Procurement Glossary
Working capital management: liquidity management and cash flow optimization in Procurement
November 19, 2025
Working capital management refers to the strategic management of current assets to optimize liquidity and cash flow. In Procurement , it plays a central role in the coordination of payment terms, inventories and supplier financing. Find out below what working capital management involves, which process steps are relevant and how you can successfully minimize liquidity risks.
Key Facts
- Working capital = current assets minus current liabilities
- Optimization is achieved by reconciling payment terms, inventories and receivables
- Procurement influences working capital through supplier conditions and ordering strategies
- Key figures such as Days Payable Outstanding (DPO) measure efficiency
- Digital tools enable real-time monitoring and forecasts
Contents
What is working capital management? Definition and objectives
Working capital management comprises the systematic planning and management of net working capital to ensure optimum liquidity.
Basics and components
Working capital is calculated as the difference between current assets (inventories, receivables, cash and cash equivalents) and current liabilities. Efficient management balances liquidity protection with capital costs. The key levers are
- Optimization of payment terms to suppliers
- Inventory management and warehousing strategies
- Receivables management and customer payment targets
Working capital management vs. liquidity planning
While liquidity planning ensures short-term solvency, working capital management focuses on the structural optimization of capital efficiency. It integrates operational and financial aspects for sustainable cash flow improvement.
Importance in Procurement
Procurement has a significant influence on working capital by negotiating payment terms, order quantities and supplier financing. Strategic procurement controlling enables data-based decisions for capital optimization.
Process steps and responsibilities
The systematic implementation of working capital management requires structured processes and clear responsibilities between Procurement, finance and operational areas.
Analysis and evaluation
The process begins with a comprehensive inventory of the working capital components. This involves systematically recording and evaluating cash flows, inventories and supplier conditions. A detailed cost driver analysis identifies optimization potential.
Strategy development and goal setting
Specific targets for key working capital figures are defined based on the analysis. Strategy development includes the prioritization of measures and coordination between different areas of the company. Budgeting and resource planning support implementation.
Implementation and monitoring
Operational implementation takes place through continuous monitoring of relevant key figures and regular adjustments. Automated reporting systems enable prompt reactions to deviations and support controlling in Procurement.
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Important KPIs for working capital management
Successful working capital management requires continuous monitoring of relevant key figures to measure efficiency and target achievement.
Cash Conversion Cycle (CCC)
The cash conversion cycle measures the period between capital employed and the return of funds. It is calculated from Days Sales Outstanding (DSO), Days Inventory Outstanding (DIO) and Days Payable Outstanding (DPO). A low CCC indicates efficient working capital utilization and improved liquidity.
Working capital ratio and turnover
The working capital ratio (current assets/current liabilities) assesses the liquidity situation. The working capital turnover (turnover/average working capital) measures the efficiency of capital utilization. Both key figures enable benchmarking and trend analyses for continuous optimization.
Purchasing-specific key figures
DPO development shows the efficiency of supplier payments, while realized savings quantify the contribution to working capital improvement. Cost driver KPIs identify the most important factors influencing working capital.
Risks, dependencies and countermeasures
Working capital management involves various risks that can be minimized through systematic identification and suitable countermeasures.
Liquidity and financing risks
Excessive working capital optimization can lead to liquidity bottlenecks if unforeseen payment obligations arise. Dependence on individual sources of financing increases this risk. Countermeasures include diversified financing structures and liquidity buffers for critical situations.
Supplier and operational risks
Aggressive payment term negotiations can strain supplier relationships and increase supply risks. Reduced stock levels increase the risk of production downtime in the event of delivery delays. A balanced value analysis helps with the risk assessment of various scenarios.
Compliance and tax risks
Working capital optimization must take tax and regulatory requirements into account. International group structures require special attention to internal transfer prices and cross-border payment flows. Regular compliance audits minimize legal risks.
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Practical example
A mechanical engineering company optimizes its working capital by systematically adjusting its payment terms. By negotiating longer payment terms from 30 to 45 days with main suppliers and simultaneously reducing stock levels by 20%, the cash conversion cycle is improved by 15 days. The funds released, amounting to EUR 2.5 million, will be used to invest in digital procurement tools.
- Systematic supplier evaluation and negotiation of conditions
- Implementation of a digital inventory management system
- Monthly working capital reporting with variance analysis
Current developments and effects
Working capital management is constantly evolving due to technological innovations and changing market conditions.
Digitalization and AI integration
Artificial intelligence is revolutionizing working capital management with precise cash flow forecasts and automated optimization suggestions. Machine learning algorithms analyze historical data and external factors to improve planning accuracy. Predictive analytics enables proactive management instead of reactive adjustments.
Supply Chain Finance solutions
Innovative financing instruments such as reverse factoring and dynamic discounting are gaining in importance. These solutions optimize working capital for both contracting parties and strengthen supplier relationships. Discount optimization is automated by digital platforms.
Sustainability and ESG integration
Working capital management is increasingly taking sustainability criteria and ESG factors into account. Supplier financing is linked to sustainability performance, while ROI assessments are being expanded to include environmental and social aspects.
Conclusion
Working capital management is a strategic success factor for sustainable liquidity optimization and capital efficiency. Procurement plays a key role here through the targeted negotiation of payment terms and innovative supplier financing. Digital tools and AI-based analyses enable precise control and continuous improvement. A good balance between optimization and risk management ensures long-term corporate success.
FAQ
What is working capital management?
Working capital management refers to the strategic management of net working capital to optimize liquidity and cash flow. It includes the coordination of payment targets, inventories and receivables to maximize capital efficiency while ensuring operational capacity.
How does Procurement influence working capital?
Procurement has a direct impact on working capital by negotiating payment terms, order quantities and supplier financing. Longer payment terms reduce capital requirements, while optimized ordering strategies minimize inventories. Strategic supplier partnerships enable innovative financing solutions for further optimization.
Which key figures are relevant for working capital management?
The central KPIs are the cash conversion cycle, working capital ratio and days payable outstanding (DPO). These key figures measure efficiency and the liquidity situation. Supplementary metrics such as working capital turnover and industry-specific benchmarks enable continuous improvement and target tracking.
What are the risks of working capital management?
The main risks include liquidity bottlenecks due to excessive optimization, supplier problems with aggressive payment terms and compliance risks with international structures. Countermeasures include diversified financing, balanced supplier relationships and regular risk assessments to identify critical developments at an early stage.
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