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What Should Your Working Capital Be Used For?

By September 5, 2019December 20th, 2019No Comments

Insights on how young, fast-growing companies should use their cash.

How is short-term cash funded? Treasurers at high-growth tech companies at a recent NeuGroup meeting discussed funding working capital and whether a company should target cash and short-term investment balances to cover anticipated working capital needs or pay for committed short-term bank credit facilities to cover seasonal or unexpected short-term funding requirements.

Part of this is communicating to management and shareholders that committed facilities have their own value as opposed to sitting on unproductive cash.

Payables-receivables magic. Another opportunity the group identified was that increasing payables terms is just as valuable as decreasing receivables terms. Management often focuses on receivables given their important relationship to revenue, but overlooks the payables side of the equation. But cash flow is cash flow, whether it comes from the receivables or payables side of the ledger.

Growth and bank partners. Confronting the challenges of capital structure and working capital requires the right partners on the bank side. As a company grows, is its bank partner booting it out of its current group and into another? At different stages of growth, how do you know you have the right partners and how does treasury get a seat at the table?

This emphasizes the need for treasury to articulate what services it requires from the banks: global cash management infrastructure and the ability to syndicate a credit facility and provide access to capital markets, debt or equity.

Jacob Bromsey

Author Jacob Bromsey

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