Making Corporate Finance Sustainable by Mobilising Resources

Many companies had to learn the hard way during the past crisis what it meant to be squeezed in terms of liquidity and to be dependent on the external capital market. Not only a general decrease in demand and orders were a problem for corporates, but also late payments or payment defaults led to liquidity gaps in many companies. As a consequence insolvencies or takeovers of even the most traditional and long-standing companies occurred. The fairly restrictive loan-provisioning policies of most banks at that time also made matters worse.

Interestingly, the subsequent economic recovery showed that corporates across all sectors managed to grow again without requesting external capital from the banks. Although loans are available again relatively few companies make use of them. This can be partly explained by more hesitant investments but corporates are getting back on track and currently reach the level of investments pre-crisis. But where does this restraint in borrowing come from? And how do corporates fund their renewed activities if not by bank loans?

Internal Capital Market

One of the most obvious sources is that corporates increasingly use their own resources. Internally, corporates can often find potential capital that had not been explored before. There are several ways of mobilising a company’s own capital, the most effective being the reduction of working capital, an efficient cash and liquidity management programme and strategic risk management.

How can working capital be optimised?

Essentially, this can be best achieved through effective working capital management. On the one hand this includes a real-time view of the current situation and easy retrieval of historic data, on the other hand a clever management of accounts receivable (A/R) and accounts payable (A/P).

For corporates to manage risk successfully and optimise working capital, days sales outstanding (DSO) is an important element. Organisations should see to achieving timely payments from their customers – efficiency gains of 10 – 30% are possible, if manual tasks in the cash application process (processing of bank statements, remittance advices, lockboxes, etc) are replaced by automated processes. Today, specific technical solutions are available, which offer automatic processing capabilities that are directly integrated in the central enterprise resource planning (ERP) system, and, moreover, offer intelligent post-processing functions. These support the easy identification and the posting of more complex individual items. Therefore, all A/R data can be processed on the same day. Employees in the accounting department are relieved of many manual tasks so that they can focus on more value-added tasks, such as an effective dunning process.

Driving Efficiency Gains

Another component of effective working capital management is the A/P process which can often be simplified and made more effective. By centralising payments and automating the payment process, corporates can significantly reduce the number of transactions and therefore minimise related bank costs. Introducing a payment factory brings added value particularly to larger corporations where a vast number of cross-border payments are processed every day. Such corporations profit from this centralised set-up which integrates all subsidiaries and replaces decentralised and risk-prone e-banking solutions. Payment data is therefore more reliable and can be processed faster. The parent company gains a comprehensive real-time overview of amounts, methods and targets of all payments of the entire company including all subsidiaries.

Based on such data, the parent company can aggregate payments and automatically choose the most favourable bank accounts. By using a netting solution, a company can further simplify its process and reduce bank fees, as intra-company payments can be settled internally. If a payment factory is in place, a corporate gains a full overview of all payments and when they are due. Therefore, it can be decided whether to make use of the full period allowed for payment or whether to use suppliers’ rebates for early payments.

As a result of such efficiency gains in the working capital management process costs can be reduced and liquidity can be optimised. The automated and centralised processes deliver reliable data to the corporate’s liquidity planning, which is vital for the strategic management of a company. The fact that processes become more transparent and auditable end-to-end brings another big bonus.

Averting Insolvency Risks

Even today many corporates still rely on manually collected data for the liquidity management that are extracted from spreadsheets. Specific solutions fully integrated in the ERP system, however, could help simplify the liquidity planning significantly. Such solutions use the automatically processed A/R and A/P data for a cash and liquidity management directly in the ERP system. Therefore, the planning can be done in real time and always provides up-to-date information. Based on such reliable data, management can plan the company’s liquidity more rapidly and correctly, and adapt fast to any changes. This way, the company is put into a position in which it can optimise its liquidity both for long-term investment and for the daily cash position.

A technical solution should enable strategic cash pooling so that surpluses of one subsidiary can be identified and used for clearing negative accounts of another subsidiary or for making short-term investments in order to maximise the company’s profit. With a professional liquidity planning technology, identifying and remedying potential short falls, and a professional risk management become a simple task, and the company is enabled to effectively manage risks.


All of the above measures contribute to better and faster access to a corporate’s own financial resources to the benefit of the business. Corporates become more robust and less vulnerable in case of financial crises. They become more independent of banks and influences from external investors. The management gains a solid basis of data for a more strategic decision-making process. In short, insolvency risks are properly managed as corporates gain a more secure liquidity position and rating.


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