Rethinking Your Debt Facilities? There’s Another Option for Working Capital

Use dynamic discounting to encourage early payments from customers. It’s a better way to generate working capital.

If your company added or expanded its debt facilities during the global pandemic, now may be the time to seek a new source for working capital.

When the pandemic hit, many businesses sought access to extra debt in order to build up enough liquidity to survive the crisis. Interest rates were low enough that adding or expanding their debt facilities made sense. 

Many of those companies ended up needing that extra breathing room as they faced new challenges like massive supply chain disruptions and sharp spikes in inflation. Their debt facilities allowed them to quickly adapt to the changing environment.  

Except the environment has changed again, thanks to a series of rate hikes that started in 2021 and 2022 in many developed economies. Their central banks have pushed interest rates to their highest levels in decades in an effort to fight runaway inflation. In the UK, the 5.25% benchmark rate is the highest it has been in 15 years, while in the US, rates haven’t been this high since 2001. 

While the inflation fight appears to be working, it has put new pressure on the companies with debt facilities — those facilities are now much less attractive because of the higher interest rates. 

Industries such as manufacturing, real estate, agriculture, entertainment and construction could be most affected by higher borrowing costs and lower interest coverage ratios, the European Central Bank reported. Banks could be most exposed to loans in manufacturing and real estate.

And while rate hikes may have tapered off, the high-rate environment is expected to remain in place for several months at least. 

That fact is influencing financial strategy as companies approach the end of 2023. 

“Post-pandemic, we have seen an increase in businesses looking to accelerate their AR with C2FO as an alternative to short-term debt,” said Tim Blundy, vice president and head of Enterprise Supplier Relationship Management in C2FO’s EMEA and APAC operations. 

“This increased focus on working capital has been driven by interest rate rises, coupled with supply chain challenges and inflationary pressures, which have placed more strain on corporate liquidity. Many cash-rich organisations have been relying on their cash buffers to maintain operations, investments and growth, but as we move into a higher-for-longer interest rate environment, our customers are looking for alternatives in an effort to avoid a continued decline in cash buffers and increased leverage through high-cost debt facilities.”

These companies may need a new source of working capital, and C2FO is uniquely positioned to help.

• Instead of drawing on a credit line or burning through cash buffers, businesses use C2FO’s Early Pay solution to get paid faster, boosting their cash on hand and supporting key metrics such as days sales outstanding (DSO) and cash conversion cycle (CCC).
• C2FO Early Pay provides a flexible, off-balance-sheet option for suppliers seeking working capital. They can determine the rate that suits them while avoiding increased leverage. 

It’s a solution that’s being rapidly embraced by suppliers of all sizes. So far this year, C2FO has delivered more than £42.9 billion in funding to companies around the world, and our network includes some of the world’s largest and most successful enterprises. Best of all, the early payment solution is easy to implement and requires minimal support from your company’s team. 

Learn more about how our solutions work here.