When all you’ve got is a hammer, everything looks like a nail.
For CFOs battling the tidal waves of uncertainty at home and abroad, recalibrating supplier and vendor relationships, cash flows and working capital, the limitations of spreadsheets and static information (a hammer) are fast being outmoded.
Finance leaders need a range of dynamic tools at their disposal, to help chart a path toward predictably in a world of uncertainty, beset with tariffs and trade wars. One of the key ingredients of stability for a company is working capital efficiency, where meeting short-term obligations and maintaining operations are made easier by having the cash on hand to keep sailing (relatively) smooth.
Working capital can be measured via a siloed approach (as a formula, working capital boils down to current assets less current liabilities), as CFOs track liquidity day to day. But that simple number, viewed with blinders on, does not offer insight into the ways things can be improved. There are other tools to add to the mix, including payment discounts, collection of receivables and payments automation, along with virtual cards to improve cash conversion cycles.
The roadmap to better working capital management can be aspirational, as middle-market firms — with revenues that span $50 million to $1 billion — can look to the top performers in their industries to look at where, when and how they can improve working capital management.
The recently unveiled benchmarking calculator, developed jointly between PYMNTS and Visa, springboards off the insights of the “Growth Corporates Working Capital Index” and roughly 1,300 CFOs and treasurers who weighed in on what works across eight industries across the world (segmented into five regions).
Seventy-two percent of firms surveyed said that the use of external solutions such as virtual cards helped improve buyer/supplier relationships, which would be a boon in these uncertain times. Overall, the growth corporates reported a 25% reduction in unpredictable financing needs and paid 21% more invoices early compared to the prior year.
The Visa/PYMNTS offering allows users to create their own report, and a hypothetical run-through highlights its usefulness.
Let’s say you’re a CFO of a manufacturing and construction outfit in the U.S. — we’ll use that example since these industries are in a rather fluid situation with tariffs, and so will want to look at their capital needs and supply chain relationships. Those two simple inputs immediately yield the insight that 46% of suppliers are integrated into buyers’ payment systems, and 22% of financing needs vary in unpredictable ways. A bit more than half of firms use working capital solutions for strategic growth, per our 2024 data.
As for the components of days sales outstanding and inventory, the snapshot below shows how top performers have been doing:
In this market and industry, 97% of firms used at least one working capital solution, and two-thirds of firms that did so said that they’d improved buyer/supplier relationships as they did so. Twenty-five percent of firms using external working capital solutions tapped bank loans of credit, followed by working capital loans. There’s a difference between using those tools for strategic purposes or to triage near-term challenges, as our exercise details:
Taken together, the data points paint a portrait of how — in this instance — captains of industry in the smokestack economy can find new ways, through benchmarking, to navigate uncertainty. Following the examples set by strong performers, with a dynamic tool that adapts as the times change, businesses can chart a path toward long-term success.
