How are corporate treasurers managing working capital in an era of inflation, rising interest rates and supply chain shocks? The Working Capital Forum assembled a group of treasury and procurement leaders under the Chatham House Rule at New York’s Soho Grand Hotel to answer this question.
Our guests included large and mega-cap firms in the FMCG, pharma, retail, technology, manufacturing and media spaces, and representatives of Taulia and SAP, our lunch sponsors for the day. While the individual challenges faced by treasurers differed, four distinct themes emerged that were common to all.
Which cash is king?
There was no dissent from the universal view that liquidity - cash - is more important than ever in an uncertain economic environment. However, one supply chain finance specialist in the group pointed out that, these days, the phrase ‘cash is king’ might need modification to ‘which cash is king? Short or long-term, USD or other currencies, in an era of rapid change, understanding the cash position, now and in the future, remains a priority.
Without exception, every treasurer present was focused on increasing the accuracy of both short and long-term cash forecasting - arguably the starting point for every conversation about working capital. Few around the table were satisfied with their cash forecasting process and several were actively looking for new technology solutions in this area.
One treasurer had developed processes and implemented systems to make the best of a notoriously inaccurate science. Her firm had implemented a technology solution which had eased the process of gathering data from multiple sources to feed into the daily forecast. Another idea was a daily ‘cash call’ at 10.30 am, which was open to any executive to join.
Pull as well as push for supply chain finance
The focus on cash is not limited to those at the top of the supply chain. Smaller suppliers, who may only have one banking relationship, are at the mercy of rising interest rates. As one guest put it, ‘We have a conversation with our banking partners, but our smaller suppliers just get an email.’ Those firms are seeing the cost of cash rise and often have far fewer alternatives to whatever rate their bank will offer.
The result has been a sharp increase in interest in whatever supply chain finance (SCF) is on offer. Several guests reported that, for the first time, they were taking incoming calls from suppliers asking about SCF, rather than having to persuade them to take it up.
If there was one potential brake on the use of supply chain finance as a tool to optimise working capital and support suppliers, it was the new reporting requirements issued by FASB last month. From December 2022, companies will be required to report their use of supply chain finance programmes in sufficient detail, ‘To allow a user of financial statements to understand the programme’s nature, activity during the period, changes from period to period, and potential magnitude.'
No one felt that this change would dissuade them from using a properly structured supplier finance programme. Instead, they would look to their SCF provider to build the proper reporting into the platform. Reassuringly, Taulia representatives mentioned a tool already under development, which would be ready for the December deadline and which would provide the required data ‘in seconds’.
The accidental treasurer
For the first time at a Working Capital Forum round table (which has been running since 2015), the problems of attracting and managing talent were raised by several in our group. One had built links with a university to source new talent.
Others noted that the job description for ‘treasurer’ is changing. Where once a Certified Treasury Professional (CTP) qualification was both expected and sufficient, today, a wider grasp of technology and business is seen as a definite plus - and conventional treasury qualifications may not always be essential. One firm has a policy of rotating new staff between departments, including treasury, so that often people with no previous understanding of the discipline realise how central to the business - and how interesting- treasury could be.
The role of treasury is expanding, too. Our media guests we very focused on consumer-to-business payment channels, understanding how they are changing and what they mean for cash management. Where once accounts payable (AP) was left to shared services, for companies with a strong reliance on subscriptions, treasury needs to be a participant, not a spectator, in selecting and managing payment channels.
Five ways to thrive in challenging times
As the meeting came to a close, guests were asked for their own recommendations for any treasurer looking to guide their businesses through today’s stormier business environment. We’ve distilled their answers into five points to remember:
As always, the real value of the round table meeting was in the 'off the record' exchanges between peers before and after the formal session.
These issues will be revisited at future Working Capital Forum events, including our European conference in Amsterdam on 1st December
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