Cash & Liquidity ManagementCash ManagementWorking Capital Optimisation Remains a Top Priority in 2015

Working Capital Optimisation Remains a Top Priority in 2015

New research from Demica has found that, as the global economy picks up, working capital optimisation will continue to be a high priority for corporate treasurers in 2015. In their drive for competitive advantage, treasurers are increasingly looking beyond the traditional forms of finance to explore a wider range of alternative funding options that support their working capital requirements, ranging from supply chain finance (SCF), to trade receivables securitisation (TRS), to factoring. The research study polled 78 corporate treasurers and financial managers, in conjunction with Treasury Management International (TMI).

The research found that more effective cash management/forecasting (63%), releasing working capital (60%) and improving working capital risk management (58%) are the three most important priorities for surveyed treasurers in the coming year. Some 60% of respondents believed that there is still a fairly or very high potential for releasing trapped working capital in their industries in the next five years. In fact, the need to unlock trapped liquidity has become even more important in the post-crisis economic landscape as standard bank credit becomes more restricted and expensive. As a result, companies are increasingly looking for alternative financing methods, according to four fifths of survey respondents.

Corporates are particularly keen on exploring methods of releasing additional liquidity from their accounts receivable, acknowledged 87% of surveyed treasurers. Because of SCF’s ability to extend buyers’ payment terms while enabling early payments to suppliers at an affordable financing cost, 83% of respondents observed growing enthusiasm for this credit facility from their industry peers. A revival of interest in TRS for its role of monetising receivable portfolios is affirmed by another 60%. The survey’s sample represents a strong enthusiasm for SCF, with 40% of respondents already offering such a finance facility to their suppliers. Enhancing working capital liquidity for the buyer company is the most important driver for the implementation of the programme, followed by the provision of liquidity to suppliers and reducing supply chain risks.

At the same time, TRS is becoming an increasingly important component in corporates’ working capital strategy. Some 16% of respondents are currently running a TRS programme. The decisive driver for doing so is, first and foremost, to improve liquidity. The desire to obtain more favourable financing conditions and diversification of refinancing channels came as the second and third most important motivators. Amongst those that have not implemented a TRS programme, a quarter are planning to do so in the next 12 months. As businesses seek to diversify their funding sources, factoring, once regarded as the lender of last resort, is now embraced by companies of all sizes. Already more than a quarter of the surveyed treasurers are using factoring as an effective funding tool to increase liquidity, with factoring volume ranging from €700,000 to US$1 billion (approximately €800 million).

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