Although entrepreneurs are familiar with the term working capital, all too often they fail to use its full potential. This is a mistake, because targeted management of their working capital needs can bring huge advantages, both financially and at an organisational level.

How a business approaches that in practice is obviously closely linked to its own specific situation and the sector in which it operates. Below is a number of general rules of thumb:

1. Analyse your business processes

A logical first step is a thorough analysis of your working capital needs, based on the cash conversion cycle. The idea is to clearly identify the following business processes:

• management of your customer payments
  How long does it take before your invoices are paid? Why do some invoices remain outstanding? How aware are you of your customers' financial situations?
• management of your supplier payments
  What payment terms are you getting? Do you get a discount if you pay quickly? Do you use advance financing?
• management of your production and stock
  How far can you deplete stocks without jeopardising production? Can you shorten the production time in order to reduce the amount of work in progress? Do you work according to the Just-in-Time system or have you decided to go for Economic Order Quantity?

You will then find out where there is room for improvement and how you can shorten the cash conversion cycle. The idea is to reduce your working capital needs and, by doing so – by dealing more frugally with the available capital – increase the return from your general management.

2. Collect faster and better

Adequate monitoring of your accounts receivable is crucial. Relatively small, obvious interventions can sometimes produce a surprisingly big benefit. Here are some tips:

• Monitor the quality of your invoices. A good invoice will quote a correct amount, a payment due date and will be received promptly by your customers.
• Invoice smaller amounts on a regular basis and avoid summary invoices where possible.
• Actively follow up outstanding invoices and find out why they remain unpaid. Is it down to the customer's financial situation or are there other factors to consider? Disagreement over the amount charged or problems with the delivery or sale often cause delays or result in non-payment. By aligning your accounts and services more efficiently, you end up with a win-win situation: satisfied customers and fewer disputed invoices.
• Solutions such as factoring or direct debit are a particularly profitable route to take. These lead to swifter collection without putting pressure on your customers or tightening up your payment terms, which is always delicate in a commercial relationship.

A clear picture
Without an overview of your accounts at home and abroad and of your incoming and outgoing payments, management of your working capital is virtually impossible. So, you need clear, immediately available information and reporting. Different solutions for electronic banking, reporting arrangements with your financial partners and efficient operation of your accounts and bookkeeping will help you considerably here.

Another profitable route is the centralisation of your cash and cash equivalents, which will dramatically simplify both the management and monitoring of these. Often this also offers numerous options in terms of fiscal optimisation.

3. Make optimum use of your supplier credit

Making sure your invoices are paid systematically in order to build up your number of days' supplier credit seems a painless and effective intervention, but it is the least you should do. After all, there is a good chance that the supplier will pass on the charge for the longer payment term in the price you pay for subsequent deliveries. There are a number of better alternatives:

• See whether or not it would benefit you to pay more quickly – in many cases early payment carries an attractive discount.
• Choose solutions that let you pay later without the other party being affected. For example, by relying on lines of credit or working via reverse factoring, whereby the supplier receives an advance on your payments from the bank.
• Negotiate with your supplier for an extension to your payment terms.

Ensure you have adequate protection
Being able to get hold of your funds quickly is just one aspect of optimum management of your working capital. Another is the assurance that your customers will actually pay, while at the same time your business must project confidence to (potential) trade partners. To that end, you can call on the various forms of documentary credit. By engaging credit insurers, you are also hedging the risk of the other party defaulting on payment.

Another important factor, certainly as far as international transactions are concerned, is the exchange rate risk. Although you may know when you are going to get paid, the exact amount depends on the exchange rate at the time of payment. Because the difference between a good and a less favourable exchange rate can have a big effect on your margin, you are better off hedging yourself against possible exchange rate fluctuations.
 

4. Get maximum performance from your stocks

The financial impact of your inventory control should not be underestimated. Just think about invoices that are outstanding after a faulty or late delivery, or holding on to too much stock of slow-selling products. The advantage of the latter is that you can always deliver promptly, but it does freeze a major part of your working capital. A few guidelines:

• Check your stocks and prices regularly, preferably using a package like Enterprise Resource Planning (ERP) or a web-based application with direct link to your opposite parties.
• A warehouse management system will allow you to retain a good overview of your quick and slow-selling products, so you can adjust your stock accordingly.
• Keep your finger on the pulse of the market so that you can correctly assess demand, and thus avoid stock surpluses or deficits.
• You can also choose a radically different course and outsource your stock management to a logistics service provider.
• Use stock financing to keep cash and cash equivalents available for other purposes.
• Hedge yourself against price fluctuations on the raw materials markets, to protect your margin.

An exercise in balance

Optimising your working capital needs is therefore a continual exercise in balance between your accounts receivable, accounts payable and inventory control. It is a stiff challenge, but essential if you are to increase your financial might and steal the march on your competitors. Get your working capital to perform!

Working capital, also known as net operating capital, presents a picture of the operational liquidity of a business. But there is more to it than meets the eye.

