Working capital optimisation still a priority for treasurers in 2015 - report

According to a recent report on working capital optimisation entitled “Cash Positive?,” released by Demica, treasurers are increasingly looking beyond the traditional forms of finance to explore a wider range of alternative funding options that support their working capital requirements, ranging from supply chain finance (SCF), to trade receivables securitisation (TRS), to factoring.

The research unveils that more effective cash management/forecasting (63% respondents), releasing working capital (60%) and improving working capital risk management (58%) are the three most important priorities for surveyed treasurers in 2015. 60% of respondents believed that there is still a fairly or very high potential for releasing trapped working capital in their industries in the next five years. In fact, the need to unlock trapped liquidity has become even more important in the post-crisis economic landscape as standard bank credit becomes more restricted and expensive. As a result, companies are increasingly looking for alternative financing methods, according to four fifths of survey respondents.

The study also points out that corporates are particularly keen on exploring methods of releasing additional liquidity from their accounts receivable, acknowledged by 87% of surveyed treasurers. Because of SCF’s ability to extend buyers’ payment terms while enabling early payments to suppliers at an affordable financing cost, 83% of respondents have observed growing enthusiasm for this credit facility from their industry peers. A revival of interest in TRS for its role of monetising receivable portfolios is affirmed by another 60%. The survey’s sample represents a strong enthusiasm for SCF, with 40% of respondents already offering such a finance facility to their suppliers. Enhancing working capital liquidity for the buyer company is the most important driver for the implementation of the programme, followed by the provision of liquidity to suppliers and reducing supply chain risks, the research adds.

The report indicates that at the same time, TRS is becoming an increasingly important component in corporates’ working capital strategy. 16% of respondents are currently running a TRS programme. The decisive driver for doing so is, first and foremost, to improve liquidity. The desire to obtain more favourable financing conditions and diversification of refinancing channels came as the second and third most important motivators. Amongst those that have not implemented a TRS programme, a quarter are planning to do so in the next 12 months. As businesses seek to diversify their funding sources, factoring, once regarded as the lender of last resort, is now embraced by companies large and small, the study shows. Already more than a quarter of the surveyed treasurers are using factoring as an effective funding tool to increase liquidity, with factoring volume ranging from EUR 700,000 to approximately EUR 800 million (USD 1 billion).

These are the findings of Demica’s latest research study, conducted amongst a sample of 78 corporate treasurers and financial managers, in conjunction with Treasury Management International (TMI).