Working capital finance – the future
Do traditional working capital tools still meet business liquidity needs? Due to the persistent Covid-19 pandemic this question has become pressing for corporates around the world. Our new flow special white paper outlines four themes of what the future of working capital finance could look like – and what each means for treasurers
Asset finance is in transition. Triggered by interrupted supply chains and a lack of planning since the outbreak of the Covid-19 pandemic, companies as well as entire countries are prioritising security of supply over reducing storage costs. This departure from once-esteemed just-in-time thinking could be accelerated by recent hikes in raw materials prices and shortages of intermediate products.
Addressing the question of how supply chains can become more resilient in the future is therefore becoming paramount. Accompanying this is the need to rethink working capital financing. Going forward, corporates will need to balance operational stability from larger inventories against the resulting reduced profitability.
Building resilience is not the only challenge to working capital management. The global megatrend of improved sustainability is also rearranging the way companies work with their suppliers. Regulators, investors, customers and employees are all exerting pressure on companies to operate more sustainably – and ensure that environmental, social and governance (ESG) requirements are met throughout their entire supply chain.
Another major megatrend that will shape future working capital financing is digitisation, or the Internet of Things (IoT). There will soon come a time when customers will no longer have to buy machines or equipment outright, but will also have the option to pay based on actual capacity and asset utilisation.
How are these trends reshaping working capital finance? Which instruments can help corporates master the delicate balancing act between ensuring procurement security on the one hand while maintaining cost efficiency and optimised balance sheet ratios on the other? Which approaches would best incentivise suppliers to improve ESG performance? And what are the finance requirements arising from the transition towards IoT?
In this flow special white paper, we have analysed four major themes on working capital financing. The paper was developed in cooperation with the financial managers of leading German corporates, who are also members of Deutsche Bank’s advisory board.
To download the German version of the white paper, please click here.