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Working Capital Survey 2022: Companies need to prepare for tighter liquidity

Around the globe, businesses aren’t happy with the current economic conditions, but they still believe their companies and the overall economy will see growth over the next 12 months, according to C2FO’s 2022 Working Capital Survey.

However, the survey report suggests that a combination of forces — including soaring inflation and rising interest rates — could make it harder for companies to access the funding they need to survive and grow. 

The C2FO 2022 Working Capital Survey was conducted by Morning Consult in April 2022 and includes responses from 1,240 business leaders in 10 countries, representing both small businesses and large enterprises. Each of these respondents has a final say or influence over financial decisions in their business.

The respondents operate in a range of industries: manufacturing (13%); professional, scientific and technical (11%); finance and banking (11%); retail (8%); tech (8%); construction (7%); healthcare (7%); education (5%); accommodation and food services (5%); transport and warehousing (4%); and other industries (21%).

The survey was administered to create a clearer picture of how — or if — companies are able to access working capital, so that business leaders can make more informed decisions about this significant aspect of their operations. 

The no. 1 threat: Inflation

Globally, inflation is viewed as the biggest threat over the next year among respondents — 63% of respondents “believe inflation will have a negative impact on their businesses over the next 12 months, more than any other concern.”

To combat inflation, central banks around the world have introduced a series of interest rate hikes, with additional rate increases expected in the coming months.

Of the global respondents who expect a negative impact from higher interest rates, “47% said they would increase prices if rate hikes are as bad as feared. Others said they would postpone investments in new products or services, scale back pay increases or throttle their production,” as stated in the report.

Source: C2FO 2022 Working Capital Survey

Liquidity challenges could be on the horizon

Most of those surveyed said, “they had access to adequate liquidity right now – enough to run their business for the next 12 months.” However, about one-fifth of respondents (21%) said they don’t have enough liquidity in their business.

The smallest businesses — those with fewer than 50 employees — were less likely to have enough access to liquidity for the next 12 months, with 27% noting a lack versus 20% of companies with 1,000+ headcount. 

A rising interest rate regime could make it much more difficult for companies, particularly for small businesses, to quickly secure capital or funding from traditional lenders. Interest rates were the most cited factor when selecting a new source of financing, with 46% of all respondents listing it as a concern.

Economic sentiment is negative, but future outlook is positive

According to the report, it’s probably not surprising that, globally, those surveyed were more likely to view their country’s economic conditions negatively – 39% said they were not very good or not good at all, compared with 28% who called them good or excellent.

When asked about the next 12 months, 44% of respondents expected their country’s economy to improve, though North American and European respondents tended to be more negative in their outlook. Also, more businesses are optimistic about their growth over the next 12 months – 68% of respondents predict higher revenues at their company over the next 12-month period.

Working capital management: Optimization and alignment

The 2022 Working Capital Survey is an important reminder that for businesses to achieve their vision of growth, they’ll need reliable access to affordable working capital and prudent management of working capital, which could become more difficult as the dual forces of surging inflation and interest rate hikes push the cost of lending or borrowing to higher levels.

Managing working capital efficiently in an uncertain business environment can make a crucial difference in the liquidity available to further organizational goals.

In the process of optimizing working capital, your corporation is likely to eliminate hindrances to revenue, increase efficiency, bring siloed areas into proper alignment, and even improve relationships with suppliers and customers. That said, managing working capital in times of disruption can be a complicated and difficult topic for many finance and treasury professionals to approach and address.

Working Capital Management: Optimization & Alignment, a new eBook released by Strategic Treasurer and sponsored by Corcentric, will help finance and treasury practitioners lead their organization into a position of robust liquidity, efficiency and flexibility. ⃰  

The eBook will aid you in maintaining a well-aligned working capital management program that supports your organization’s current and future goals.

 

⃰ Disclosure: Strategic Treasurer owns CTMfile.

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