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Optimize your working capital

WCR, a key indicator of your company’s financial health

Working capital requirement (WCR) is the amount of money a company needs to deal with treasury gaps between its expenditures and collections. By anticipating, it will be possible to optimize working capital requirement.

Anticipate your WCR to control it better

WCR offers an insight into the financial autonomy of a company since it allows you to know the amount that must be available in treasury to settle the company’s debts in time. Client receivables are not always paid immediately, stocks take time to run out, and the company must continue to pay its debts and its employees. The WCR is one of the few indicators that is better to keep negative. Therefore, it is essential to anticipate and calculate potential working capital requirement in order to be able to honor debts in a timely manner without facing a heavy bank overdraft. You will be able to know if the treasury flow is sufficient or if it will be necessary to think about how to optimize working capital requirement or how to finance it.

Calculating your WCR

It is possible to calculate your WCR easily thanks to your accounting Balance Sheet. On the latter, the WCR corresponds to the difference between current assets and current liabilities:

  • WCR = current assets – current liabilities

You can do the calculation yourself using the following formula:

  • WCR = (amount of stocks in progress + amount of receivables in progress) – debts
Calculating your WCR

Interpreting your WCR

After calculating your working capital requirement, it is important to know how to interpret it. There are three possibilities:

  • A positive WCR = need for financing are superior to the company’s resources, there is a deficit in treasury
  • A zero WCR = financing needs are equal to resources, treasury is balanced
  • A negative WCR = financing requirement are less than resources, the company has working capital resources

Levers to optimize working capital requirement

WCR varies according to different elements such as the deadlines for receivables, the payment terms set by suppliers, the length of the company’s operating cycle, the level or even the rotation of stocks. To optimize your working capital requirement, it will be necessary to adjust these different action levers.

Manage your invoicing

This involves paying attention to potential invoicing errors and oversights. As the objective is to bring in cash to optimize working capital requirement, it will be interesting to reduce payment deadlines, or ask customers for a deposit. Don’t forget to update the T&Cs, and put in place a strict revival policy to enforce these new conditions.

WCR optimization levers

Negotiating with suppliers

To start with, choosing reliable suppliers with short delivery times will be more advantageous. Stock can be used and put on sale more quickly. Secondly, getting paid before you pay will avoid having a positive WCR. If it is possible, it is important to try to negotiate longer payment terms.

Think about tax and social security debts

Sometimes, you can optimize your WCR just by making simple and small changes. For example, by preferring quarterly payment of tax and social security debts and monthly recovery of VAT.

Adjusting stocks

The quantity and level of stock turnover should also be taken into consideration. It is best to avoid dormant stocks which increase working capital requirement as long as they are unsold.

Think about a solution to finance your working capital requirement

You have optimized your WCR and it remains positive. The company will need to find means of financing. Different solutions are possible to finance your WCR:

  • Negotiate an authorized bank overdraft if your WCR is low
  • Bring in equity capital if you have the possibility of doing it
  • Apply for a loan from your bank
  • Opt for a debt collection method such as cession dailly or factoring
  • Seek investors for financing


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