The success of a business actually depends to a significant extent on how it deals with its working capital needs.

The difference between working capital and working capital needs

Within the financial analysis, working capital is just one of the indicators that present a picture of the operational liquidity of a business. It not only affects general management, but also the access to bank credit or the valuation of the business, for example. This is calculated as follows:

Equity capital and other resources in the long term - fixed assets

This allows you to see whether sufficient long-term funds are available to finance the production chain. Where there is a positive result that is indeed the case, whereas with a negative result it is actually the production chain that must safeguard the long-term financing.

It is therefore useful to calculate the working capital needs as well:

Current assets (excluding cash) - current liabilities (excluding financial liabilities)

The result shows the amount the business needs in order to finance its production chain, and may be both positive and negative:

• where working capital needs are positive, the commercial debts no longer cover the short-term assets (excluding the financial). In that case, a business can rely on its working capital. If this is insufficient, it will need additional financing for its operational cycle in the short term;
• where working capital needs are negative, a business can meet its short-term liabilities without any problem. Nevertheless, it is advisable to reduce working capital needs (further).

In short, working capital presents a picture of the operational liquidity of a business, whereas working capital needs represent the amount the business needs in order to finance its production chain.

In other words, it boils down to limiting working capital needs as far as possible, thus increasing liquidity. This is crucial, especially in times of economic or financial difficulty. After all, customers tend to pay later then, while your stocks are increasing and your suppliers are imposing stricter payment terms. As a result, more and more working capital gets 'frozen' in your operating cycle, precisely when circumstances make it more difficult to attract additional financing.

Conclusion

Optimising working capital is not only a question of long-term considerations. In the short term, too, the business can release cash that is not being used optimally, or is being used unnecessarily, more specifically in the purchasing, production and sales processes within the operating cycle.

The working capital and the working capital needs must, above all, be geared effectively to each other. The working capital needs must be structurally less than the working capital itself, preferably with an extra buffer. However, there is no mathematical truth regarding the amount of working capital and working capital needs. Sector, activity and business model can affect this, for example.

A good barometer of how great the demands of your operating cycle are on your working capital is the 'cash conversion cycle'. This is expressed in number of days and shows how long money is tied up in your business's purchasing, production and sales processes.

The calculation of the cash conversion cycle is based on:

• the number of days' customer credit (DSO – Days Sales Outstanding):
  the average number of days that your business must wait for payment after a product or service is delivered.
• the number of days' stock rotation (DIO – Days Inventory Outstanding):
  the average number of days that your business needs to convert stock into a sale.
• the number of days' supplier credit (DPO – Days Payable Outstanding):
  the average number of days that your business needs to pay suppliers.

The shorter the cycle, the less capital is held in the business process, which allows you to meet your short-term liabilities and expand your activities.

Simplified presentation of the cash conversion cycle

 

 

 

 

The bill to introduce this obligation in Belgium has been submitted to the Federal Parliament. If the draft bill is approved, B2B e-invoicing will become mandatory from 1 January 2026. Our experts explain why Belgium wants to introduce these new rules, what the implications are for your company and how we can better support you.

“The bill is consistent with international developments and initiatives at the European level,” says Nicolas De Vijlder, Head of Beyond Banking at BNP Paribas Fortis. "Europe's ambition is a harmonised digital standard. Structured e-invoicing between companies will also reduce the administrative burden of invoicing, enabling companies to work more efficiently and increase their competitiveness. The automation of VAT declarations will also help governments prevent tax fraud and adjust economic policies based on more qualitative data.”

Evolution rather than a revolution

“The new legislation is an evolution rather than a revolution,” adds Erik Breugelmans, Deputy Managing Director at BNP Paribas Factoring Northern Europe. "Digitalisation is becoming pervasive at all levels of society, as we have seen with the increase in electronic payments, as well as the additional obligations in recent years regarding electronic invoicing to the government. In this sense, the bill for mandatory electronic invoicing between companies is a logical next step. Our bank is happy to contribute to this process, although we do not intend to offer the same services as accounting software or fintechs. However, we are happy to help our customers with payments and financing."

The impact on businesses

“Customers need to be aware that the new regulations will have an impact on their internal and external processes,” continues Erik Breugelmans. "The majority of Belgian companies mainly serve an international market, which means that the introduction of electronic invoicing will be more complex for them than for companies operating in the domestic market. As the legislation will be introduced in one go, they need to start preparing now."

“The new rules will affect a company’s accounting department as well as its IT department,” emphasises Nicolas De Vijlder. "The procedural requirements are key, otherwise the automated process will not work. However, one of the main benefits of advanced automation is that everything can be done faster and more efficiently. The time between sending an invoice and paying it will be shorter and cash flows more predictable. In addition, it will also reduce the risk of error and fraud, as all transactions will pass through a secure channel."

