RE: Corporates exploring new options, SYME get a mention.19 Feb 2021 11:43
Part 2 our NED
ENRICO CAMERINELLI, AITE GROUP
Proactive measures to mitigate liquidity risk include working with banks for ?exible use of revolving credit and commercial paper, forecasting in short-term horizons to borrow proactively at Libor rates rather than overnight sweeps, and ?nding opportunities for supply chain ?nance.
“In cash de?cit companies that have utilized most of their revolvers, delaying payables and tightly managing cash, treasurers need to accurately estimate when available working capital will fall short,” says Sayid Shabeer, chief product o?cer at HighRadius.
“For them, it is important to review existing facilities on a weekly basis. But for companies with plenty of cash reserves, a quarterly review would su?ce.”
According to Camerinelli, the optimum review cycle is at least monthly.
“The pandemic has introduced new forms of unprecedented risk and has clearly shown that the consequences of underestimated risks can be dramatic,” he says. “Hence, factors such as climate change will become more relevant than ever, forcing treasurers to build multiple business scenarios and corresponding options.”
Slow moving
Treasury functions are often conservative and slow moving. Policies do not change often, and agreements tend to
EUROMONEY
ASIAMONEY COUNTRY RISK LEARNING
EVENTS
“Everyone wants to delay their payables but expects to be paid punctually”
SAYID SHABEER, HIGHRADIUS
That is the view of Sandeep Shro?, founder and CEO of myStartUpCFO, who encourages companies – especially those in their early stages that are generally cash-?ow negative – to use early payment as a means of funding their business.
“Generally, these companies give decent discount on their products for annual prepayment of their invoices ranging from 10-25%,” he says.
Of course, early payment is just one of many ways to improve working capital. Other steps companies can take include simplifying the process and being as e?cient as possible – too many businesses use multiple ?nancial management portals which inhibit e?cient working capital management when a single portal can provide adequate oversight.
Companies can boost their working capital by fast-tracking their cash-conversion cycle, and one of the ways of achieving this is by incentivizing early payments, says Shabeer.
“The catch is that everyone wants to delay their payables but expects to be paid punctually,” he concludes. “Companies can manage the accounts receivable versus accounts payable balancing act by paying customers based on priority while using AI to identify likely defaulters and collect proactively.”
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