Many purchasing departments proudly boast 5% savings from their negotiations, but in the background they lose 10% in hidden costs without even realizing it. These invisible cost drivers arise from missed volume bundling, uncontrolled maverick buying, and unused payment terms. The result: working capital in purchasing is not optimally managed, and liquidity remains with the supplier instead of in the company's own cash flow buffer.
This is not just a procurement issue, it actively blocks cash flow and liquidity. While the finance department squeezes every penny to save interest and create investment leeway, purchasing wastes money every day due to a lack of transparency and manual processes.
The good news is that cash flow levers in purchasing can be systematically activated. Companies that set up their procurement processes correctly transform purchasing from a cost factor into a liquidity partner for the finance department.
Opportunity costs in procurement arise primarily from a lack of bundling of requirements. When different departments purchase the same or similar products separately, the company misses out on significant volume discounts and bonuses. The result: higher purchase prices and missed savings potential.
A typical example: IT equipment is procured by both the IT department and HR for new employees. Without central bundling, the company pays the same unit price for 50 laptops as it would for 5 laptops, even though a volume discount of 15% would be possible for 100 units.
The hidden costs quickly add up to a considerable amount. Missed volume discounts of 5-20% depending on the product category arise when purchasing volumes are not bundled. For a company with an annual purchasing volume of $10 million, this corresponds to a loss of $500,000 to $2 million in annual savings. In addition, annual bonuses from suppliers are lost, which could often mean further savings of 2-5%. Higher logistics costs due to many small orders put an additional strain on the budget, as suppliers have to spread their fixed costs over smaller quantities. The additional administrative work involved in multiple negotiations ties up valuable resources that could be put to better strategic use.
Preventing maverick buying is crucial for cost control. When employees place orders without going through the purchasing department, they pay list prices instead of the negotiated framework agreement terms. These decentralized purchases often account for 20-40% of total spend and can completely negate savings gains.
The effects are serious and affect the company in several areas at once. List prices instead of framework agreement prices often lead to a cost difference of 15-30%, which directly impacts margins. The loss of supplier loyalty and negotiating leverage weakens the strategic position of purchasing in the long term. Compliance risks with unapproved suppliers can lead to legal and quality problems. The lack of spend transparency for strategic decisions is particularly problematic, as management cannot develop sound procurement strategies without a complete database.
A mechanical engineering company found that 35% of its maintenance costs were due to maverick buying. After introducing procurement software and providing appropriate training, these costs were reduced by 25%.
The biggest silent leak often arises when optimizing payment terms and discounts. Many companies pay invoices too early or miss discount deadlines – and thus give away cash. Optimizing discounts and payment terms can significantly improve cash flow.
Typical oversights in this area cost companies cash every day. Discount periods are overlooked or not systematically used, even though they often mean a 2-3% price reduction. Payment terms are not fully utilized, which means that liquidity flows out prematurely and is not available for investments or interest avoidance. Many companies lack automated cash discount checking, meaning that profitable opportunities are overlooked manually. It is particularly problematic that working capital management is often not understood as a purchasing task, even though this is where the greatest leverage lies.
A real-life example: A trading company with an annual purchase volume of €10 million was only using 40% of the available cash discount opportunities. After optimizing its processes, the cash discount rate rose to 85%, which corresponds to an additional €45,000 per year.
Missed savings lead directly to higher procurement costs and thus to budget deviations. If purchasing does not achieve its targets, the finance department has to provide additional funds or cut back in other areas. These domino effects put a strain on the entire financial planning process.
The effects are felt in various areas of corporate management. Higher-than-planned material costs directly impact the profit and loss statement and reduce competitiveness. Reduced margins due to rising procurement costs force management to make difficult decisions between price increases and profit losses. The need for supplementary budgets puts a strain on financial planning and reduces flexibility for other investments. Particularly problematic is the resulting pressure on other cost centers, which have to cut their budgets to compensate for the additional costs in purchasing.
Without clear spend transparency, purchasing cannot deliver reliable forecasts. CFOs and controlling departments then doubt the savings reports and budget compliance. The result: trust declines, budgets are monitored more closely, and purchasing loses strategic influence.
A lack of transparency leads to a vicious circle of mistrust and control. Unreliable cost forecasts make it impossible for the finance department to draw up accurate budgets and make investment decisions. Difficult budget negotiations arise when purchasing cannot back up its forecasts with valid data. The resulting loss of trust between purchasing and finance undermines strategic collaboration and reduces purchasing to a mere cost center. The result is micromanagement instead of strategic partnership, with valuable resources being used for control instead of value creation.
If payment terms are not used optimally, working capital remains with the supplier instead of in your own cash flow buffer. Every percentage point of improved liquidity saves interest or creates investment leeway. This aspect becomes even more important when interest rates rise.
