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Working Capital management, a Dynamic space definitely Worth watching…

Explore new tools, products & techniques to access operating liquidity

by Evelyne Legaux on 16-01-2024


Today's article builds on our previous piece ‘When corporate Treasury emerges as a strategic business partner… Or the golden Era of balance sheet Health’ published in May 2023, and further delves into evolving tools, products & techniques available to businesses that aim to optimise Working Capital.


Setting the stage… at the very heart of business operations

In the present macro-economic & geopolitical environment, protecting the running of  (global) operations is often a matter of survival for businesses. Optimizing operational efficiency & risk mitigation has therefore become a top priority and, together with it, the need to look at how effective & sustainable their Working Capital management strategy actually is.

Working Capital management is indeed at the very heart of business operations, touching  everything from sourcing critical supplies to producing & shipping to getting paid by trade customers. No surprise therefore that companies increasingly focus on ensuring that every opportunity to improve Working Capital, is genuinely understood throughout the business organisation, and leveraged.

The respective size &/or stage on the growth journey doesn’t change this. If anything, the smaller &/or younger a business is, the more acutely important Working Capital management - as the main driver of operating Cash Flow - becomes.

It is now a well-recognised fact across industries that the foundation of a company’s strength resides first & foremost in its balance sheet health. Hence, the criticality of developing a holistic & sustainable approach to Working Capital management, that encompasses the people, culture, processes & technology aspects of it, across all the end-to-end Cash Conversion Cycle.

Embarking on a Working Capital optimisation journey however can feel as overwhelming for businesses – given the sheer complexity at play – as it is foundational in supporting their growth journey.

The good news though is that the world of Working Capital is not static...


Working Capital management, a dynamic & fast-evolving topic

One of the core challenges for companies in today’s trading environment is to build resiliency in the supply chain through diversification of sources, vendors & geographies,   combined with a proactive management of operational risks. More often than not, doing so actually means evolving their business operating model in ways that bring flexibility, agility & cost-effectiveness to it.

  • This is where Working Capital finance comes in, with a major support role to play, and the earlier in the supply chain the more beneficial it is, notably in times of high prices volatility.

For decades, traditional trade banks have been the only available source of funding through a narrow framework of paper-intensive & costly products, that practically resulted in limited access to finance for many businesses.

Thankfully, over recent years and in conjunction with the golden era of balance sheet health, Working Capital finance has been dramatically evolving for the better, with a host of new players disrupting the marketplace through new innovative, easy to implement & cheaper financing products.

Such dynamism in the offering has been very welcome by businesses - SMEs & those located in Emerging markets in particular – that crucially need access to easy & affordable sources of funding. By lowering the cost of onboarding & servicing a new account and simplifying the due diligence checking process, those new players are indeed revolutionising the way businesses can now access Working Capital finance.

A natural consequence of this trend is that traditional trade banks are becoming irrelevant in this particular segment of the business financing market, thus forcing them to question their own services offering and to innovate by leveraging live data & embracing new digital technology solutions.

Beyond this, the ongoing evolution of the regulatory & technological environment encourages all actors – whether traditional banks, alternative funders or FinTech’s – to collaborate in ways that make (global) trade transactions easier, which is exactly what the trading parties want.

  • With regards to global trade transactions precisely, one could argue that documentary finance remains a very manual & paper-intensive process that causes frictions in trade flows & delays in the tracking of payments. This being said, the International Chamber of Commerce (ICC) is acting at the forefront of change here, by pushing forward the adoption of digital trade documents in relation to title to/transport of goods or guarantees in particular.

While moving away from paper towards free flowing of data between trade counterparts may require a mindset change for companies, it surely constitutes another definite way of making global trade operations faster & more efficient, thus leading to cost reductions, faster access to operating liquidity & customer satisfaction enhancement.

  • And as both Working Capital finance & global trade documents turn digital, it becomes easier to conceptualise that any ESG-related data can be seamlessly integrated into it, thus helping Procurement professionals around the globe develop 360 degree supplier scorecards and make (global) supply chains more intently & transparently sustainable.
  • Likewise, another area of rapid evolution is that of integrating finance at the heart of trade flows. Indeed, more & more businesses offer embedded finance products or services wherever convenient & relevant to do so throughout the supply chain.
  • Building on B2C & e-commerce where the user experience is key, B2B businesses are now also looking at new alternative payment methods in order to provide customers with an embedded payment

In practice, a supplier would typically embed an active payment link into an invoice as opposed to printing bank account details on it. The provision of such an invisible built-in payment method can turn into a strategic competitive advantage for suppliers, for customers will naturally tend to do more business with those that are easier to deal with. Likewise, customers will likely pay those suppliers first, thus improving their Working Capital, rather than those asking for a bank transfer, a direct debit or a card payment.

In other words, payment itself is becoming an increasingly smarter commodity… that surfs on new technologies such as open banking or APIs.


So, will traditional trade banks catch the train in motion?

Some banks are indeed strategically investing in new technology to join the innovation momentum, with a view to introducing new products to the market that help strengthen Working Capital performance in the supply chain.

In the world of Cash outflows for instance, commercial credit cards are starting to be leveraged in ways that enable early payment to suppliers while deferring the point of debiting buyers bank accounts.

Interesting development indeed… yet still the exception rather than the norm…

So, to conclude, the creativity currently being demonstrated by all players & supported by regulators who gradually level the playing field between banks & non-banks, opens up tremendous opportunities to revolutionise how businesses can access operating liquidity, using an array of flexible, agile & smart tools or solutions. And it’s up to all those players in the market to foster mutual collaboration in ways that support global trade & resiliency in  supply chains.


Is this to say that everything is rosy in the world of Working Capital management?

To say so would mean to ignore the potential restrictive impact that the newly proposed amendments to the EU’s Late Payment Directive - through the removal of any flexibility around payment terms - might have on Working Capital finance.

Definitely a space worth watching…


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