Treasury Management Internation Logo
Cash & Liquidity Management
Published  3 MIN READ
Please note: this article is over 11 years old. If you feel this article is inaccurate or contains errors get in touch here. Many thanks, TMI

Optimising Cash and Working Capital in a New Environment

by Dámaso Cebrián, Head of Trade & Supply Chain Finance Products Europe, Banco Santander

The change in the economic cycle, together with the financial crisis, has forced companies to shift from expansive and aggressive business strategies to conservative positions that allow them to weather stormy conditions. The downturn in consumption and public expenditure, combined with constrained liquidity in the banking market, have forced companies to postpone their long-term investment strategies and focus instead on cash. Cash and working capital have become top priorities, and we have seen many of our clients engaging in programmes to optimise inventory, payables and receivables management. 

The crisis has had a particular impact on SMEs, who often lacked the financial resilience to weather the storm. Consequently, sectors that rely heavily on SMEs as a key part of their supply chain have been focused on securing their supplier base, leading to the growth of supply chain finance. While this concept has existed for many years, and proved very successful in certain countries, it has become a mainstream solution. By using supply chain finance, major companies with a clear focus on cash generation have improved their working capital position and optimised their cash conversion cycle, without damaging the position of their customers and suppliers

While today’s situation is calmer than at the peak of the crisis, there is still considerable business uncertainty. As we wait for clear signals of recovery, companies continue to focus on optimising their operating cash flow and managing their risk. There are various implications of this. One is that multinational companies are far more aware of the potential risks associated with a single global provider for transaction banking, and a single global banking model is no longer valid. Another is that companies are looking for opportunities to unlock cash across the financial supply chain. In some sectors, inventory has been a key concern as a steep downturn in consumption has led to inventory spikes, consuming financial resources at a critical time. In other cases, increasing days payable outstanding (DPO) has been an area of opportunity. For example, with clear differences in average DPO across countries, companies are reviewing commercial terms offered by their subsidiaries, who often work with the same vendors, and seeking to standardise terms. Confirming® allows suppliers to discount confirmed invoices through an intermediary bank, based on the buyer’s risk profile. This leads to an additional source of cost-effective financing for suppliers without affecting their access to bank finance: increasing cash flow predictability, improving their financial position and strengthening ties with key customers.