Working Capital Optimization
Description
This example shows how to calculate the ratio of cases that were paid early for working capital optimization.
Working capital is defined as the difference between a company's current assets and its current liabilities essential for the smooth operation of a business, and is a key figure for measuring a company's liquidity and its short-term financial health. Working capital management aims to optimize liquidity while ensuring sustained operations in the long term. Typical ways to optimize the working capital are inventory reduction, faster collection of receivables and lengthening of the payable cycle. Activities for optimization within these areas are manifold. One example for lengthening the payable cycle is on-time payment of invoices by avoiding both early and late payments. Eradicating early payments can improve working capital by keeping assets until the day they are due. Preventing late payments can stop late payment penalties and allows to take advantage of cash discounts.
Challenge
Each invoice (i.e. case) is issued by a vendor. For each vendor, calculate the ratio of invoices that were paid early.
Solution
The following example shows a PQL statement for the calculation of the early payment ratio per vendor. Using this query, the user is able to discover the vendors which have the highest ratio of invoices paid more than three days early.
[1] The distinction whether an invoice was paid more than three days before the due date is made within the CASE WHEN statement by calculating the throughput time with the CALC_THROUGHPUT function. The CALC_THROUGHPUT operator takes the timestamp of the first occurrence of activity 'Clear Invoice' and the timestamp of the first occurrence of activity 'Due Date passed' and calculates the difference. The second parameter, given as REMAP_TIMESTAMPS operator, counts time units in the specified interval The whole CASE WHEN statement is wrapped in the AVG operator, allowing to calculate the ratio of invoices paid more than three days early. By specifying the vendor name ("Invoice"."VendorName") as a dimension, the ratio is calculated per vendor. The two FILTER statements at the beginning of the query use PROCESS EQUALS to ensure that only cases with an already paid invoice and a specified due date are considered within the calculation. For the example data, the query returns an early payment ratio of 0.5 for 'Vendor A'. Invoice '1' was not paid early because it was cleared three days before due date, while invoice '2' was paid early as it was cleared five days before due date. For 'Vendor B' the calculated early payment ratio is 1.0 because the only invoice related to this vendor, invoice '3', was paid early (four days before due date): | ||||||||||||||||||||||||||||||||||||||||||||||||||
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