The high cost of capital is causing CFOs and treasurers to re-examine how efficient their firm’s cash flows are – and where there may be room for improvement.
And the tools they use to get where, strategically, they want to be.
In “2023-2024 Growth Corporates Working Capital Index” conducted by PYMNTS Intelligence for Visa, the executives at “Growth Corporates” — firms that have annual revenues in the range of $50 million to as much as $1 billion — have in the recent past, shied away from embracing external working capital solutions.
The reasons are varied: Going through traditional channels of accessing capital has become more expensive than in decades. There may be pressures from CEOs or the board to avoid doing so, especially if utilization is viewed as a sign of inefficient financial planning.
But efficient supply chain management is critical, especially during times of macro uncertainty, and so is paying suppliers on time. And CFOs need to wear several hats at once: They need to manage day-to-day operations, yes, but they also must plan for and seize, opportunities for growth. In addition, unplanned expenses — even emergency expenses — can bedevil even the most careful cash planning efforts.
But, as the research that gleaned the insight of more than 870 executives has shown, by and large, CFOs expect more stable market conditions in 2024. That means that they can spend a bit more time exploring working capital solutions that can be used in the service of strategic priorities for everything from buying inventory to finding new markets to address and new audiences to reach.
To that end, 80% of Growth Corporates that did not use working capital solutions last year and 85% that could not use them plan to increase their use of working capital financing in the year that looms ahead in just a few months, earmarking those solutions for growth.
The planning for growth is a notable endeavor, chiefly because the pantheon of industries these Growth Corporates represent — account for 25% of global GDP and are widely viewed as being innovators in their fields. They’re the ones that hire staff, modernize operations, use digital channels to deliver goods and services and if they grow and scale, the economy benefits as a result.
As for “where” those firms are operating and the types of working capital they’re using, in just a few examples, marketplace firms tend to use third-party revolving credit facility solutions, and they — in addition to agriculture firms — plan to triple their use of virtual cards next year. Commercial travel companies used working capital loans and bank lines of credit most recently. Overall, two-thirds of Growth Corporate CFOs used working capital strategically. Across all users, 70% of executives report improved business metrics, chiefly evidenced by shorter cash conversion cycles and lower days payable outstanding.
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