Leverage the recession playbook to ride out the storm.

Finance Department

Developed and deployed by finance managers and treasury function

Finance managers gather and review data, filtering for efficiency opportunities

Other

Support from procurement teams

Support from procurement teams critical your financial position. That means accurate data is vital, and a degree of flexibility is required in your approach. This will enable the business to at once secure better returns on excess cash, improve margins, and de-risk its supply chain, while retaining the capacity to adapt to shifting sources of funds as business needs change.

Many companies choose to pursue a working capital optimization program in partnership with a third party, but either way requires reaching out to suppliers to bring them along and choosing the right metrics to measure the program’s success. Table 5 is an overview of options for improving working capital arrangements.

Preparing for Future Success

The pandemic may be largely over, but we aren’t yet clear of its disruptive effects on the global economy. Analysts agree that 2023 holds in store both more inflation and recession in most developed markets. Leveraging the recession playbook of rigorous attention to costs and creative ways to manage falling demand should enable businesses to ride out the storm.

Next, identify any areas of opportunity that immediately present themselves. In managing receivables, encourage rigor in collections management and tracking any slippages. In managing payables, improve the supplier payment process, reform their timings, adjust the terms to a position beneficial to your business, and seek what efficiencies present themselves.

Distinguishing between strategic and tactical working capital optimization is important. A tactical approach— using tools like reverse factoring or procurement cards in isolation—can enable companies to address specific issues, such as alleviating the impact of extended payment terms on suppliers and giving suppliers greater certainty on when they will get paid.

Yet tactical measures can’t deliver the full potential of the supply chain opportunity. You’ll need to be clear on

Embracing the wide range of technological solutions now available to support business practices will both cut costs and place you in a strong position going forward. At the same time, sustainability is critical to any business’s long-term success; sensible decision makers should put it at the core of their decision making.

The best way to manage short-term challenges is to think long-term and use the opportunity of a recession to adjust and evolve your practices in ways that favor long-term planning. Optimizing your working capital can unlock value hidden on your balance sheet and potentially free up liquidity that can help you avoid difficult decisions. SF

Rene Ho is the CFO of Taulia. He can be reached at taulia @fullyvested.com