How Proactive Treasury Management Unlocks Working Capital

In a recent survey, 90% of U.S. corporations said tariffs are affecting their businesses, and 43% of companies conducting business in the U.S. are waiting for definitive tariffs guidelines.1 Given the heightened risk from tariff fluctuations, 51% of treasurers are uncertain where to make capital investments.2

The problem with such “wait-and-see” approaches is they freeze capital and increase the risk of missed growth opportunities. The solution is to know how to release trapped working capital, no matter how the economy is performing.

A working capital analysis unlocks hidden cash.

Optimizing working capital is essential for ensuring business agility — especially during periods of uncertainty or market volatility. Erik Horsch, senior director of Treasury Management Sales, Synovus, believes a working capital analysis offers valuable insight into “how your business is doing business.”

The working capital analysis process involves modeling financial data to forecast three years of performance in Days Payable, Days Receivable, Days Inventory and overall Cash Conversion performance. It is a systematic, strategic means to achieve working capital optimization.

“Ensuring that you have adequate liquidity, that your conversion cycle is on target and that your asset allocation can meet your financial goals are benefits of sound working capital management,” says Horsch.

Horsch and his team have expertise in modeling and forecasting for companies in varying industries and, in addition to working capital analyses, use a host of analytic tools to improve cash flow and liquidity. “We also pull data from the Risk Management Association, as well as industry sources to benchmark and highlight areas for improvement,” he says.

Proactive treasury management and a comprehensive working capital analysis can help your business optimize cash flow, enhance liquidity and drive financial growth. “An analysis that looks over a three-year period can help to identify trends, determine typical cash flow cycles and even discern performance anomalies,” says Horsch. “The goal is to identify every opportunity to improve the cash conversion cycle.”

• Enhances cash forecasting.
  Accurately predicting cash flow can be challenging. However, receivables automation helps to pinpoint and track cash inflow for better forecasting and cash management. Emerging artificial intelligence tools assist in identifying payment patterns, predicting delays and addressing potential cash flow gaps.
  
  
• Increases available funds.
  A working capital analysis helps you find resources “trapped” in your business, whether that’s by speeding receivables, slowing payables or reducing inventory. Uncovering hidden cash gives organizations freedom to invest, fund capital expenditures, improve and maintain operations, and improve their balance sheets.
  
  
• Improves financial performance.
  A working capital analysis methodically reviews receivables, payables, inventory and cash conversion cycles to reveal tied-up cash and inefficient processes. With these insights, businesses can act decisively to fine tune collections, supplier terms and inventory. These actions boost liquidity, reduce reliance on external financing and improve credit standing. Benchmarking against industry standards further empowers leaders to anticipate challenges, mitigate risk and effectively compete.

“Working capital analysis is always revealing and organizations are likely to find quick and easy wins,” says Horsch.

Proven treasury strategies improve working capital management.

Tried-and-true practices for managing receivables, cash flow and inventory are critical when the economy is unpredictable. Organizations can collect revenue faster, optimize inventory and take full advantage of vendor/supplier benefits.

• Expedite accounts receivable.
  Consider the difference even one day of timely receivables collection can make on your balance sheet. “Businesses sometimes have “roller coaster” days of sales outstanding (DSO),” says Horsch. “Treasury services such as ACH origination, remote deposit and lockbox can substantially accelerate and standardize collections.” Automating accounts receivable not only brings in money more quickly, but also dramatically reduces associated time, labor and costs.
  
  
• Refine accounts payable.
  Evaluate payables strategies for opportunities to increase cash on hand. “Use discounts and renegotiate terms based on volume and value to better control cash outlays,” Horsch suggests. Automated services such as e-payments, controlled disbursements and virtual commercial cards are also instrumental in managing payables and expenses. “The goal is to keep funds working longer,” says Horsch.
  
  
• Optimize inventory.
  Stockpiled inventory represents tied-up cash. “Many companies aren’t fully aware of the impact of holding excess inventory,” says Horsch. “It’s not just the costs associated with storage and insurance; it’s also the capital that’s tied up in the finished goods. You could be using that cash for other purposes.” Just-in-time manufacturing and demand forecasting help minimize carrying costs and free working capital.

“We’ve seen major improvements in payables and receivables automation over the last decade, with many advanced options and technologies for process improvement,” says Horsch. “If you’re reluctant to fully automate, even transitioning from paper to e-payments is beneficial.”

Effective working capital management empowers corporations to confidently pursue growth objectives.

Organizations that effectively manage working capital position themselves to seize new growth opportunities and successfully compete in the marketplace. “Instead of waiting for change, take action – despite the financial landscape,” says Horsch. “The right treasury solutions will help stay on course with business goals.”

Deciding where to invest unlocked capital is the next step. Horsch suggests examining short- and long-term priorities. For example, do you want to reduce debt? Invest in equipment or labor? Or fund an acquisition? “Your financial advisors can help you create a working capital management plan that aligns with your organization’s goals for the future,” says Horsch.

Synovus understands the risks and opportunities present in the current economic environment. Our bankers and advisors offer many years of experience helping corporate clients of all sizes, in multiple industries, achieve their financial goals. For more details on conducting a working capital analysis, automating payables and receivables, or improving working capital efficiency, simply complete a short form and a Synovus Treasury & Payment Solutions Consultant will contact you. You can also stop by one of our local branches.

Erik Horsch is Senior Director, Synovus Treasury Management Sales Leadership. His focus is helping clients improve cash flow and internal processes.