 Today I moderated a virtual round table for corporate treasurers for our Working Capital Forum networking group.
Nothing unusual in that – we run one or two of these every month and, over a year, I probably speak directly to 200-300 corporate treasurers. Today, however, I was struck by just how many challenges the treasurers around our table were facing. As the virtual lunch went on and more of our guests shared their own experiences and concerns, it was clear that, while there are certainly opportunities in the year ahead, treasurers can’t expect to put their feet up as the UK economy emerges from lockdown. Let’s look at some of the factors that our participants mentioned:
Any one of these issues would be significant in its own right – but most of these companies were facing several of them at once. Many of them may not seem to fall within treasury’s remit. Yet all of them have knock-on effects on cash flows and liquidity. For example, one manufacturing company was seeing significant price rises in plastic, to the point that recycled materials had risen to the same cost as so-called ‘virgin resin’. The logical response was to build up stock levels as a hedge against future price rises – but this tied up more working capital. At the same time, cash-strapped customers were taking longer to pay, while big suppliers were able to insist on prompt payment, so the cash-to-cash cycle was stretching. Now the company is investigating moving to a distributor model for one key product so that stock is held further down the supply chain – and is also taking advantage of supply champion finance offers from its own suppliers, easing the cash pressures. Another company has tackled late payment by some customers by launching a receivables finance programme with its bank which had taken 25 days of its UK days sales outstanding (DSO) number. One fortunate – or prescient – company had recently completed a working capital optimisation project which had left it with a much stronger cash position. For that firm, the essential starting point had been a senior-level commitment to establishing a ‘cash culture’ within the business, embedding cash metrics in the compensation plans of senior executives. This isn’t something that can be achieved by treasury alone – but drawing the attention of the company’s senior leadership to the importance of cash and working capital management in riding out economic and supply chain turbulence definitely is. This Working Capital Forum virtual round table was sponsored by American Express. To join future off-the-record round tables, apply here. Comments are closed.
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