Most businesses have significant cash tied up in working capital, including trade receivables, trade payables, inventories, and non-trade items. By releasing cash from working capital, companies can unlock funds for growth, transformation, M&A, deleveraging, or dividends.
In addition to improving the financial position, working capital optimization means business processes become leaner and more effective. This drives operational improvement, cost benefits and makes the organization easier to do business with for customers and suppliers.
Sustainability must be at the core of any working capital optimization program. Common pitfalls include overreliance on tactical levers for short-term gain at the expense of supply chain partners, clustering efforts in the Finance function and focusing on addressing symptoms rather than root causes.
Payment regulations
The regulatory landscape surrounding working capital management is ever evolving. Legislation has been introduced to promote fairness across supply chains and prevent excessively long payment terms and late payment behavior, primarily to protect smaller suppliers who may face more strain on their cash flows.
Directive 2011/7/EU on “combating late payment in commercial transactions” governs payment terms for transactions with individuals, businesses, and governments across the European Union. Since its introduction, European countries must apply this Directive locally, though they may continue to apply other laws and regulations that are more favorable to the creditor than Directive 2011/7/EU’s even provisions for.
In the Netherlands, default payment terms for business-to-business (‘B2B’) transactions are 30 days from receipt of invoice, unless a different payment term has been agreed on by both parties, in which case payment terms of up to 60 days are allowed. Payment terms longer than 60 days may only be agreed on if it can be evidenced that no negative consequences are experienced by the buyer or seller as a result of the longer payment terms.
Three exceptions are in place, being:
- Payments to Small and Medium-sized Enterprise creditors (‘SMEs’). For these transactions, payment terms may not exceed 30 days.
- The debtor is a public authority. Public authorities must pay within 30 days. In special circumstances, this may be extended to 60 days.
- The debtor is an individual. Companies are allowed to choose suitable payment terms with individual consumers in their contracts or general terms and conditions, provided that the payment terms are reasonable.
In case of noncompliance, creditors are able to apply fines, seek damages and charge interest for late payment.
Setting suitable customer and supplier payment terms
Companies need working capital management practices that enable sufficient liquidity and streamlined operations, while ensuring regulatory compliance and fair treatment of the supply chain. This includes setting suitable customer and supplier payment terms in line with country regulations and industry norms, setting up robust invoicing, collections and payment processes, and managing inventories to protect customer service levels without building up excessively high levels of safety stock. Transforming working capital management is often a cross-functional effort, requiring involvement from stakeholders including finance, sales, operations, procurement, legal and IT.
Optimizing working capital
KPMG provides a fresh perspective to optimizing working capital. We have insights into the latest regulations and leading practices, a hypothesis database with innovative working capital improvement initiatives, and a technology-enabled optimization approach. Contact one of our specialists to discuss how we can help your organization elevate its working capital management.
Discover how KPMG can help:
Our diagnostic assessment is the foundation of every successful working capital transformation. In just a few weeks, we deliver a data-driven, technology-enabled analysis of your accounts receivable, accounts payable, and inventory cycles. Using KPMG’s proprietary Elevate Analytical Building Blocks (‘ABBs’), we can process millions of rows of transactional data to identify inefficiencies, benchmark performance, and quantify cash release opportunities. We complement this with targeted stakeholder interviews to uncover root causes and assess maturity against leading practices. Opportunities are segmented into quick wins and strategic initiatives, providing a clear, actionable roadmap. Our diagnostic is not just an assessment – it is a catalyst for change, enabling organizations to act with confidence and speed in today’s dynamic business environment.
Implementation planning transforms insight into action. Following our diagnostic, we codevelop a tailored roadmap that translates identified opportunities into executable initiatives. Each plan is grounded in data, aligned with business priorities, and structured for impact – defining clear owners, timelines, and milestones. We segment initiatives by complexity and value, fast-tracking quick wins while laying the foundation for long-term transformation. Our planning process is collaborative and pragmatic, ensuring alignment across finance, operations, procurement, and IT. We embed governance structures and benefit tracking mechanisms from the outset, enabling transparency and accountability. Implementation planning is where ambition meets planning – turning working capital potential into actionable plans.
We don’t just design the roadmap – we walk along with you. Our implementation support ensures that working capital initiatives move from plan to performance. We work shoulder-to-shoulder with your teams to execute accounts receivable, accounts payable, and inventory improvements, providing hands-on guidance, technical expertise, and change management support. From reducing overdue payments and payment term harmonization to inventory rationalization and supply chain finance, we help embed improvements into daily operations. We assist in refining business cases, updating policies, preparing negotiation materials, and establishing governance structures. We also provide accounting advice and accounting position papers with regard to financial solutions such as factoring and supply chain financing (reverse factoring). Our approach is collaborative and pragmatic, ensuring that initiatives are not only implemented but also maintained. Implementation support transforms working capital optimization plans into tangible, lasting value.
At KPMG, monitoring and dashboarding are essential for maintaining working capital improvements. We provide clients with real-time visibility into key performance indicators (KPIs) through customized dashboards that track progress, highlight variances, and enable data-driven decision-making. Our tools integrate seamlessly with existing systems, offering intuitive interfaces and actionable insights. We regularly establish review cycles and governance frameworks to ensure continuous monitoring and timely interventions. This results in maintaining momentum, guaranteeing accountability, and stimulating sustained performance. Monitoring and dashboarding are not just about following statistics – they are about empowering organizations to sustain success and continuously optimize their working capital.
At KPMG, we believe that a sustainable working capital culture is the cornerstone of long-term working capital optimization. We work with clients to embed cash consciousness into the organizational DNA, fostering a mindset that prioritizes liquidity and financial discipline. Through training programs, workshops, and leadership involvement, we drive cultural change that aligns with strategic objectives. We help establish policies, incentives, and communication strategies that reinforce the importance of cash management at all levels. A sustainable working capital culture lays the foundation for lasting financial health and operational excellence.