Ready to offer you even more and better support

“Thanks to the far-reaching digitisation resulting from the new regulations, we will be able to further optimise payments,” concludes Erik Breugelmans. "As a bank, we need to finance our customers’ receivables as quickly and efficiently as possible, so that they have easier access to their working capital. In addition, because we have already gone through an entire process in terms of large-scale automation, we will be able to adapt quickly to the new rules. We can also draw on the expertise of the BNP Paribas Group, which is currently developing an e-invoicing solution for large companies."

Want to know more?

Listen to the episode on B2B e-invoicing :

• French version
• Dutch version 

BNP Paribas Fortis is ready for the mobility of tomorrow. And Laurent Loncke, General Manager Retail Banking and member of the bank’s management committee confirms this when he says “We do much more than lease electric vehicles”.

How can companies leverage mobility as part of their transition?

"If we look at vehicle usage alone, switching from fossil fuels to electric energy can reduce CO₂ emissions by a factor of four. This transition is being encouraged in our country more than ever by tax incentives and tax breaks. From 2035, the European Union will also ban the sale of cars with combustion engines. Whether it’s for the company fleet or company cars for employees, electric driving is the way forward, alongside other forms of mobility."

Are all businesses aware of this?

"These days, two out of every three new vehicles are company cars. And 80% of those orders are electric vehicles, a trend that is also apparent at our partner Arval."

So companies are playing a pioneering role in this transition?

"Certainly. First and foremost because former company cars find their way to the second-hand market at some point, making electric driving more accessible for everyone. Secondly, by choosing an electric car, you can encourage your friends and family to follow your example. Our recent Profacts survey (only in Dutch and French) showed that 85% of electric vehicle owners are satisfied to very satisfied that they switched to an electric vehicle. However, 42% of Belgians are still reluctant. Half of them are worried their battery will run out before they can get to a charging point."

Is their fear justified?

"Not really. Most drivers only feel comfortable with a range of 500 kilometres, even if they only drive a few dozen kilometres a day. It’s true the charging network does need to be developed further. Many people, especially those living in cities, cannot install a charging point at home. BNP Paribas Fortis is contributing to the expansion of the charging network through its participation in Optimile. This Ghent scale-up offers software solutions for charging electric cars and is developing strategic partnerships for the installation and maintenance of charging points."

Can an electric car be part of each employee’s remuneration package?

"Today, there are already less expensive vehicles on the market, making electric driving an option for middle and lower-management. The Total Cost of Ownership of an electric car is the most important factor, however. And this is still much lower than that of a vehicle with a combustion engine. Leasing is often the best solution. We have a comprehensive, tailor-made offering for all companies, regardless of their size and needs."

What exactly do you mean by a 'comprehensive offering'?

“In addition to leasing, we are able to offer charging solutions at home or at work, a charging card for public networks, the automatic reimbursement of electricity consumption at home, an app to find charging stations, and electric driving training through our many partners.”

So a complete ecosystem?

"We want to contribute to the mobility of tomorrow. By financing it, through credits or leasing, and with insurance, but also by working with partners outside our traditional activities. Like Optimile, and Touring, an organisation that is synonymous with reliability."

But mobility isn't just about cars, is it?

"We believe we need to rethink our relationship with the car. Given the climate targets and the increasing scarcity of resources, it is simply not possible to replace every internal combustion engine with an electric car at the moment. Arval offers its extensive expertise to companies considering a different approach to mobility. We help them analyse their needs, propose alternatives to the car, establish a mobility budget or draw up a mobility policy. We offer bicycle leasing, sometimes in combination with car leasing. We strongly believe in multimodality and mobility-as-a-service solutions: the option to combine different transport modes and pay for them without too much hassle. This is also one of the specialities of our partner Optimile."

Are companies and their employees open to this idea?

"The idea of employees no longer saying 'I have this amount for my car in my salary package', but rather 'I have this amount for my mobility'  is gaining traction. People are already paying for use rather than ownership in gyms or for streaming services. Mobility is going down the same route, with car-sharing and flat-rate subscriptions, making costs more predictable for businesses and private individuals. But the pace of change will also depend on the success of the federal mobility budget. For now, uptake is slow."

 

BNP Paribas Fortis SA/NV – Montagne du Parc/Warandeberg 3 – 1000 Brussels – VAT BE 0403.199.702 – RPM/RPR Brussels

Optimile SA/NV – Sassevaartstraat 46 bus 204, 9000 Ghent – RPM/RPR Ghent – VAT BE 0648.837.849 – www.optimile.eu – BNP Paribas Fortis SA/NV holds a greater than 10% stake in Optimile SA/NV.

Arval Belgium NV, Ikaroslaan 99, 1930 Zaventem – Brussels Register of Companies – VAT BE 0436.781.102.

Touring SA/NV, Koning Albert II-laan/Avenue Roi Albert II 4 B12, 1000 Brussels – Brussels Register of Companies – VAT BE 0403.471.401, is registered under this number with the FSMA, Rue du Congrès/Congresstraat 12-14, B-1000 Brussels, and acts as an associated agent on commission for AG Insurance SA/NV. AG Insurance SA/NV owns a greater than 10% stake in Touring SA/NV.