#11 Proven Strategy for Working Capital Metrics

Welcome to our series, OMG: One Metric for Growth, where we dive deep into real-life examples of how one metric helped an organization to grow their business. Today's Metric for Growth is:

“Proven Strategy for Working Capital Metrics” 📈

About AI Infoware, Surat!

AI Infoware is a prominent Distributor and Reseller of leading IT brands like HP, ViewSonic, Pantum, TSC, TVSe and D-Link in Surat.‍

4 Component of Working Captial Metrics? 📊

To manage working capital efficiently, we need to focus on

1. Improve Receivables – With robust follow-up systems and policies in place, this can be improved.
2. Optimize Inventory Level – Avoiding overstock and reducing holding costs with the introduction of Just in Time without compromising sales of fast-moving items.
3. Enhancing Credit Time – Many times, reducing the purchase price becomes difficult but one can ask for other perks like more credit time.
4. Efficient use of Cash – Investing in short term liquid assets can help in generating income.

How has AI Infoware improved its working capital?  ‍

Chaityana and Devendra, Partners at AI Infoware, started working on all four components. They realized they were operating on thin margins in the trading business, and efficient use of working capital is the key to increasing profitability.

First, they identified all the existing metrics around 4 components. Then they took one element at a time and reviewed the same.

1. Receivables – They were not able to change the credit days based on the market trend. However, they made their follow-up system, so that they didn't miss even one day of follow-up. Everyone started putting remarks about the customers who were regularly delaying the payment. This helped them identify every customer's behaviour pattern.

2. Stock – They identified the percentage of moving, non-moving, over and under-stock against total stock. Also, percentage of stock against monthly sales value. Then they calculated the interest cost on paid stock. The insights from this data helped them to reduce the holding cost and they made new metrics for each element.

3. Extend Payables – Based on their past performances, a few vendors extended the credit days, and few vendors gave extra perks which indirectly reduced their purchasing costs.  

4. Investment Decisions – They started reinvesting the money saved from above components into cash buying. Few vendors offered them extra cash discount which helped them to go aggressively in new markets without losing margins from existing customers.

These changes resulted in a 17% improvement in working capital, enabling AI Infoware to invest in new growth opportunities. Without increasing team or capital, we can optimize so many of existing resources, once we start measuring the same.

Effective working capital management is crucial for maintaining liquidity, operational efficiency, and financial health. Regular monitoring of metrics around receivables, inventory, and payables can optimize your working capital and drive business success. Remember, what we do not define, we cannot measure, and what we cannot measure, we cannot grow!‍

Whenever You are Ready! 🔑  

Your metrics don't just reflect the past; they lead the future.

At Magenta, we specialize in turning these metrics into actionable steps.

Our Business Intelligence software seamlessly integrates with ERPs like Tally, Busy, Align Books, SAP etc and can help you increase efficiency in Working Captial by giving insights into stock, sales, receivables and payables. If you haven't already signed up for Magenta Insights, now is the time!

Stay tuned for next week's edition of "One Metric for Growth" as we delve into another crucial aspect of business. Until then, seize the opportunities that lie within your data!