How does this work in detail?

working capital / balance sheet optimization

Current process

The supplier delivers the ordered goods to the company’s warehouse. At the time of production the goods are called off. The company pays the supplier on the due date (usually between 30 and 60 days after delivery).

After completion of goods they are stored in the warehouse. After the goods are sold, they are delivered to the customer and the customer pays for the goods on the due date (usually between 30 and 60 days after delivery).

New process

The supplier delivers the ordered goods to jtw’s warehouse. At the time of production the company calls the goods that will be transferred to the company. jtw pays the supplier within the agreed discount period. The company pays jtw on the due date (extension up to 120 days and more possible).

After competion of goods they are sold to jtw at the agreed sales price. After the goods are sold to the customer they will be delivered to the customer. jtw pays the company immediately and the customer pays jtw with in the agreed period.

How does the working capital / balance sheet optimization work:

Shortening of the
balance sheet – purchasing

The goods are taken on the balance sheet of jtw at the time of delivery by the supplier. This reduces the company’s balance sheet by the value of the goods for the time of storage.

Shortening of the
balance sheet – sales

The goods are sold to jtw at the time of completion and are thus added to the balance sheet of jtw. This shortens the balance sheet of the company by the value of goods for the time until the sale.

Release of
working capital – purchasing

jtw agrees on a payment term with the company that is significantly longer than the one agreed with the supplier. The longer payment term and the later invoicing (after the delivery of goods to the company) shortens the Cash-2-Cash Cycle (C2C) which increases liquidity of the company.

Release of
working capital – sales

The company receives the sales amount immediately upon completion and sales to jtw. Through the immediate payment of the completed goods, account receivables are reduced and the Cas-2-Cash Cycle (C2C) is shortened, which increases liquidity of the company.

Optimization of the
balance sheet ratios

The reduction of inventory in connection with the extension of payment terms, as well as the immediate payment improves the key figures DIO, DPO, DSO and C2C and the debt ratio.

Improvement of
the credit rating

The optimized balance sheet ratios have an impact on the credit rating of the company. In medium term the company’s rating will improve.