opt for credit insurance, your company can safely prosper.
The need for working capital decreases if you make smart use of guarantees to replace cash. Two classic examples are advance guarantees and money retention bonds. If you are a company that produces long-term or capital goods (such as construction and mechanical engineering), you can fundamentally improve your cash position thanks to guarantees. In other sectors and domains, as well you can block money on an account or replace an immediate payment with a guarantee. Think, for example, of public procurement, trade in excisable goods or imports.
3. Fraud insurance
Fraud, internal and external, is a risk if you want to trade safely. Fraud insurance protects your assets and covers losses caused by fraud such as financial losses, damage to systems and reputational damage by your own employees or people from outside your company. In this way, you protect your cash position in order to continue doing business.
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