CFOs and Treasurers Rethink ROI on Cash and Working Capital Strategies

CFOs’ and treasurers’ offices are among the most difficult stops on the digital roadmap in finance and yet are part of the corporate C-suite that oversees the most critical function: day-to-day cash flow management.

For forward-thinking corporates — and the financial institutions serving them — using new and modern working capital solutions can be the difference between surviving or capitalizing on growth opportunities in real time.

“It’s time to get on the digital bandwagon,” Darren Parslow, global head of Visa Commercial Solutions, told Karen Webster. “Digital access and digital form factors reduce the frictions in treasury management.”

Last month, “The 2024-2025 Growth Corporates Working Capital Index,” a PYMNTS Intelligence report commissioned by Visa, gained insight from 1,297 CFOs and treasurers across 23 countries and five global regions about middle-market growth corporates (firms with $50 million to $1 billion in top lines). It found that top performers use working capital strategically — not simply as a source of funds in an emergency — and integrate their suppliers into their payment flows. As a result, they have greater visibility into their cash flow needs at any given moment.

In a nutshell, the index showed that “working capital is the fuel that enables growth corporates to survive,” Parslow said.

The data revealed that 81% of executives surveyed use working capital solutions, such as working capital loans and bank lines of credit. Top performers, the growth corporates with the top 20% of scores, realized an average of $11 million in bottom-line benefits from reduced inventory carrying costs and supplier discounts. Sixty-two percent of middle-market growth corporates have been using working capital solutions to invest in operations and buy inventory in anticipation of expansionary opportunities on the horizon, up 13% from last year.

CFOs and treasurers want personalized working capital solutions — and there’s room for providers to step up and meet those demands. Only 3% of corporates said they had friction-free experiences with their banks when it came time to access those solutions.

Banks are looking to adapt to this demand and partner with firms like Visa to create those digital experiences as so much of the workforce skews younger (with Generation Z and millennials rising through the ranks), Parslow said. These captains-of-industry-to-be expect digital and mobile experiences in their business lives, akin to what they experience as consumers.

Making a supplier payment should be as intuitive as paying a personal utility bill, he said. The days of calling a branch manager at a bank to set up a structured loan facility are numbered.

There’s no one-size-fits-all approach for banks and other conduits of working capital solutions, Parslow said. No two regions are the same, and no two verticals are the same in terms of the working capital needs of growth corporates. A shrimp farmer’s supply chain is different from a livestock farmer’s.

“It’s important that providers learn how to segment their portfolios in ways they hadn’t used to,” he said.

Visa has created a vertical-by-vertical approach to structure products that are tailored to fleet management companies, for agriculture and for cross-border fund flows that have different payment terms and facilities for its bank partners to offer to end clients, he said.

“We’re talking to different parts of our of client” banks, he said, “not just to a card business in treasury — we’re also talking to the trade business, to the liquidity business and the receivables business… When we create products around verticals and around client-specific segments, there are benefits from both buyer and supplier sides.”

In the pivot toward modernizing supply chains, integrations into payment systems have picked up over the past two years, Parslow said. The top performers pay more than three-quarters of their invoices more quickly, and often early, improving their relationships with suppliers (whose DSOs go down).

“At Visa, we’ve been jumping on the [integration] bandwagon,” he said.

The company has forged partnerships with dozens of enterprise resource planning (ERP) systems and account management systems around the globe, including Oracle, Intuit and SAP, so that CFOs can make immediate payments using working capital vehicles, including virtual cards.

According to the index, top performers used virtual cards to reduce their days payable metrics by 28%. In healthcare, 70% of firms said they planned to use working capital for growth, and the use of virtual cards has been on the upswing.

In the current rate environment, with the cost of capital, bad debt expense and operational issues around other payment types, virtual cards remain the cheapest form of working capital, Parslow said.

Yet there’s still a bifurcation between companies that view virtual cards as simply a payables solution and those (better-performing firms) that use the option as a real day-to-day working capital tool, he said. There’s an education process underway in reorienting Visa’s clients to the potential of virtual cards.

“They’re the superpower of working capital,” Parslow said.

Buyers extend DPOs while allowing suppliers to reduce their DSOs. Extending or reducing those metrics by two weeks can have “massive” effects on improving cash flow visibility, he said.

Part of the challenge lies in overcoming some of the biases and frictions inherent in the legacy systems at the banks and end corporates, Parslow said. The healthcare vertical in the Central Europe, Middle East and Africa (CEMEA) region provides a telling example, as some firms said they had trouble accessing the right solutions.

Traditional banks and other stakeholders have typically been conservative, and the region has suffered from a lack of data, but the signs are encouraging as growth corporates using virtual cards and other digital solutions increased their index scores year over year, per the report. Visa’s own advising of challenger banks and digital players has brought more options to market in the CEMEA region.

Looking ahead, CFOs and corporate treasurers are largely optimistic about their expansionary opportunities into 2025 and beyond, Parslow said. Roughly 80% of the 1,297 firms surveyed said they anticipate tapping into working capital next year, and more than a third will do so for strategic purposes.

With the aid of artificial intelligence, we’re headed into a time when a corporate treasurer can ask a device to weigh in on the company’s cash position and what options are available to manage cash flow in real time. Banks are using data and AI to move from lending based on applicants’ financial statements to cash flow-based lending, which offers a tailored and personalized approach that growth corporates want.

“You’re tapping into this ‘goodness,’ if you will,” Parslow said of digital working capital offerings and virtual cards, “across supply chains and throughout economies — and it allows companies to be more efficient. It allows [growth corporates] to hire more people, make more investments … and it’s all about cash flow management.”

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