Working Capital Efficiency Creates Healthier Supply Chains in Uncertain Times

Trade wars, tariffs and interest rates are all top of mind for businesses right now. As firms continue to transact with one another, a healthy working capital environment has a positive impact that extends across industries and across borders, fostering a healthy supplier ecosystem.

Measuring working capital efficiencies — i.e., how firms manage their funds to support day-to-day operations, including tapping into external working capital solutions — can chart a path to growth.

But how can a firm measure that impact? The practice of corporate benchmarking stretches back over decades and has its roots in W. Edward Deming’s principles on quality control. Benchmarking tools, which offer insight into standards and best practices across companies and industries, are myriad, especially across digital channels. 

Visa and PYMNTS Intelligence have launched two new digital assets that help executives more easily add benchmarking to their own strategic processes, following last year’s edition of the most recent Growth Corporates Working Capital Index.

Lucy Demery, senior vice president, head of Visa Commercial Solutions, Europe, said to PYMNTS’ Karen Webster in a recent interview that within commercial transactions, the changes through the past few years “have been seismic. We’re starting to see the massive transformation of B2B payments” — and in this uncertain economy, “we need high-growth businesses to survive and thrive.”

That’s especially true of mid-market firms, which, as chronicled by PYMNTS Intelligence and Visa in two annual reports, are the firms that generate between $50 million to $1 billion in sales.

The Growth Corporates Working Capital Benchmarking tool and a dynamic version of the annual report can be personalized by region and industry. By gaining a sense as to where their own practices measure up to peers, and the top performers by region and industry, CFOs and treasurers can chart paths to improvement.

“There can be such an ‘overwhelm’ of information,” Demery said. “We want to help CFOs and treasurers save time and filter down to what’s important for their businesses.”

The benchmarking tool (no download necessary) allows executives to generate their own index score that compares their operational and cash flow performance against their peers (the data is not stored, nor is the outcome visible to Visa or PYMNTS).

By way of example, a firm in the European agriculture sector can create that report and see that there’s been a 300% increase in the use of corporate and virtual cards while finding out that top performers save about $11 million a year on interest payments and inventory costs. 

Through surveys, most recently of roughly 1,300 CFOs and treasurers across 23 countries and eight industries, the joint efforts between Visa and PYMNTS have found a growing interest in new solutions to aid working capital management. Among the most important innovations in the capital solutions space have been the introduction (and use) of virtual cards and tokenized transactions. 

“We’re using these to drive embedded finance to new heights,” Demery said, adding that the 44% surge in tokens issued in the past year has been behind a 30% reduction in fraud across eCommerce in general, and embedded options are proving to be a “huge unlock for supply chain payments.”

Visa has been embedding virtual payment credentials into businesses, software platforms, ERPs and accounting software, which automate invoice payments with security and reliability.

Demery’s own experience with the tools is helping to elevate the payment network’s own B2B and embedded working capital solutions. A recent launch with SAP’s Talia, focused on automating invoice payments using virtual card credentials, has drawn in insights stemming from the index.

The benchmarking tool, Demery said, “gives you a concise and actionable comparison that states: ‘Here’s your percentile rank against each of the key working capital metrics — and here are some strategies you can deploy to lift your performance,’” to get closer to the top echelon of firms. Extended days payable outstanding (DPOs) may not be the best option for firms, as that strategy can weaken supplier relationships (not to mention suppliers’ financial health). But from a supplier’s perspective, accepting card payments accelerates days sales outstanding (DSO) and reduces bad debt. 

Beyond companies, banks and FinTechs can also use the dynamic report and the benchmarking tool to better understand the needs of their own clients — and fine-tune their own offerings to those mid-market companies.

As she told Webster, benchmarking is “real, relevant to businesses, and it’s bringing up new ideas around working capital solutions that hadn’t been considered before … With these tools, CFOs and treasurers can become more impactful leaders in their businesses as they drive major efficiencies and direct how the business deploys its capital.”

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