Working Capital Is Becoming a Priced Portfolio for CFOs

The next frontier in managing working capital isn't about squeezing out more days from receivables or stretching out payables. It's about deciding whether those dollars should be financed in the same way at all. Two companies can have identical working capital requirements but possess different risk profiles. One may have short-dated receivables from investment-grade customers and fast-moving inventory, while another may have disputed invoices, slow-moving stock, and suppliers demanding accelerated payments.

Although the figures might look the same on paper, the underlying risks, durations, and information differ significantly. Consequently, banks are starting to merge their lending and treasury functions. For instance, First Citizens Bank recently consolidated its factoring, asset-based lending, supply chain finance, international factoring, and receivables purchasing operations into a single unit called Working Capital Finance.

Savvy chief financial officers can now assign different costs of capital to different components of the operating balance sheet, transforming working capital from a ratio to optimize into a portfolio to price.