After bearing the brunt of one of the most aggressive US interest rate hike cycles since the early 1980s, it’s no surprise that the prospect of rate cuts by the Federal Reserve has become the hottest topic for Enterprise CFOs this year.
The anxiety is understandable, whether for SMBs, regional conglomerates or MNCs. Between March 2022 and July 2023, the Fed raised rates by a total of 11 times, sending its benchmark policy rate to a 23-year high of 5% to 5.25% from a near zero percent. For CFOs who have seen their companies’ financing costs jump 10-fold in 18 months, the impact on the bottom line has been significant. But a Fed rate cut has remained elusive so far. What’s more, the Fed has signalled it may keep rates higher for longer. Even if some rate cuts do happen later this year, rates will likely stay in the 3-4% band for the best part of this decade.
While value chain finance programs have existed for a long time, their manual and paper-based nature has meant that CFOs are unable to adopt them for the long tail of their companies’ suppliers and distributors – the very entities in the value chain, that happen to need liquidity the most.
Clearly, CFOs of global multinationals would be well advised coming to terms with this new normal, and focus on what is within their control. For example, the case for optimizing working capital for themselves and their extended value chain (suppliers and distributors) is the most compelling it has ever been. The opportunity here is a digital transformation of enterprise working capital management processes. Such a transformation program, if well conceived and executed, would bring material improvements to the cash conversion cycle (CCC), a metric that expresses, in days, how long it takes a company to convert the cash spent on inventory back into cash from selling its product or service. Needless to say, freeing up cash trapped across the value chain is a vastly superior option to mobilising funds externally in this inclement rate climate.
While value chain finance programs have existed for a long time, their manual and paper-based nature has meant that CFOs are unable to adopt them for the long tail of their companies’ suppliers and distributors – the very entities in the value chain, that happen to need liquidity the most. This is especially so for global corporations with suppliers and clients in multiple countries, regions and cities – each with their own unique payments process, credit terms and domestic banks.
TASConnect’s mission is to help enterprises with tools to effect such a digital transformation. Our innovative working capital solutions, focused on empowering enterprises, harness technology to connect enterprise treasuries with the extended value chain and the banking system, thereby effecting a material improvement in the cash conversion cycle and related metrics.
With the help of TASConnect’s award-winning platform-as-a-service, clients can extend the scale & scope of their supplier and buyer financing programs. The platform enables fully automated workflows in procurement-to-pay and order-to-cash cycles through a single sign-on thereby eliminating the need and hassle of managing many-to-many multi-party touchpoints. The net effect is not just improvements in capital efficiency, but enhanced availability of liquidity to suppliers and distributors, at better rates.
The importance of this factor is worth underlining. For example, the potential for a small but critical supplier to slip into financial distress due to liquidity problems should not be underestimated as most small businesses operate on tight liquidity and margins. And if suppliers are not able to meet their commitments to the enterprise, this can be a significant risk to business operations.
Given that the new normal is here to stay, adopting a transformative agenda in working capital management may be the single most important initiative for CFOs and Treasurers to consider.
TASConnect’s platform allows more suppliers to participate, and allows them to access cheaper financing via a programme supported by the larger enterprise. This helps alleviate the financial pressures faced by the suppliers while strengthening the company’s supply chain resilience as well as its relationships with strategic suppliers.
As the adage goes, in every adversity lies an opportunity. Given that the new normal is here to stay, adopting a transformative agenda in working capital management may be the single most important initiative for CFOs and Treasurers to consider.
TASConnect is here to help. We build working capital management programs that are just right for your circumstances. Do reach out to us today for a free, no obligations discussion.
