Introduction

When change is everywhere, control what you can

Working capital is essential to the health of every business, but managing it effectively is a delicate balancing act – never more so than now. Companies need to have enough cash available to cover both planned and unexpected costs, and be able to make the best use of the funds available. This requires the effective management of payables, receivables, inventory, and cash. In recent years, trends such as Just-In-Time have provided a means to reduce exposure to fluctuations in product demand or product obsolescence, enabling distributors and retailers to be more agile and tie up less of their working capital in stock. The downside of this lean approach became apparent during the COVID-19 pandemic, when lockdowns around the world closed factories and ports, preventing the flow of a wide variety of goods, from medicines to computer chips, creating international shortages. Since then, organizations have further recognized the risk of relying on too few sources in distant places, even if diversifying their supply chains, holding more stock, and/or paying a bit more for goods could affect their price competitiveness. One way to offset this impact is to see the value inherent in strong working capital management and to maximizing cash flow. There are other important reasons to hone this capability. When working capital is poorly managed, companies find themselves on the back foot. Paying suppliers may become an issue; eroding goodwill, and undermining corporate commitments to being an ethical company. When Taulia conducted a major global survey during the peak of the pandemic, of the more than 9000 businesses across their network, close to half of respondents (43 per cent) said they had seen an increase in late payments. Where large companies tend to have more leverage with banks, smaller businesses are typically more vulnerable to delays in payment. This could lead to them not being able to pay their employees, or worse - having to cease trading. And now, developed economies are facing their biggest shock in more than a decade as inflation soars, putting pressure not only on consumers but on companies of all sizes. That’s as they buy and sell, and seek to manage working capital, across a timescale during which the value of money could change dramatically. Waiting 90 days, or expecting suppliers to wait 90 days; to be paid will have an even greater impact: goods could end up costing more, or be worth less. In order to retain or even improve agility while staying profitable, without over-exposing the business (or its suppliers, customers, or employees) to undue risk, organizations need to pull on all the levers they can. So as to develop a deeper understanding of the situation, we interviewed a cross-section of businesses about their evolving concerns and approaches linked to working capital management. These conversations took place at the intersection of three major events in the global market: the gradual re-emergence from the COVID-19 pandemic; the deepening crisis in Ukraine; and new turbulence in the global economy characterized by soaring inflation - at a level not seen for more than a decade. The following ebook summarizes the key points raised, and explores the wider potential for companies to become more effective in their working capital management.