More Money, More Problems: The Cash Flow Conundrum

Monday, February 26, 2018

5 minute read

More Money, More Problems: The Cash Flow Conundrum

Think of a financially healthy large company in the U.S. or Europe. What does that bring to your mind? Fluid processes, solid order intake, satisfied employees and a broad landscape of suppliers. A rosy picture – isn’t it? Not so fast.

Take off those rose-colored glasses

Many large companies are sitting on a record high amount of cash, and the piles are growing. According to some, cash reserves are higher than ever since 1959. At first it sounds like a positive problem, but think again. Interest rates are at historical lows, and some banks are even charging interest on deposits – meaning companies are suffering from an unusually high cash position.

Consider the trickle-up effect

Now turn the tables and think of the suppliers. Banks are under an increasing amount of regulation, and getting sufficient funds to finance and grow businesses is getting ever-increasingly troublesome. So, smaller businesses are forced to finance their growth from their own cash – throwing them off from their desired trajectory. And that cash takes longer and longer to get hold of with buyers making late payments to manage their own cash flow. According to Basware’s own research, almost 6 out of 10 businesses pay late to manage their own cash flow. This spells trouble for the supply chain.

Ironically the suppliers in the value chain are often the ones who need the liquidity to ensure supply to their customers. As access to cash is getting restricted, suppliers are introduced to new risks that can eventually trickle-up to their buyers.

Any financial or business leader should be actively working to prevent this trickle-up effect that results in supply chain risk. 

How buyers can solve the problem

CFOs and treasurers hold the keys to simultaneously solving the problems of too much cash on-hand and not enough cash flow for their suppliers. To unlock the solution, they must deploy a working capital optimisation and payments strategy in conjunction with procurement and finance processes. 

To do this, we recommend that treasurers become the owners of working capital strategy and take these 5 necessary steps to realise their financial goals:

  1. Get 100% spend visibility to better forecast cash flow and put cash to better use

  2. Support strategic procurement and facilitate collaboration

  3. Increase the ROI of automation solutions

  4. Reduce exposure to fraud

  5. Prevent financial strain on the supply chain with the right solutions

To read more about the five steps, download our new whitepaper, 5 Ways Treasurers Can Realise Tomorrrow's Financial Goals Today.

“We can use the functionality of Basware Pay, with regards to virtual credit cards, to gain money back from our credit card providers and either plough that back into our supplier base because we like to look after our suppliers, as a co-operative, or use that to make sure it covers the costs and even makes my AP function a profit centre.”
Andy Stevenson, Head of Finance, East of England Co-op


Modern solutions to realise tomorrow’s goals today

Contrary to traditional trade financing solutions, modern working capital optimisation solutions are completely digital, enabled for multiple funders, and can concurrently address different geographical and currency needs. Integrating purchase-to-pay, analytics, and working capital optimisation solutions in the cloud makes the entire process streamlined and paperless – starting from onboarding of the suppliers, throughout procurement and invoice processing, to early payment and settlement to funder.

Services that release cash from operations without causing financial strain upon supply chain are key to working capital management. These services offer every supplier an option to get paid early – meaning large companies can keep cash off the books for longer while suppliers can get cash flow right away.