In an era of permanent volatility, treasurers must evolve beyond defensive tactics, argues John Stevens, SVP at Kyriba. By using a suite of working capital solutions to take proactive control and build financial resilience.
The global stage is shaking under the weight of President Trump’s tariff regulations. While there have been many discussions and negotiations between world leaders and the US government, businesses are still concerned about the future. British companies, for example, are looking to renegotiate supplier contracts as they try to identify potential savings to safeguard them from the aftermath of escalating US tariffs. Similarly, the European Union is in conversations with the White House about preventing a 55% tariff on all its exports.
These tariffs signify a realignment of international trade relations and a critical shift in economic interdependencies. This prompts nations to reevaluate their economic connections and redefine their roles in an increasingly divided trading system.
Amidst ongoing economic instability, Treasurers need more than defensive tactics, they need control. With newly available technology, the modern CFO’s office can implement their own Working Capital Control Tower, encompassing solutions that solve for the entire cash conversion cycle, not just in cost structure, but in cash flow timing. Optimizing working capital is one of the most effective ways to cushion against volatility. On average, each day reduction in the cash conversion cycle can release between 0.5% and 1.5% of annual revenue in usable cash. For a $5B company, a day 10 improvement means unlocking $250MM to $750MM – capital that can be redirected to debt reduction, investment, or cushioning tariff-related cost shocks.
Tariffs are just the latest accelerant in a broader trend: volatility as a permanent feature of the global trade landscape. Today’s Treasurer finds themselves at the mercy of a world they didn’t design – tariffs one week, bank retrenchment the next. And yet, when it comes to working capital programs, many still outsource strategy to their bank partners.
Treasury teams should not build their resilience, or competitive advantage, on a single lender’s credit appetite. Real control comes from owning the architecture: setting the terms, defining the triggers, and having the flexibility to pivot as conditions change. This goes beyond relationships, and requires technology. A modern working capital strategy should orchestrate capabilities across multiple funding sources, dynamically allocate surplus cash, and tailor programs based on supplier behavior, liquidity needs, and risk thresholds, all in real time.
In the following sections, we’ll break down the core components of that architecture, and show how each can be deployed to unlock cash, manage volatility, and reduce dependency on any one institution.
Despite the long-term consequences that the tariffs might bring, there are some working capital solutions that can help minimize any associated costs and alleviate the pressure. We know that tariffs can impact the cost of capital, but working capital solutions including supply chain finance, dynamic discounting, and receivables finance can support to mitigate these effects, starting off with Supply Chain Finance (SCF).
SCF enables suppliers early payments at more reasonable rates based on their buyer’s credit rating. Leveraging a third-party funder and providing payment options, SCF facilitates vendor stability at a reduced cost of capital. SCF is also particularly useful for sectors such as manufacturing, automotive, and retail, which often have broader and more complicated supply chains across various markets.
By shielding buyers from market volatility, SCF minimizes financial risks and offers the flexibility required to adapt to the shifting tariff environment. This approach fosters supply chain stability by providing suppliers with funding and reducing potential interruptions due to financial strains from tariffs.
In addition to SCF, businesses should also consider dynamic discounting. This is a working capital solution that allows financial leaders to adjust liquidity and reinforce their supply chains. By offering suppliers advanced payment in return for discounted rates, financial teams can effectively add their surplus cash to work and earn more appealing returns. Not only that, dynamic discounting cuts down the cost of goods sold through direct discounts from suppliers and increases net income.
For companies with idle cash available to deploy immediately, dynamic discounting offers a dual benefit. Firstly, it boosts profit margins by locking higher discounts and maintains liquidity by using surplus cash productively. Moreover, by supporting early payments, this strategy strengthens the supply chain by improving suppliers’ working capital positions, ensuring faster payment. Having financial flexibility is crucial in protecting the business against raised costs, such as those affected by tariffs, helping financial teams bypass economic struggles with resilience.
Another approach financial teams should keep in mind is receivables finance. This allows them to adjust cash flows by getting paid early for unpaid receivables from customers. The solution improves liquidity for the seller, providing the required cash flow to handle operations more effectively.
This strategy helps sellers improve their working capital position and minimize the risks linked with late customer payments. Receivables finance makes sure that businesses sustain a stable cash flow, offering a buffer against the tariff pressures as well as other external economic challenges.
An additional type of receivables finance is factoring. This is when sellers send the entire portfolio of outstanding accounts receivable of one or various customers to one or more factors. As a result, the seller receives cash in advance without paying interest or fees.
This approach helps financial teams change their receivables into immediate cash. It helps further boost liquidity, improving cash flow management, and supporting credit risk by outsourcing the management of their receivables to a specialized factor. Factoring can facilitate a financial cushion as businesses absorb any potential financial impacts of tariffs and maintain operational resilience.
Finally, a way that can help enhance fiscal health is through hybrid working capital solutions. A hybrid solution involves combining supply chain finance and dynamic discounting, helping financial teams to shift between using their own or third-party funds based on their cash status. This flexible approach is particularly beneficial for companies facing sales seasonality, where cash flow may differ. When excess cash is available, it can be utilized to pay off suppliers in advance, securing discounts and enhancing cash flow. Similarly, when cash is limited, financial teams can depend on third-party funds for timely supplier payments. This approach enhances the use of cyclical excess cash, boosts supplier relationships, and ensures a healthy supply of goods.
Finally, another hybrid approach financial team can leverage is adopting a factoring program with supply chain financing. A factoring program can speed up cash by up to 30 days, and a supply chain financing program can help businesses keep that cash for an additional 30 days.
The above techniques provide financial leaders an opportunity to efficiently navigate economic challenges with resilience while at the same time remaining competitive regardless of the rising trade costs. Organizations should stay up-to-date with the latest tariff decisions and agile as they evaluate how these will influence their current and future plans. It’s also vital to be ready to adjust based on how long tariffs remain in effect.
By carefully managing working capital, finance teams can lessen the impact of tariffs, decrease expenses, and preserve liquidity. Armed with the above working capital strategies, businesses are better prepared to tackle the complexities and challenges brought on by tariffs with confidence.