Prudent companies will always look to build resilience in their working capital to develop some protection against the vagaries of the market. And management will rely on treasury professionals to identify ways for their organizations to do so.

Building resilience requires companies to take advantage of opportunities to improve operational efficiency and risk management. Harnessing new technology allows treasurers to automate many manual processes, accelerating execution, enhancing visibility and reducing operational risk.

Improving the visibility of both the physical and financial supply chains makes it easier to identify exposures and pressure points within the cash conversion cycle. These insights can be shared with the business so they can act to improve the various working capital metrics and make better financial decisions.

Treasurers can revisit company liquidity management by adopting new technology to improve cash forecasting and facilitate liquidity planning. They can model future scenarios to check whether existing liquidity management structures are fit for purpose, so any surplus cash is accessible to support the business before being invested externally. Such an approach supports the segmentation of group cash, allowing treasurers to manage that cash according to how it will be used by the business and in line with the organization’s appetite for risk.

In addition to using these internal levers, treasurers can manage access to working capital via funding streams and short-term investment strategies. In a more volatile interest rate environment, treasurers may need to reconsider their approach to both borrowing and investing to try to maintain sufficient working capital as efficiently as possible.

Given the uncertainty over the level of future interest rates, treasurers need to think strategically about how they fund working capital. Improving visibility to cash flow and cash positions provides treasury with as much advance warning as possible about potential funding requirements. Having time to plan a funding strategy also means treasury can evaluate different solutions and sources of finance, both to minimize cost and retain flexibility and access to liquidity.

For companies with surplus cash, having become used to generating a return on short-term cash, any interest rate cut would affect the ability to continue to do so. In anticipation of rate cuts, one option is to sacrifice liquidity to earn a higher return for longer. Doing so is only possible if treasury can accurately forecast its short-term liquidity needs and segment its cash balances accordingly. Short-term operating cash can be placed in liquid instruments, with medium-term cash available to be committed for longer terms. Again, developing the cash forecasting capability is key to enhancing choice for cash investment opportunities.

Viewing cash in this way means the strategy does not change, even when interest rates do. So, operating cash is always held in more liquid instruments, with the amount of operating cash defined by the company’s risk appetite and its need for working capital.