"Especially Germany's small and medium-sized businesses underestimate that they can refinance themselves more favorably by reducing their working capital", says Gerd Kerkhoff, Managing Director of Kerkhoff Consulting, the consultancy specialized in purchasing and supply chain management. "Actually, only strong internal financing allows a company to become more independent of the potential influences by creditors and external lenders."
About half of the German companies use outside capital to finance investments. And 15 percent of the companies use financing even primarily via outside capital. For investments, every fifth of the small and medium-sized businesses has to fall back primarily on outside capital; this is true for only every tenth of the major companies with more than 1,000 employees. To raise capital, 84 percent of the small and medium-sized businesses use mainly bank loans; 21 percent finance their investments through shareholder loans. Other means of financing hardly play any role for small and medium-sized businesses. Not so Germany's major companies: Only 57 percent use bank loans to obtain capital. Every tenth major company gets capital via bond issues; 22 percent fall back on shareholder loans.
"Instead of borrowing money, it is more advantageous to strengthen a company's internal financial strength. Every cent saved by companies in their working capital reduction will be available for investments", says Gerd Kerkhoff. Companies are particularly focused on three measures to lower their net current assets: 94 percent rely on a reduction of their inventories. Large companies with a workforce of more than 1,000 use the possibility of reducing their receivables more frequently (79 percent) than small and medium-sized businesses (55 percent). One third of the small and medium-sized businesses working on the optimization of their working capital increase their liabilities to suppliers – for large companies, that rate is nearly one half.
Companies are not yet using all available options to reduce their working capital lastingly and over the long term. The entire value added chain therefore needs to be optimized: All the way from purchasing, and thus incoming goods, via production – and to the sales of goods.
"In purchasing, it is first of all necessary to change payment conditions such that the goods received need to be paid as late as possible", says Kerkhoff. "At the same time, it must be checked which delivery concepts are feasible for reducing inventories." When linking the IT system of companies, inventory control can be placed into the supplier's hands for example. Or delivery is changed completely to just-in-time deliveries. Once the goods are received at the company, production must proceed as swiftly as possible to keep inventories low. When reducing throughput times in production, setting-up times must be minimized, routes optimized and lot sizes reduced. Finally, it's a matter of persuading the product buyers to pay for their goods as early as possible and take delivery very quickly. Factoring is also a possibility to bring cash into the company as early as possible.
"Companies must now begin to optimally set up their finances", says Gerd Kerkhoff. "Our advice to companies is to examine how they can lower their refinancing costs – irrespective of the economic situation."
Media Contact
Kerkhoff Consulting GmbH
Christian Pfeiffer
Partner, Head of Corporate Communications
Tel.: +49 (0)211 / 62 180 61- 0
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