Working capital management (WCM)
Individually tailored WCM solutions
For companies to survive, a healthy level of liquidity is essential. With PostFinance’s Supply Chain Finance services, companies can ensure that they have sufficient liquidity for their running costs and enough money to invest in their core business.
The order books are full. The business is growing rapidly, to the delight of investors and management. But success also creates problems. The company has more and more open customer invoices – because most customers make the most of their payment deadline. “A long period of outstanding receivables and tardy payments can endanger companies’ liquidity,” says Adrian Brönnimann, Head of Key Accounts Sales & Management.
At the same time, a growing business will itself accumulate more and more receivables from suppliers, which it will of course pay on time, because the company wants to maintain its creditworthiness and good relations with its suppliers.
The risk grows
A gap opens up between outgoing payments to suppliers and the receipt of payments from customers. During this period, liquidity for the business is tied up in inventories or money due from customers. The risk of liquidity bottlenecks grows. To pay its own supplier invoices, the company can draw on debt and equity capital. But that accrues interest and reduces free cash flow, leaving less money for new investments or generation of higher returns.
Optimizing payment deadlines
PostFinance’s Supply Chain Finance solutions can help businesses remedy this problem. “We help companies to optimize their payment deadlines,” says Adrian Brönnimann. Through its factoring solution, PostFinance purchases a company’s customer receivables and pays them within a few days. “This gives the business immediate liquidity – and can also reduce finance charges.” In reverse factoring, PostFinance purchases the company’s supplier liabilities for deliveries and services and pays them on time. The company can repay the purchased liabilities to PostFinance at a later date of its choice.
Thanks to these WCM solutions from Post-Finance, the business improves the predictability of its cash flows. It reduces the risk of payment defaults and creates confidence among suppliers. Faster availability of customer payments provides access to more liquidity. This money is then available for expanding the company’s core business.
Working capital is about as important to companies’ survival as oxygen is to people. To generate earnings, a company must spend a share of its cash on inventory. It must be able to build up accounts receivable on the balance sheet and requires liquidity to settle its current liabilities in day-to-day business. These assets are capital that is tied up and cannot be used for either interest-bearing investments or the expansion of business activities.