The financial impact is particularly painful in the current interest rate environment. Higher financing costs due to poorer liquidity have a direct impact on the income statement, as the company has to take out more expensive loans or pay higher interest rates on overdraft facilities. Missed investment opportunities arise when liquid funds are tied up in operational payments instead of being available for growth-promoting projects. Higher credit line utilization leads to additional bank fees and worsens the company's credit rating. Reduced financial flexibility makes it more difficult to respond to market opportunities or survive times of crisis.
Better spend transparency is the first step. Modern procurement software makes all expenditures visible and automatically identifies bundling potential. When you know where your money is going, you can optimize in a targeted manner.
Concrete immediate measures can bring noticeable improvements within the first few weeks. A comprehensive spend analysis across all categories reveals hidden cost drivers and identifies the greatest potential for optimization. The identification of maverick buying through systematic data analysis shows where framework agreements are being circumvented and which departments need training. Automated bundling of similar requirements reduces the number of orders and improves your negotiating position with suppliers. Systematic supplier evaluation and consolidation helps to reduce the number of suppliers and achieve better terms.
Automated bundling reduces opportunity costs through intelligent demand aggregation. Instead of 20 separate orders, a collective order is automatically generated, with correspondingly better terms.
Discount optimization through automated systems can significantly improve cash flow. A company with a spend of $5 million can generate $50,000–100,000 in additional liquidity annually through systematic discount management.
Establish working capital management as a core competency of purchasing. This means that payment terms are not only negotiated but also systematically utilized. Supplier financing is used as a strategic instrument.
Successful companies implement a series of coordinated measures. Automated cash discount checking and utilization ensure that no profitable opportunities are overlooked and that liquidity is used optimally. Dynamic payment term extensions at favorable conditions make it possible to optimize working capital without straining supplier relationships. Supply chain finance programs create win-win situations in which both suppliers and your own company benefit from improved payment terms. Supplier factoring as a strategic tool offers additional financing options and improves the cash flow position of all parties involved.
Data-driven decisions replace gut feelings. Predictive analytics identifies cost drivers before they become a problem. Machine learning continuously optimizes order quantities and timing.
A medium-sized manufacturing company systematically transformed its purchasing process:
Initial situation:
Measures
Results after 12 months:
The company now saves 2% interest annually through optimized working capital management, which corresponds to an additional cash flow benefit of $300,000 per year on $15 million in spend.
Modern procurement thinks beyond pure cost reduction. It becomes a strategic partner to the finance department and actively contributes to liquidity optimization. This transformation requires new key performance indicators and performance measurement.
Modern procurement thinks beyond pure cost reduction. It becomes a strategic partner to the finance department and actively contributes to liquidity optimization. This " " transformation requires new metrics and performance measurement.
Key KPIs for cash flow-optimized procurement provide insight into the performance of purchasing as a liquidity partner. Days Payable Outstanding (DPO) measures how effectively payment terms are utilized without jeopardizing supplier relationships. The cash discount utilization rate shows how many profitable early payment discounts are actually realized. The working capital efficiency ratio provides information on how well liquidity is managed in the purchasing process. The maverick buying ratio is an important indicator of compliance with purchasing guidelines and the use of framework agreements. Supplier financing costs help to evaluate the total cost of procurement, including financing aspects.
Modern procurement technology not only automates processes, but also provides the transparency needed for strategic decisions. Artificial intelligence identifies optimization potential and suggests specific measures.
Key technology features:
The transformation to cash flow-optimized purchasing can only succeed with the right people. Purchasers must become financial experts and understand how their decisions affect liquidity.
Success factors for the transition to cash flow-optimized purchasing require a holistic approach. Training purchasing teams in finance topics is essential so that purchasers understand the impact of their decisions on liquidity and can act accordingly. Incentive systems that reward cash flow optimization create the necessary incentives for sustainable change and ensure that not only cost reductions but also liquidity improvements are rewarded. Regular communication between purchasing and finance promotes understanding of each other's requirements and enables joint strategy development. Transparent communication of successes motivates the team and creates acceptance for new ways of working throughout the company.
Investing in modern procurement systems pays off quickly. Typical ROI components:
Direct savings through systematic procurement optimization are usually noticeable in the first year. Volume discounts through better bundling can result in savings of 5-15% depending on the product category. For a company with a purchasing volume of 20 million euros, this corresponds to up to 3 million euros annually. The elimination of maverick buying leads to a 10-25% cost reduction on the affected spend, as framework agreement terms apply instead of list prices. Optimized payment terms can generate 1-3% additional cash flow, which is particularly valuable when interest rates are rising.
