Published Wednesday 9th March 2022
It has now been in the news for many months that inflation is spiking in many countries across the world due to the confluence of increased fuel prices and supply chain disruption that started back in March 2020 due to the Covid-19 pandemic. Even the most optimistic observers do not expect inflation to recede before the end of 2022.
This means that corporate costs are going up fast and this is impacting liquidity as margins get squeezed.
In addition, we are seeing interest rate rises feed through in most large economies. So the era of almost free corporate debt is well and truly over.
In parallel to these events, the Basel III banking regulations continue to be implemented by banks across the world. One major effect of these changes is that banks are forced to hold more in reserves. This reduces their capacity to loan money to their clients. For treasurers, all this is expected to cause a perfect storm of reduced liquidity due to inflation and higher interest rates and an additional squeeze on liquidity forced by banks reducing the size of their loan books. And the lower your corporate debt rating, the more likely that your company will be caught in this squeeze.
Also, the true cash flow effects of the pandemic are yet to unwind as various countries’ efforts to support businesses come to an end. This is expected to cause one of the highest levels of bankruptcies that we have seen for many years. The good news is that there is still time to act. It looks like 2022 will be a year when cash was king and it will be vitally important to have buffers of cash to navigate through the choppy waters that we will see over the coming year. Even the cash-rich might get somewhat nervous as events unfold.
Free Working Capital Review
Here at Expense Reduction Analysts, we would strongly recommend that you fix the roof before the storm comes. We have worked with many major UK businesses over the last few months, helping them to consider their cash flow cycle and unlock material sums of working capital previously trapped in the supply chain – and quickly.
Our non-invasive data approach to mining supplier and invoice data is designed to be easy to understand and interpret for busy CFOs seeking to gain insights to better understand their cash flow cycle.
Essentially, what that means is, the path to action can be as little as one week.
ERA are offering a free evaluation of your working capital which will pinpoint the exact opportunities in your ledger; arrange a time to talk you through the results and map out the actions required to realise reduced working capital and reduced cost of financing. Contact us today.
About the Author: Harvinder Rattan, is an energetic business leader with more than 20 years’ international experience across Investment Banks in finance, risk and business transformation, having joined Expense Reduction Analysts (ERA) in 2017.