A recent report by Allianz describes how global working capital requirements (WCR), i.e. the amount of money businesses require to cover operating costs, increased for the third consecutive year in 2023 to reach their highest level since 2008. The trend shifted from quarter to quarter, rising sharply in the first three months of 2023, before dropping slightly in Q2 and then dropping further in the final three months of the year.

Allianz put 2023’s annual increase in WCR down to a “combination of softening economic growth with higher inflation and the higher cost of financing”. However, the global financial services group observed that there had been softer changes between July and December for two years in a row.

The research findings are based on an analysis of 45,000 listed companies in 35 countries. And the implications for business leaders and financial institutions are stark: the more working capital requirements rise, the more firms need to seek out short-term borrowing solutions.

Late payments: can we afford to reduce terms?

Meanwhile in Europe, companies are having to wait longer for invoice settlement due to an ongoing profit squeeze and rising costs. In a bid to tackle late payments, the European Commission has set out proposals for new regulations that could see terms cut from recommended 60 days to 30 days binding. But there are genuine fears that this will create cash flow problems for many firms. Allianz says companies will need an additional €2 billion in finance under such restrictions. Which is no surprise when we consider that 42% of companies were looking at payment terms above 60 days at the end of 2023.

The very real nature of these challenges was underlined in research by C2FO, which found that one in four businesses didn’t have enough access to liquidity to operate for a year. Another pressure point is highlighted in PwC’s Working Capital Study 23/24. It says that despite rising input costs, global revenues have continued to grow. This creates a situation where companies need more working capital to support this growth, even as they strive for efficiency.

There’s a need for working capital. But is it being met?

Whether it’s regulatory pressures or rising WCR, demand for short-term financing is only set to increase. However, there remain many financial institutions, particularly small to medium sized commercial banks and asset managers, that struggle to offer this vital form of business finance to their corporate clients, despite a desire to do so. Receivables-backed working capital finance is often seen as a cost-effective answer for corporate clients, but providing these programs can be challenging for many financial institutions.  They lack the capacity and infrastructure to run the daily operations, often resulting in them offering inferior working capital solutions that only fund receivables issued to larger debtors, or they simply shy away from the opportunity altogether.

Outsourced daily operations is one solution

Aronova is helping banks and asset managers of all sizes to overcome barriers to the provision of working capital products by providing outsourced solutions for the day-to-day management of receivables purchase programs. The products take care of seller data collection, invoice eligibility, invoice sale and the calculation of seller cash settlements. Extensive features include fraud monitoring, automated portfolio-wide global debtor credit limits (often with insurance certainty), and can provide backup servicing if required.

We aim to help banks and asset managers focus on origination and the funding of working capital programs by leaving the day-to-day operations to Aronova. Aimed at corporate sellers requiring a revolving working capital facility of at least $10m, our platforms can be deployed on an insured or uninsured basis. We anticipate the corporate seller remaining responsible for account servicing, cash allocation and the regular upload of receivables data to us. This data provides both lenders and corporate sellers with the transparency each requires to operate a modern receivables finance program.

In short, AronovaTransact! allows banks and asset managers to expand their working capital offerings without the burden of managing the day-to-day operations. Financial institutions that were previously unable to offer these products can now enter this growing market with confidence.

To find out more, Contact us to talk to a member of the Aronova team.

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