We live in turbulent times. For many companies, 2020 started with a positive outlook and solid liquidity buffers. Now, the expectations of most CFOs about the economic situation are even more negative as they were during the Financial crisis in 2008.
What does that mean for companies’ cash cycle for the coming months?
The amount of money that is more than 10 days overdue has grown more than 50% in France and Spain and an incredible increase for more than over 80% in Italy since the World Health Organization declared a pandemic on March 11. The U.K. and the Netherlands have each seen a 25% increase, while Belgium has seen a 50% spike.
In Switzerland after talking to several CFO’s of larger multinational SME’s, the outlook seems not that drastic yet. In addition, there are still stable liquidity buffers. But that can change quickly when the recession is hitting the economy hard on a global scale?
There is no doubt that the global economy is heading into an economic downturn and it is unclear how deep it will be. Governments and central banks across Europe have approved measures to provide liquidity to the system and try to ease the economic burden on businesses. That may prevent a business from failing but this is like a drop of water into the ocean and is not long-lasting.
CHF 60 billion for a virus, alone in Switzerland have been freed for supporting the economy. However, additional, non-governmental instruments are needed for the future in case another wave or a new pandemic appears.
So, what have companies done in the first instance in uncertain times? They used to reduce costs on all levels, even stopping or delaying hugely profitable projects.
We believe that classical cost-cutting measures should be complemented with innovative financing solutions. The time has come to reconsider working capital solutions. They offer various improvements: Freeing up liquidity off-balance sheet and strengthening the relationship with new payment terms towards their customers and freeing up cash for acquisitions and growth.
Pactum can offer a fast path to growth by releasing working capital tied-up in receivables or supply chain. Besides, our solutions mitigate financial risks.
Text written by: Peter Gorini, CSO, Pactum AG