Does WCR (Working Capital Requirement) mean anything to you? If you are a growing company in the digital, SaaS, ESN or eCommerce sector, in France or internationally, then it is high time to make sure that this concept does not escape you.
WCR measures the amount needed to cover your company's operating cycle, i.e. the difference between cash receipts and cash outflows related to current activities.
In short, the WCR is the amount your business needs to operate on a daily basis . It represents the gap between the money you receive (your receipts) and the money you have to pay out (your disbursements) to pay suppliers, inventory, etc. The lower it is, the more stable your cash flow is. We explain.
How to calculate the WCR?
Calculating WCR is simple, in theory: WCR = Stocks + Customer receivables - Supplier debts
Inventory : Amount of goods you have in reserve.
Accounts receivable : Invoices issued but not yet collected.
Accounts payable : Amounts owed to your suppliers but not yet paid.
WCR can be positive or negative. A positive WCR means that your company has to finance its operating cycle, while a negative WCR indicates that your trade payables finance part of your activity.
Why is BFR important?
The WCR allows you to measure the financial health of your company and to forecast liquidity needs. It therefore determines the company's ability to finance its current activities without resorting to loans or other forms of financing.
If your WCR is too high, it may indicate that the company is struggling to manage its cash flow. You may therefore encounter cash flow tensions, which can hinder your growth.
On the other hand, a well-controlled WCR allows you to have more flexible cash flow, to invest more easily and to seize development opportunities.
Concrete example
Imagine an e-commerce company that needs to buy inventory of products before selling them. If supplier payment terms are shorter than customer payment terms, the company will have a positive WCR , which means it will need to find financing to cover this gap.
By optimizing working capital , for example by negotiating longer payment terms with suppliers or reducing inventories, the company can free up cash to invest in its growth.
In summary, good management of WCR helps avoid liquidity problems, improve profitability and strengthen the company's ability to invest and develop.
How to optimize your WCR?
Here are some good practices to reduce your WCR and improve your cash flow:
Reduce your inventory
Avoid having too many products immobilized, especially in eCommerce. Adopt more rigorous inventory management or consider "just-in-time".
Speed up debt collection
Shorten your customers’ payment terms. For SaaS companies, for example, you can offer early payment discounts.
Negotiate supplier deadlines
Try to extend your payment terms with your suppliers, especially if your customers pay you in the shorter term.
Optimize billing management
Use tools like Pennylane or QuickBooks to automate and closely track your cash flow, and anticipate cash receipts and disbursements.
What other KPIs should you monitor?
In addition to the WCR, other indicators can help you better understand and optimize your finances:
Average Customer Settlement Period (DSO) : Measures how long it takes your customers to pay you.
Average supplier payment period (DPO) : Indicates how long it takes you to pay your suppliers.
Inventory Turnover Rate : Indicates how quickly your inventory is replenished, crucial for eCommerce.
Net cash flow : A good complement to WCR to monitor the health of your cash flow in the short term.
WCR for international companies: What you need to know
For Anglo-Saxon companies wishing to establish themselves in France, or French companies seeking to establish themselves in Canada or the United States for example, the WCR is an essential concept, even if it can be approached differently depending on the country.
The calculation method remains broadly the same (stocks + receivables - supplier payables), but the use and interpretation may vary.
For example, in Anglo-Saxon countries, the concepts of "working capital" and "cash conversion cycle" are often preferred to assess short-term liquidity. In France, the WCR is considered a strategic indicator more directly linked to operational management.
For international companies, it is crucial to adapt WCR management methods to local practices, particularly by taking into account cultural differences in payment terms and financing practices.
Blendy: Your ally for successful WCR management and international expansion
Haven't yet properly integrated WCR into your financial strategy ? Don't worry, at Blendy, English-speaking French & international accountant, we have over 12 years of experience helping companies optimize their cash flow management, including their WCR .
Whether for French companies looking to set up abroad or for international companies looking to establish themselves in France, we help our clients navigate local subtleties and adapt their financial practices to cultural differences.
With our expertise and tools like Pennylane and QuickBooks, but also Agicap , GoCardless , Chargbee and erplain , we ensure smooth and efficient cash flow management to support your growth, wherever you are.
Contact us to discuss your needs and find out how we can help you improve your financial management and successfully expand internationally.
With Blendy, international accountant based in Paris France, take advantage of all the benefits of digital accounting to accelerate your financial process and develop your business.
Pennylane, Dext, QuickBooks and Stripe certified, we support digital, IT, e-Commerce, ESN, SaaS companies in France and internationally .