Indirect benefits arise from improved processes and strategic positioning. Reduced financing costs through better liquidity management can contribute significantly to profit improvement, especially in times of rising interest rates. Improved liquidity planning enables financial management to make more precise decisions and minimize financing costs. Greater investment flexibility through optimized working capital creates scope for growth-promoting measures without increasing debt. Better supplier relationships are created through more professional payment processing and can lead to further cost reductions and innovation partnerships.
Successful companies achieve ambitious but realistic targets through consistent implementation. A maverick buying share of less than 15% can be achieved through appropriate systems and training, ensuring that the majority of purchases are processed via optimized framework agreements. A cash discount utilization rate of over 75% maximizes liquidity benefits and demonstrates that payment processes have been systematically optimized. Improving DPO by 5-10 days can have a significant impact on cash flow without straining supplier relationships. Working capital reduction of 2-5% through optimized purchasing processes creates considerable financial leeway for strategic investments.
An example: A trading company with sales of €50 million was able to reduce its working capital by €1.5 million through systematic procurement optimization. At 4% interest, this corresponds to annual savings of €60,000, in addition to the direct purchasing savings.
Cash flow-optimized procurement is not a one-time project, but a continuous process. Regular reviews and adjustments ensure sustainable success.
Best practices for continuous improvement ensure that optimization brings lasting success. Monthly spend reviews with the finance department create transparency and enable quick corrections in the event of deviations. Quarterly supplier evaluations help monitor performance and identify under e partners. Annual strategy updates take market changes and new technologies into account in order to continuously adapt the procurement strategy. Continuous process optimization through regular analysis and adjustment of workflows ensures that the system grows with the company's requirements.
Anyone who still views procurement as a pure cost center is thinking too short-term. With smart control, purchasing becomes a strategic cash flow partner and secures the financial department the liquidity it needs for investment and growth.
The transformation begins with three crucial steps:
Companies that consistently leverage these levers not only improve their cost position, but also create financial flexibility for the future. In times of rising interest rates and volatile markets, this advantage becomes even more important.
Maverick buying refers to purchases made outside of established procurement processes and framework agreements. Employees order directly from suppliers without involving the purchasing department or taking advantage of negotiated terms.
The damage is considerable: companies pay list prices instead of framework agreement prices (often 15-30% more), lose spend transparency, and do not systematically take advantage of payment terms. With annual purchases of $10 million, this can result in $400,000-800,000 in wasted spending each year.
Step 1: Analyze all incoming invoices from the last 12 months and identify cash discount offers (usually 2-3%).
Step 2: Calculation: Volume eligible for cash discounts × cash discount rate × (100% - current utilization rate). Example: $5 million × 2.5% × 60% = $75,000 annual potential.
Step 3: Compare the cash discount yield (often 25-40% p.a.) with your financing costs.
Which KPIs should I introduce to measure working capital in purchasing?
Days Payable Outstanding (DPO): Measures utilization of payment terms (target: 30-60 days depending on industry) Cash discount utilization rate: Proportion of cash discounts used (target: >75%) Maverick buying share: Off-contract spend (target: <15%) Working capital efficiency ratio: Revenue ÷ Working Capital Cash Conversion Cycle: DIO + DSO - DPO (target: minimization
Typically 6-18 months, depending on company size and optimization potential. With a purchasing volume of €15 million, a €120,000 investment often pays for itself after 8 months through maverick buying reduction and cash discount optimization.
Modern cloud-based solutions pay for themselves faster than traditional systems due to lower implementation costs and faster results.
Cultural resistance: Purchasers focus on prices, not liquidity. Solution: Training and cash flow incentives.
Poor data quality: Fragmented spend data makes analysis difficult. Modern software automatically creates transparency.
Lack of coordination: Purchasing and finance work in isolation. Shared KPIs and regular reviews solve the problem.
Outdated systems: Legacy ERP without working capital features. Cloud solutions integrate seamlessly.
Common KPIs: Both departments measure working capital efficiency, DPO, and cash discount utilization.
Regular reviews: Monthly spend meetings, quarterly strategy meetings.
Uniform data basis: A procurement platform for both teams with real-time access.
Cross-training: Purchasers learn the basics of finance, controllers understand procurement processes.
Communicate successes: Regular reports on cash flow improvements motivate both teams.
Fabian Heinrich is the CEO and co-founder of Mercanis. Previously he co-founded and grew the procurement company Scoutbee to become a global market leader in scouting with offices in Europe and the USA and serving clients like Siemens, Audi, Unilever. With a Bachelor's degree and a Master's in Accounting and Finance from the University of St. Gallen, his career spans roles at Deloitte and Rocket Internet SE.
.webp)
.webp)
