Working Capital: The Link Between Procurement, Finance and Treasury

James Wilson
James Wilson

Working Capital Context – Which parts of the Cash Conversion Cycle do Procurement, Finance and Treasury teams care about?


This blog is the first of a 3-part series focusing on how businesses can get started on an effective Working Capital optimization initiative.

There is an old adage that you cannot manage what you do not measure. In response to this conventional wisdom, numerous Key Performance Indicators (KPI’s) have been developed in the core Working Capital functional teams of Procurement, Finance, and Treasury. The overarching goal in mind is simple: Strong Supplier Relationships AND Operational Efficiency AND Strategic Value. All three? That’s a challenge as each team has a different set of tactical and, at times, strategic goals, that often compete with each other.

For example:


The Procurement department may review multiple catalogs or price lists from different suppliers to cross check best pricing, confirm availability and plan out lead times. Procurement also checks if there is a contract in place to ensure volume pricing and agreed upon payment terms. Getting the best price is important to keeping costs low which will be reflected in a Purchase Price Variance metric at month end. Lastly, Procurement confirms payment instructions with the vendor to ensure there hasn’t been any changes in physical addresses or bank instructions for payment.

In summary, Procurement cares about the supplier relationship and ensuring the best pricing of goods or services contracted on behalf of the company.

Finance / Accounts Payables (AP):

Finance / AP ensures that payments are made on time and accurately. Generating purchase orders or issuing payments for goods and services takes time. Getting these steps wrong could mean that you’ve overpaid or sent a payment in error. Finance / AP staff may be the last people in the company to ensure that large ticket instructions are properly signed off on and payments are being directed to the right suppliers. Correcting mistakes after the fact can be costly and time consuming.

In summary, Finance / AP cares about processing costs and accuracy. They care less about the strategy of when to pay or the value of the goods or services vs. the price.


Companies have finite amounts of cash to deploy to support their business activities. That finite resource is managed and protected by Treasury, which ensures that cash on hand is held securely and put to use at the highest possible APR (vs. WACC), or that cash is generated via the highest possible DPO (extend terms to hold onto cash). Treasury manages the risk to cash whether it’s from evaluating counterparties, testing internal process controls, or acting to mitigate market fluctuations impacting exchange or interest rates.

In summary, Treasury cares about the amount of cash generated, the value earned for deploying cash, and protecting cash once received. They care less about what that may mean for a supplier relationship or AP’s general processes.

How to harmonize

Although each department has their own measurements to manage success, the strategic mandate from the executive team is a blend of supplier relationship, operational efficiencies and strategic value. A best practice is forming a Working Capital Steering Committee with representatives from Procurement, Finance / AP and Treasury. The collective goal is to unlock working cashflow which is a proxy for organizational health and operating efficiencies, while ensuring you do not introduce undo risk to the supply base or damage key relationships.

A simple example of a harmonized goal is to segment the supply base into categories and determine the optimal payment channel for those suppliers. You may choose to present a certain vintage of suppliers with early-pay discounts whereby reverse factoring is used. This potentially meets the needs of all three organizations:

Procurement – supplier is happy they are paid early

Finance / AP – use of technology ensures workflow to make payment is easier and more efficient

Treasury – Bank pays supplier day 10, company pays bank day 90, therefore unlocking working capital (if the company has excess cash, they could simply do this via Dynamic Discounting and pay the supplier with their own cash on day 10 and earn a higher APR vs. WACC).

In this scenario, every team wins AND the supplier wins. Often times, one of the teams mentioned is spearheading a piece of a Working Capital project. Example, Procurement may be reviewing terms as part of contract review. Finance / AP may be reviewing processes to move to electronic payments. Treasury may be looking for ways to generate cash. The issues emerge when there is a lack of transparency and lack of alignment in the strategy. Forming a Working Capital Steering Committee allows these projects to be managed cross-team and creates the appropriate change management framework to ensure every team wins (including the supplier).

In the next part of this series, we will talk more deeply about the methods and technology available to unlock the power of this Steering Committee.

More information on how you can optimize working capital through payables, receivables and inventory management.

More information on aligning Procurement, Finance and Treasury teams in order to optimize working capital management. 

And to discover how to make better, strategically-informed decisions about liquidity watch our latest webinar, The Power of True Liquidity Positioning and Forecasting with a Treasury Management System


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