For businesses keen to pursue an investment agenda through capex or those considering acquisitions, demonstrating a robust approach to optimising working capital can help fund these aspirations. In addition, those businesses that have a clear strategy of monitoring, measuring and optimising their working capital can present a more attractive proposition for investment. As we emerge from the pandemic, we can certainly expect opportunities for businesses in sectors that have fared well or those with strong business fundamentals to pursue growth through new clients, new markets or acquisition.
On the other side of the coin, but playing to the same sense of good business management, is the impact optimising working capital has on business value. If you’re looking ahead to a possible exit strategy, improving cash and free cash flow for the business could ultimately help improve business valuation. And even if you’re not focused on an exit strategy, improving the value of your business is important. We’re seeing an increased focus on working capital from stakeholders, whether that's suppliers, customers, partners, investors, credit rating agencies for the larger listed businesses, analysts, and so on. Stakeholders are all focusing heavily on cash and, at a more granular level, on working capital. They want to see that you are managing it well and you're optimising where possible, so if you do nothing, you’re effectively moving backwards.
Solutions to support working capital cycles
There are a number of ways that businesses can optimise their working capital, from operational steps to solutions that support the three primary working capital cycles: purchase to pay (creditor), forecast to fulfil (inventory), and order to cash (debtor). Guarantees, for example, can potentially help you obtain better payment terms or even open account terms, and vastly improve your purchase to pay cycle. Purchasing or corporate cards are another possible solution that can help by extending that purchase to pay cycle. Global liquidity solutions, for example, a single-view online platform such as HSBCnet or a cash concentration solution can also support working capital optimisation by increasing access, visibility and control, particularly for businesses with multiple entities or an international footprint.
Whether to provide a buffer in the face of potential shocks, such as Covid-19 or Brexit and help mitigate risk, or to drive core business benefits in the short-, medium-, or long-term, monitoring, managing and optimising your working capital should be seen as both protection and opportunity.