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08/11/2011

Cost savings with a few clicks

Germany's companies are heavily investing again and mostly have good access to bank loans as well. Nonetheless, many companies could still optimize their capital procurement even in times of the economic high.

By Norbert Hofmann

Germany's companies are heavily investing again and mostly have good access to bank loans as well. Nonetheless, many companies could still optimize their capital procurement even in times of the economic high.

"Instead of borrowing money, it's cheaper to strengthen a company's internal financing power", recently urged Gerd Kerkhoff, Managing Director of Kerkhoff Consulting, on the occasion of the presentation of an Allensbach study conducted on behalf of his company. According to this poll, small and medium-sized enterprises must fall back on outside capital much more than large companies. But the benefits of a consistent liquidity management are still underestimated – wrongly: Because as Kerkhoff emphasizes, only strong internal financing will allow a company "to become more independent with regard to potential influences by creditors and outside lenders".

Credit institutions also support companies in strengthening their equity capital in this manner. Accordingly, it will pay for larger SMEs with domestic or foreign subsidiaries to centrally control the current accounts of their branches and balance them as promptly as possible. Because why should free liquidity in one location be kept available at low interest if short-term financing at another location within the group of companies will cost more?

Banks advertise that their tools for full electronic merging of accounts can provide more efficiency. It is not, however, clear whether the installation of such systems will pay in terms of costs and benefits. Financial institutions also want to help with this analysis. "Based on a potential check, we can show clearly the interest savings and liquidity advantages which cash pooling would have provided over a certain period of time", says Norbert Mayer, Head of Cash and Working Capital Consulting at HypoVereinsbank.

Electronic systems will not only help with the ongoing management of accounts and achieving a zero balance but they also supply important data for planning. For example, they can show where funds in the company are possibly available for a longer period of time.

Especially smaller SMEs still lag behind

The working capital management potential is far from exploited in many companies. For example, according to the Allensbach study, large companies with more than 1,000 employees clearly use much more frequently than smaller companies the possibility of reducing their receivables and increasing their own supplier liabilities.

However, already in view of the more rigid capital requirements on banks as of 2013 in the course of the regulation by Basel III, it should be worthwhile to provide more emphasis on internal financing. Especially companies with lower credit standing must then expect again fewer loan offers by financial institutions. According to a poll by Deutsche Bank, published in the spring, which also supports its institutional customers in global cash pooling and the working capital optimization, at least the companies with more than EUR 25 million annual sales have already read the signs of the times. According to that, 70% of the polled companies already have a systematic working capital management system and most of them want to optimize it further. They see the biggest potential for more liquidity headroom in the future in a more rigid dunning system and reduced inventories. With all that, financial managers should not forget to keep an eye on the details. Because about half of all enterprises in Germany assumes that the invoice date is the basis for the maturity of a supplier's invoice. "But in fact, the date of receipt is relevant, and when you know this you can quite respectably save three to four days liquidity", says Mayer.