Businesses are using several forms of working capital to pay bills that previously could have been covered by customer receipts arriving earlier. Bank credit lines, corporate cards and supplier payment terms give firms different ways to finance the interval between purchasing goods and collecting payment.
European Central Bank findings show demand for short-term financing rising as credit line availability falls. In North America, PYMNTS Intelligence research highlights the use of multiple financing sources and a shift toward borrowing for cash flow management and emergencies.
The ECB’s third-quarter Survey on the Access to Finance of Enterprises found that a net 12% of euro area businesses reported greater need for trade credit, while a net 11% reported greater need for credit lines. Credit line availability registered a negative net balance of 4%. Trade credit availability was broadly unchanged.
Trade credit enables a business to receive goods or services before paying the supplier. A buyer seeking more of it is asking the supplier to carry the unpaid balance longer or extend additional purchasing capacity. The ECB findings indicated that companies want more financing through their commercial relationships while also seeking more bank credit.
North American middle-market businesses already use several funding sources. The fourth edition of PYMNTS Intelligence’s Working Capital Index found in September that 83% used external working capital and 61% used at least two solutions. Both figures reached their highest levels in the four-year series. The July survey covered 120 chief financial officers and treasurers at United States and Canadian firms with annual revenue of $50 million to $1 billion.
Cash flow management and emergencies accounted for 45% of borrowing motivations, compared with 38% for growth-related purposes. It was the first time since the 2023 edition that tactical motivations exceeded growth motivations.
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Customers Keep Cash Longer, Suppliers Wait for Payment
Customer receipts explain part of the change. Early payments fell to 12% of receivables from 35%, PYMNTS reported Sept. 28. Roughly two-thirds of receivables arrived on the due date, while late payments changed little.
Consider a distributor that pays its supplier before collecting from a retailer. When the retailer stops paying early, the distributor must finance those additional days. It can draw on a credit line, use another payment instrument or negotiate a later supplier payment. Each choice changes either its borrowing costs or the supplier’s collection schedule.
Surveyed businesses reduced early supplier payments to 17% of payables from 37%. Bank credit lines reached 69% of external working capital solution users. The same research found that 7 in 10 firms cited uncertainty about when money would arrive due to customer payment behavior.
For CFOs, using multiple sources, which could be thought of as “stacking,” requires knowing how much borrowing remains available and when repayment falls due. A corporate card defers a purchase’s cash outflow, but its settlement date may coincide with payroll. A supplier’s extended terms can postpone another payment, although the resulting invoice still needs to be included in the cash forecast.
Banks and payments providers can build services around those specific decisions, identifying which receipts are expected before a payment deadline, calculating the cost of borrowing until they arrive and showing how a proposed draw reduces remaining credit capacity.
Average cash conversion cycles run 39 days among top-performing firms and 63 days among bottom performers, the index found. Reducing the time between paying suppliers and collecting from customers would leave businesses with fewer days of operations to finance and more of their credit available for future purchases.
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