How Middle Market CFOs Are Putting Working Capital to Work

The emergence of new technologies geared toward offering digital working capital solutions can help smaller firms better meet their cash flow needs.

And in the 2023-2024 edition of the Visa “Growth Corporates Working Capital Index,” the Growth Corporate firms — defined as those companies with annual revenues of $50 million to $1 billion — we found a number of key trends pointing to the ways and means of how CFOs and treasurers view working capital, and how they might leverage those solutions in the years ahead. PYMNTS Intelligence designed and conducted the study and index analysis.

Top performers are not the biggest players. 

The Index has identified a number of attributes that belong to the echelons of the top performers, where working capital operational efficiencies were ranked three times those of bottom performers. The most efficient Growth Corporates have annual sales between $50 million and $250 million. Regionally speaking, they’re somewhat concentrated in Latin America and tend to use virtual credit cards and working capital loans.

Cash flow shortages are not isolated events.

Only about a quarter of the more than 870 firms we surveyed say they’d encountered no cash flow shortages in the last 12 months — indicating a significant need to address cash flow. The data show that roughly 2.5% of firms have cash flow shortages at least once a month, and a significant percentage of firms — at about 25% — have cash flow shortages about once every quarter. 

There’s a growing intent to use working capital solutions.

We found that Growth Corporate CFOs across all segments in 2024, just about all of them — at a staggering 92% — plan to access external working capital in the next 12 months. Eighty percent of the companies that did not need to use external working capital in the trailing 12 months say they will do so in the year ahead.

Healthcare and agriculture firms are the most prevalent users of working capital for strategic means.

Two-thirds of the companies in those segments — as shown in the chart below — have used working capital to conduct basic operations, such as buying inventory.

But several other sectors will play “catch up” in the year ahead.

Eighty percent of Growth Corporate CFOs who didn’t need to use external working capital solutions in the past year plan to embrace those solutions in 2024.

 Virtual cards get a thumbs-up from users.

More than two-thirds of Growth Corporate execs who use virtual cards do so in versatile ways — and usage is slated to triple through the next year, especially by marketplace firms. More than a third use the cards for strategic growth initiatives, and nearly a third use those same cards to help triage emergencies that, in turn, require some capital outlays.

Working capital will be used to invest in modernization in 2024.

The executives planning to use working capital solutions next year expect to use the proceeds to invest in their company assets, buy inventory, and modernize their back-end operations and legacy systems.