How to Optimize Working Capital During a Crisis

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The March 2020 edition of Treasury & Risk includes a report, “Boosting Working Capital Management in a Downturn,” that features commentary from C2FO leaders. The special section includes the following article by Kevin Ehinger, president of C2FO Capital Finance. 

Even during an unprecedented economic crisis, there are financial levers your company can pull to manage and solidify your access to capital.

At the start of 2020, many experts predicted an economic slowdown or even a full-blown recession, pointing to trade wars, geopolitical instability and other risks to global commerce. 

Then the coronavirus happened, shutting down factories, forcing workers to stay at home and sending credit and trading markets around the world into tailspins. Those earlier predictions of an economic slowdown sound almost quaint right about now. 

In today’s unsteady climate, a treasurer’s focus should be on safety, liquidity and the availability of additional funding sources if needed. You also want to ensure that your supply chain can not only stay in business, but continue to produce for your company and be ready to exit this challenging period with strength. In many ways, the trend toward increasing risk tolerance in return for yield has reversed, taking a clear back seat to keeping the company and suppliers going at virtually all costs.

One effective way to manage your finances and supply chain through this crisis is to deploy a cohesive strategy intent on optimizing access to working capital. 

C2FO can help drive this strategy. As a leading global provider of working capital solutions, we’ve created a worldwide network that matches the accounts payable of nearly 200 leading companies with the receivables of more than 400,000 of their suppliers. 

The power and flexibility of this network is only one of the funding solutions C2FO provides that can help protect your company’s cash position. 

Here are three advantages that C2FO offers in helping you and your suppliers optimize working capital and build greater financial durability during a downturn: 

Less Risk and Improved Returns on Cash

In a near zero-rate environment, it can be challenging to produce a healthy return on your company’s short-term surplus cash at all, but especially without taking on a higher level of risk. 

Participating in an advanced marketplace like C2FO enables you to generate a stronger, no-risk return on your company’s cash even in a time of crisis, helping your organization meet core EPS, EBITDA and other key metrics. While it facilitates early payment between companies and their suppliers, C2FO’s marketplace is more flexible and far-reaching than traditional supply chain financing or dynamic discounting. 

Perhaps most importantly, the C2FO marketplace also helps your suppliers quickly address their liquidity needs. By setting up an early payment program through C2FO, your suppliers select which invoices they want to accelerate payment on, at discount rates that they determine work best for their business. This flexibility drives greater supplier participation than SCF programs and the average discounts can provide your company with a steady, higher rate of return on excess short-term cash. The automation of C2FO’s online technology also eliminates the need to manually approve discounts on a supplier-by-supplier basis, saving your team time and effort.  

By providing suppliers with quick, easier access to working capital, you are strengthening each tier of your supply chain, reducing the likelihood of failures and disruptions to your operations in this challenging economic landscape.  

Funding Options with Greater Control 

In times of uncertainty, traditional lenders tend to pull back to protect their assets. This lack of control over your company’s borrowing capacity can hamper your ability to meet your financial needs. It can have an even more significant effect on your suppliers’ financial health. 

Your company probably already has a number of different funding sources. But how much control do you have over them, especially at this time? In addition to early payment, C2FO provides a range of other alternative finance options (receivables finance, pre-invoice finance and more) that can bridge the gaps between traditional supply chain finance and other funding sources like P-card solutions that banks provide. As you may have found, most small- to medium-sized suppliers don’t accept P-card payments and also don’t fit into the rigid parameters of a conventional bank SCF program.

C2FO’s goal is to provide maximum flexibility in optimizing capital for you and your trading partners. We provide an accounts receivable solution that enables your company to leverage a strong cash position and allow suppliers to voluntarily receive later payment on their invoices, in exchange for being paid a premium.

C2FO also provides your company greater flexibility in which banks or non-banking sources you partner with for third-party funding. We offer  a network of carefully selected funding partnerships that C2FO has built up over the years, ranging from multinational banks to asset management companies and specialty finance providers. This enables us to find a funding partner that is the right fit for your company, and provide you with full visibility to your program.  

Working Capital When You Need It

Having a variety of funding options provides a level of flexibility that allows you to adjust to the changing dynamics of your business as well as external economic conditions.

Since the last economic downturn in 2008, many companies have developed smarter strategies for managing inventory, optimizing payment terms and managing their working capital. The use of supply chain finance has also increased significantly since 2008. However, companies that are innovative and more flexible beyond SCF will be best positioned to thrive during this economic crisis.

C2FO’s wide selection of alternative funding solutions can be used if and when you and your suppliers need them, providing greater control over your finances. In rosier times, your goal might be to fund an expansion or acquisition, drive dividend hikes or pay down debt. Right now, you might deploy some of these solutions to quickly address funding gaps during this time of shutdowns and stay-at-home orders.  C2FO’s network can be used on-demand, generating complementary capital for you and your supply chain. 

In Summary 

Flexible, quick and collaborative solutions for monetizing both your suppliers’ receivables and accounts payable should be a part of any finance professional’s toolkit. With the right strategic approach, you can respond to financial needs in real-time despite any instability and external factors that are beyond your company’s control. 

Business is not as predictable as we might wish and maintaining the right balance can be a challenge. By taking a comprehensive approach to managing and optimizing your company’s working capital, that balancing act, even in these uncertain times, can be far less daunting.