The WCM Study 2020 shows that management of liquidity and working capital has once again become a top priority due to the coronavirus crisis. Will this also raise awareness of the importance of working capital management (WCM) in the longer term?

Hannes Polit: Absolutely. In recent years, the historically low interest rates have made it very easy and cheap for companies to obtain liquidity. As a result of the current crisis, however, the established supply chains have begun to falter and this has given rise to liquidity bottlenecks. Clever WCM enables firms to control such bottlenecks in a forward-looking and flexible way.

Clever in what sense?

Swiss companies traditionally have a good liquidity situation. Following the coronavirus crisis, however, many are now facing challenges when it comes to securing their liquid assets. As the WCM Study 2020 shows, numerous companies are currently deferring their payments in order to protect their liquidity. As a consequence, small and medium-sized businesses in particular have been left sitting on unpaid bills for delivered goods and products for longer than average. The result is that supplier and customer relationships are being put to the test and a large increase in insolvencies is to be expected. By making clever use of working capital management instruments, companies can secure their liquidity requirements for the long term beyond the end of the current crisis and prevent a domino effect from occurring throughout the supply chain.

According to the study, the unilateral extension of payment terms vis-à-vis suppliers is currently a popular method, albeit an unsuitable one. Which other options are there?

In the sense that companies should review how they can optimize their WCM within the supply chain and look for appropriate solutions – such as classic reverse factoring or a Payables Finance programme like the one offered by PostFinance. Both of these supply chain finance instruments have the effect that the buyer enjoys longer payment terms without the supplier having to wait for his or her money for extended periods.

The WCM Study 2020 investigated financial performance in companies that consistently use supply chain finance (SCF) instruments. What was the result?

The study shows that the use of SCF With supply chain finance (SCF), companies include all value chain partners in their WCM. This holistic WCM approach means that companies can manage their working capital (and, in turn, also their liquidity) beyond their own company boundaries. programmes pays off not only for the entire supply chain but also for the company itself: according to a cross-sector comparison, these “SCF companies” achieve a C2C cycle One of the key benchmarks in WCM is the cash-to-cash cycle (C2C cycle). This is a key indicator for evaluating the performance level of individual companies or sectors. The indicator reflects the cash conversion cycle at the company in days between payment to suppliers and inpayment by customers, including all days inventories held. that is 28 days shorter on average and generate a 40-percent higher return on capital employed than their competitors. In other words, supply chain finance is a win-win situation. However, the positive financing structure of SCF companies is also attributable to their increased focus on the topic of WCM in comparison with non-SCF companies and the fact that they have access to various levers with which they can positively influence the return on capital employed (ROCE) ROCE stands for return on capital employed. This figure shows how efficiently a company uses the capital available to it. (see figure).

Is SCF only suitable for large companies or can SMEs also benefit?

This applies fundamentally to both large corporations and SMEs. In many cases, however, SCF programmes are only offered for very large companies with procurement volumes in the billions. PostFinance, by contrast, offers reverse factoring from a financing volume of 5 million francs, which also enables small and medium-sized enterprises to benefit.

Let’s take a look at the future of WCM: what will be the biggest challenges faced by companies over the next few months when it comes to managing their working capital?

At present, many companies are focusing primarily on preparing for the upturn that is hopefully around the corner. For that reason, we are currently observing a marked increase in demand for WCM products. As a result, the importance of WCM will certainly remain high during the upturn phase. Once the crisis has been completely overcome – perhaps in two to three years – the topic is likely to become somewhat less important, but it will still be one of the top ten priorities of CFOs. The main challenge for companies at the moment is that it is significantly harder to plan for the future than is normally the case. Many economic effects of the first COVID-19 wave will probably only become fully apparent in the third and fourth quarters. The risk of a second wave has not yet been averted either. In specific terms, this means that companies must devote considerable attention to the following questions in the coming months:

1. Will my receivables be paid by the agreed payment deadline?
2. Do my supply chains have a solid base?
3. Does my company have sufficient liquidity to pay suppliers’ bills?

And they will need to find answers if there are uncertainties with regard to at least one of the three questions.

How does PostFinance’s WCM team help companies with this?

With our WCM solutions, we help customers to generate liquidity from their own supply chain and optimize their working capital. Unlike loans, our products do not put a strain on the company’s debt ratio. Furthermore, firms benefit among other things from attractive financing terms as a result of PostFinance’s very good credit standing as well as easy handling thanks to automated online solutions. And last but not least, companies can count on advice from our WCM experts that is based on a well-founded analytical method and will guide them to the right WCM solution in a targeted manner.