Maximising cash flow is vital for any business to deal with growing debt levels, economic uncertainty, and increased scrutiny of financial practices by analysts and shareholders. It calls for prudent working capital management for resilience and growth.
However, effective working capital management is hampered by a lack of insights and digital adoption, as well as poor integration among corporate departments.
Trapped cash, which is held for business operations and strategic expansion, can be easily accessible by implementing the appropriate working capital solutions, such as improving inventories, liquidity, payables, and receivables. Moreover, your business can make substantial profits in cash flow management, risk mitigation, cost reduction, and service delivery.
Some international banks like DBS offer digital tools to identify cashflow issues, and offer customised solutions to reduce risk and unlock liquidity and to help future-proof your business and grow with confidence.
Areas Where Working Capital Solutions Are Applied
Today, working capital solutions are tailored across different areas such as supply chain finance, cash management, fiduciary services, and trade finance. The article primarily throws light on supply chain finance and its solutions
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Supply Chain Finance
Being a popular financing method, supply chain finance is started by the buyer to make it easier and more affordable for its suppliers to finance their receivables.
Supply chain finance solutions guarantee that your suppliers are paid on time and allow your company to keep cash on hand for longer. It’s a win-win situation for everyone. To increase sustainability and profitability, you can maximise working capital and provide your suppliers with essential cash flow.
Here are some prime working capital management practices across supply chain finance.
- Accounts Receivable Purchase or ARP
ARP is a financial solution that enables companies to turn their unpaid bills into cash right away. A financial institution purchases its receivables under this process—also referred to as invoice financing or factoring—which assists companies in increasing their cash flow.
By using Accounts Receivable Purchase (ARP) to sell your receivables, your company can increase its cash flow and free up more time to focus on expanding.
Without requiring any further security, ARP provides complete credit protection against any default by a buyer. While taking on the collection responsibilities on behalf of their clients, some banks offer reconciliation services to increase productivity.
- Supplier Finance
Being an innovative payable solution, which enables your important suppliers to get paid for invoices ahead of time, you can unlock liquidity and guarantee supply chain continuity. This keeps your supply chain operating smoothly and effectively by allowing it to meet working capital demands and assisting it in overcoming liquidity constraints.
Supplier financing, sometimes referred to as reverse factoring, is a type of financial arrangement in which a buyer pays its suppliers ahead of schedule with the assistance of a third-party lender, usually a bank or other financial institution. After that, the buyer pays the financier back, possibly over longer terms.
Both the supplier and customer gain from this. The supplier can improve their cash flow by receiving payment early, which is less expensive than traditional finance. The customer, on the other hand, can maximise cash flow and possibly negotiate extended payment terms.
- Buyer Finance
Buyer finance solutions, also known as buyer credit or supply chain finance, are financing choices that assist companies in managing their working capital and cash flow when making purchases of goods or services. With the help of these solutions, customers can improve their overall financial situation, obtain financing for purchases, and have extended payment periods with suppliers.
This kind of working capital solution maximises sales growth while releasing monies held in outstanding invoices. Early cash conversion of your receivables will provide you with the funding you require to maintain your daily business operations.
The other types of working capital solutions include inventory management, active discounting, and working capital loans.
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