Are you ready to weather the economic storm with agile working capital management?


As central banks fight against the highest inflation rates in forty years, interest rates continue to rise quickly, which shines a bright light on an area of finance that has been out of the spotlight for many years; liquidity forecasting and working capital management.

But after decades of incredibly low financing costs for businesses, changes in interest rates and economies are driving liquidity back into the bright light.

Managing cash and liquidity

Rising financing costs mean CFOs need to find new ways to understand and micromanage their cash and liquidity, and a change in thinking is drastically required. In my conversations with finance executives, many say they don’t have access to the up-to-date data they need to do accurate liquidity forecasts or working capital planning. It’s not uncommon for available data to be weeks old. You can’t do much good with old data, especially in today’s fast-changing environments.

For the foreseeable future, you must be prepared to manage liquidity and cash flows with high levels of accuracy so your business can understand the impact of inflation, act quickly, and be prepared for what’s coming next.

How prepared are you today?

To understand how you fare with managing your cash flow and working capital, take the following self-assessment quiz.

How confident are you in your cashflow and liquidity forecast? Are you able to easily include real-time data and impacts from sales and commodity price development in your forecasts?

Few CFOs and treasurers will say yes based on my conversations with them. The reality is that most liquidity forecasts are done in spreadsheets, and it takes them days, if not weeks, to pull together the necessary data from across their enterprise. So, by the time they do reporting and forecasting, the data is out of date and analyses are no longer accurate.

Using disparate spreadsheets not only means that you are working with old data, but it also hampers your ability to see and understand the impact of external factors such as interest rate rises on your ability to make critical business decisions.

What’s needed is a way to get insights into different risks, exposures, and actuals in one financial system so you can manage working capital optimally.

For example, a single system would allow you to prepare for rising commodity prices by predicting future cash flows. It would allow you to know your FX and interest rate exposures so you can effectively execute hedging strategies.

An integrated financial system can also help you balance risk, inventory management and customer service to help manage your targets. Finally, and most critical to these uncertain times, you can uncover savings opportunities with real-time intelligence into enterprise-wide procurement and supply chain.

How easily can you find and release cash tied up in your business and supply chain?

Without effective working capital management tools and processes in place, finding and releasing cash tied up in business and supply chain isn’t easy. The ability to act quickly on urgent business events or opportunities as CEO and CFO is more important than ever, and yet most companies are not prepared to do so. Having visibility into your entire cash conversion cycle is a good starting point to allow you to enable informed decision making.

How prepared are you to handle what’s next in our unpredictable, ever-changing world?

To be prepared, you need the agility to respond swiftly and effectively to forward-looking insights and forecasts. This requires having the right strategy, the right tools (such as a flexible working capital management platform that provides a centralized view of liquidity and scenario planning functionality), and the right processes for proactively managing impacts.

Is there CFO leadership to establish cross-company working capital management targets and an aligned strategy?

Managing liquidity and working capital is a cross-company effort. Think of it as a team sport that requires strong CFO sponsorship. Only the CFO can break through layers of departmental pushback on sharing data and work with stakeholders to determine what to prioritize and what strategy and goals to set. If you leave all this for different departments to figure out, you’ll end up with conflicting goals and a misaligned strategy, which is something no company can afford any longer in times of high liquidity cost and uncertainty.

So, how did you do?

Were you able to answer all four questions? If you could, great, that means you’re in the minority today, and that’s a good place to be. If not, know you are not alone. The good news is that solutions are available to help you take charge of your liquidity and working capital. One thing is for sure, liquidity will remain top of the mind for businesses today, especially in the context of an upcoming recession. So, there has never been a better time to focus on this area.

If you’d like to learn more, I invite you to watch this panel discussion on Outsmarting Inflation: Best Practice Working Capital Strategies where I speak with other thought leaders on the subject.