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Access to liquidity and working capital management are top of the agenda for corporates in these testing times. Even though interest rates are at an all time low, Corporates are finding it difficult to readily access capital to assist them in their day-to-day operations.
There are many ways a corporate can improve their cash liquidity and optimise their working capital requirements. These range from simple operational improvements, like introducing E-Invoicing to utilising supply chain finance for on-demand access to capital at competitive rates.
Improve Receivables Collections & Forecasting: Improving visibility of the status of future receivables leads to more accurate forecasting and consequently a reduced need for working capital buffers. Receivables forecasting can be significantly improved across the Enterprise through a number of mechanisms including E-Invoicing, payment reconciliation and the use of Direct Debits
Reduce Day Sales Outstanding: Significant reductions in DSO can be achieved through operational efficiencies and receivables automation. Even reducing the DSO by a few days provides Enterprise with additional working capital whilst at the same time reducing their costs. Facilities such as E-Invoicing portals, payment integration, on-line dispute resolution, automated reminders, etc all drive down DSO and increase cash collections.
Improve Payables Control and Forecasting: Being able to accurately forecast future payables again results in better working capital predictions enabling more capital to be released for investment or to fund growth. Procure-to-pay automation and good Enterprise wide cash management practices help optimise the payables process.
Finance Receivables – Invoice Discounting: Short term financing can be provided to the corporate on the strength of their future receivables. With best practices in place utilising E-Invoicing for receivables, a corporate can readily share their receivables data with third parties to enable efficient, immediate and cost effective working capital financing.
Finance Receivables – Invoice Financing: Dematerialising business processes makes it easier and more cost effective to trade in receivables. A corporate in need of finance to fund rapid growth - where there is a potentially catastrophic lag between production costs and receivables for example - can sell their receivables for collection by a third party.
Payables Financing: Increasing Days Payables Outstanding (DPO) and reducing DSO increases the availability of capital for the business. Payables financing mechanisms enable financing to be offered to suppliers for approved payables transactions - at a rate which is determined by the creditworthiness of the buyer. Perfect for the large buyer in providing cost-effective financing for their supplier base.
Early Payment Discounts: A simple and effective payables financing mechanism where suppliers elect to advance payments in return for agreed discounts. Can be funded by the bank - or packaged as an investment vehicle for corporate cash.
Bank Benefits
There are significant benefits for Banks in providing these services to their corporate customers. These include :-
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Eimear Oconnor COO at Form3 Financial Cloud
07 November
Kyrylo Reitor Chief Marketing Officer at International Fintech Business
06 November
Konstantin Rabin Head of Marketing at Kontomatik
Alexander Boehm Chief Executive Officer at PayRate42
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