Yesterday The Wall Street Journal published a story titled “Banks Urge Big Customers to Take Cash Elsewhere or Be Slapped With Fees.” As more large corporates are stockpiling cash and new regulations around liquidity are starting to be enforced there is a perfect storm brewing around regulation and much needed cash investment alternatives.
It’s a key point that has been underestimated by corporations. Treasurers are being squeezed between two opposing and equally valid positions: on one side corporate demands and a fear of limited liquidity have resulted in companies stockpiling cash while reducing bank borrowing relationships to improve efficiency and reduce cost. On the other side regulations that view liquidity as a potential economic destabilizer that needs to be closely managed to avoid another credit crisis.
To be clear, we are talking about the most liquid form of capital: deposits shorter than 31 days. Banks want deposits longer than 31 days and corporates want shorter commitments to allow for more flexibility. With working capital initiatives continuing to dominate internal KPIs cash levels will continue to increase.
Throughout all of this the SME community, the engine of the economy, is starving for cash with very few borrowing options. This situation creates the very real possibility that major economies could be pushed into a deflationary environment because of the lack of velocity of money. In addition, Treasurers now must face reality and recognize they may soon incur additional expenses by just depositing cash into banks. Together these are two major threats lurking in the wings that are greatly underestimated.
So where do treasurers put their money? One answer is riskier assets however that treads dangerously close to their prime fears of increased volatility and reduced liquidity if they end up losing cash. The other option is to accelerate payments to your supplier base in an effort to strengthen the supply chain and ultimately their own business.
Articles like this validate our C2FO marketplace model. We created C2FO as a risk-free “Elsewhere” that every corporate treasurer should seriously consider to increase gross margin and EBITDA, improve supply chain financial health and avoid new fees being imposed through regulation.
Now it’s time for companies to help lift the burden of responsibility from the banks and open up their access to liquidity to help their suppliers and in so doing benefit themselves as well as the broader economic recovery.