Working Capital needs spike amongst Supply Chain Turbulence
Global supply chains are stressed. Two years of pandemic and now war in Ukraine have wreaked havoc on the world’s complex and finely calibrated supply chains.
Labour shortages, logistics chaos, sanctions and embargoes are causing shortages and price inflation across a range of vital raw materials. This has immediate knock-on effects on the price and availability of intermediate and finished goods.
Even prices for intermediate products that have fallen back in early 2022, such as power and steel, are still well above pre-pandemic levels and are now under renewed upward pressure due to rising commodity prices, especially for natural gas, nickel and wheat.
The impact of this supply chain turmoil is that supply that was once “just-in-time” is now a question of “If, and when? How much? At what price?”.
And the consequences for working capital are direct and dramatic.
Surging prices for key inputs can more than double the value (cost) of inventory, in a very short period of time.
In addition, supply uncertainty may require companies to hold greater inventory volumes in order to ensure they can fill customer orders.
For mid-sized companies, the need to increase investment in working capital is particularly acute.
Like a balloon squeezed from both ends, mid-sized companies’ working capital is pressured upwards by large suppliers that demand short payment terms and large customers that demand long payment terms.
Greater working capital needs mean less headroom on existing sources of liquidity, which means lower margin for error. The tightening of payment terms by a key supplier or a reduction in credit limits from a bank or credit insurer, for example, could have a very real, negative impact on procurement and sales.
Ample access to diversified sources of liquidity is needed to avoid sleepless nights.
Levantor can help, by making it simple to defer payment on suppliers’ invoices thereby enabling companies to hold onto their cash until collecting from their customers.
$8bn in invoice payments have been deferred via Levantor, whose multi-funder model provides instant scalability and funding diversification, backed by a large panel of banks and institutional investors, including Credit Agricole and Allianz.
The solution is uniquely simple, requires no IT-implementation and flexible to use. The company decides which supplier invoices to defer, helping it manage cash, take advantage of supplier discounts and support sales. Because no security is required, Levantor’s solutions complement existing funding arrangements.
Because of its simplicity, the solution can be implemented quickly and efficiently, within a matter of weeks.
There is opportunity in adversity. Companies with the resources to take advantage of opportunities in adverse markets thrive. Ample access to liquidity for working capital is certainly one of these vital resources.
Data
European natural gas: Dutch TTF Natural Gas Futures – Apr 22 (CME)
Brent crude: Europe Brent Spot Price FOB (US Energy Information Administration)
Nickel: London Metals Exchange (tradingeconomics.com)
Wheat: Chicago Board of Trade Wheat Futures (Nasdaq)
Corn: Chicago Board of Trade Corn Futures (Nasdaq)
Soybeans: Chicago Board of Trade Soybean Futures (Nasdaq)
Electricity: Average monthly electricity wholesale prices in Germany, France and Italy (Sandbag Climate Campaign CIC)
Steel: U.S. Midwest Domestic Hot-Rolled Coil Steel (CRU) Index Futures (tradingview.com)
Fertiliser: UK producer prices (Office for National Statistics)
Grain mill products: UK producer prices (Office for National Statistics)
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#financing #fintech #workingcapital