Citi Perspectives Fall 2023: Transforming Treasury

10 | Treasury and Trade Solutions Citi Perspectives Rethinking receivables: How receivables finance can support sales Staying nimble amid rising interest rates and an evolving inflationary environment means vigilant working capital management and ensuring ready access to liquidity at efficient rates. Managing rising interest rates and high inflation has been top of mind for treasurers and corporate treasury teams as many seek solutions that help reduce the impacts of margin compression. Working capital in an evolving environment After 10 consecutive rate hikes dating back to March of 2022, Federal Open Market Committee (FOMC) members elected to increase rates by 25bps during their July 25-26, 2023, meeting after having opted for a pause in June. The following day the Governing Council of the European Central Bank (ECB) opted for a 25bps hike of their own. Both central banks reiterated their data-dependent methodology, leaving the door open to future rate increases. Sellers are focused on managing days sales outstanding (DSO) at a time when many are being asked to hold more inventory on their balance sheets. Credit spreads between investment grade (IG) and high yield (HY) rated companies widened at the outset of the Fed’s hiking cycle and underscored the importance of sellers having access to liquidity at efficient rates. Corporates have focused on working capital for the last 15+ years and are very active in managing payment terms. Days payable outstanding (DPO) has lengthened by an average of nine days since 2014 for S&P 1500 listed companies. 1 Exiting the pandemic, companies have found ways to lower DSO by launching receivable finance programs and participating in supply chain finance programs to counter buyers requesting longer payment terms. 1 S&P Capital IQ.