The ACT ran a seminar examining working capital in Manchester recently with another coming up Reading this month. Five of the expert participants gave their views on how to handle a working capital crunch and what to look out for. Below Rachel Chan, chair, Manchester and construction north west branch, Chartered Institute of Purchasing and Supply gives her view on why companies shouldn't always take the easiest decisions.

For many businesses trade credit is an essential tool for financing growth. Many businesses have gone under, not because they were unprofitable but because they suffered from shortages of working capital caused (in part, at least) by extending credit to customers.

There is a conflict of interest at the heart of the effort to maximise working capital. As a supplier a business wants to speed up the receipt of cash, but as a buyer it wants to extend the payment cycle. This conflict can only be resolved by legitimately using supplier credit. All corporates need to abide by agreed payment terms. Companies should not enforce payment terms on suppliers or delay payment without good reason. If disputes arise over certain bills, only the payment in question should be delayed until the dispute is resolved. Finally, it is not acceptable to deliberately misunderstand payment terms.

To avoid problems with trade credit, companies should seek to understand their suppliers and their suppliers' finances. Negotiated payment terms should be realistic and some flexibility should be built into payment processes.

Customers and suppliers should think of using mutually beneficial solutions such as purchase cards [6], supply chain finance and electronic invoicing [7]. Companies should try to think of the overall cost of finance in the supply chain rather than just their narrow interest.

Finally, it would be helpful to everybody involved if companies thought about long-term supply rather than just short-term financial gain.

ACT's next 'Working Capital Cycle' [8] half-day conference is on Thursday 27 November 2008, at the Copthorne Hotel, Reading. It is open to all ACT members and non-members. It is chaired by Paul Phillips, group treasurer of easyJet, and with expert speakers from Vodafone, VT Group and Develin & Partners.