Unremarkable – in a word, it’s the consensus on the global economic outlook in 2017. But that doesn’t mean companies won’t be chasing growth aggressively. In fact, according to the results of a recent survey published by CFO Research and TD Bank, companies are becoming more creative in how they approach their strategies for funding growth.
Here’s what 200+ mid-market and large enterprise finance executives had to say:
· 74% of respondents say their companys’ liquidity needs will increase over the next two years
· 54% cite their appetite for supporting growth as the key factor in needing to load up on liquidity
· 55% say their organization will need to make substantial improvements in working capital efficiency
· 62% believe their companies’ ability to increase capital spending over the next two years depends on the finance function’s skill at boosting working capital efficiency
· 60% will focus on better managing receivables to accomplish this goal
Despite tepid economic conditions, companies are betting on growth in the coming year and that will drive greater focus on strategic investments – such as infrastructure improvements, emerging markets and competitive performance. However, it’s become more challenging for some companies to “fuel the tanks” in order to pursue this growth. Rising US interest rates and a more cautious lending environment for all but the strongest balance sheets are driving up the cost of debt.
So, what gives? How can companies fund growth in this climate?
The answer lies beyond the bank. A growing number of companies are eschewing traditional commercial lending to find ways to improve cash flow – especially ways that focus on optimizing internal capital resources. One of the methods available to them is supply chain finance. These programs unlock large sums of working capital previously trapped in supply chains. And, unlike conventional funding methods like lending and factoring, supply chain finance happens off the balance sheet. Because transactions aren’t classified as bank debt, there is no impact on debt-to-capital ratios.
How will you fund growth in 2017? It’s one of the most pressing questions facing executives in the year ahead – and the response will be a measure of their success. For many, supply chain finance will be the key that unlocks not just capital, but material growth.
Published January 27, 2017