Modernizing the Core: How Working Capital Innovations Overcome Legacy Challenges

2 business people discussing finance

Digital dynamics are reinventing the way businesses around the world operate.

But in order to capture the efficiencies modern workflow solutions provide, firms often need to reinvent their own systems first.

Many simply don’t want to, and it is holding them back.

Firms shackled by legacy systems frequently struggle to meet customer expectations, falling behind competitors who embrace modern technologies and adapt to changing market dynamics.

What’s more, incompatible legacy systems create silos, impeding data flow and collaboration within organizations, as well as expose firms to security vulnerabilities, leaving them susceptible to cyber threats in an ever-evolving digital landscape.

Often, due to the entrenched payment dynamics legacy systems have been incubating for the past 10, 20, even 30-plus years, organizations are missing out on crucial bill pay and working capital wins — while interest on yesteryear’s lines of credit increasingly eats away at their profits.

Legacy systems inform, and regularly spring from, legacy mindsets. But there are better ways of managing working capital now than ever before — and the more able firms are to pay their bills in a timely fashion, the more capable they are at managing their cash, the more opportunities they are able to take advantage of for their business, and the better return on investment (ROI) they will experience.

In the 2023-2024 Growth Corporates Working Capital Index, PYMNTS Intelligence finds that even a moderate lessening of DPO (days payable outstanding) can have a significant impact across operating margins, and add as much as $3.3 million annually to firms’ bottom lines.

How’s that for a downstream ROI?

Read also: What 873 CFOs Can Teach Banks About Working Capital Efficiencies

Modern Money Management Requires Modern Money Movement

Today’s environment is not an easy one to navigate for firms big and small, but it is particularly challenging for growth corporates — those in-between firms with $50 million to as much as $1 billion in revenues.

That’s because while soaring interest rates and sky-high costs of capital continue to put more scrutiny on chief financial officers (CFOs) and finance teams, growth corporates find themselves in an unfortunate Goldilocks situation where they are too large for small business working capital solutions, but too small for the enterprise solutions that are typically offered.

PYMNTS Intelligence shows that these firms need better access to credit, better working capital management, and improved accounts receivable and payables visibility as they make strategic day-to-day decisions.

“It’s about protecting the core [today], which means going back to basics. What is the liquidity management strategy? What is the approach to working capital management? Is it as efficient as it can be?” Catherine Simpson, co-head of treasury services for middle market banking and specialized industries at J.P. Morgan Chase, told PYMNTS.

It is only after protecting the core that firms can then move to making strategic decisions about how to manage cash flow and grapple with unplanned expenses.

“Over the last three to five years, there’s been a tremendous change. But the one thing that hasn’t changed is cash flow,” Robert Purcell, CFO of Billtrust, told PYMNTS.

And an effective working capital management strategy can help impact both cash conversion cycles and enhance operational efficiency.

Read more: Death by Paper Cut: The Hidden Costs of Checks

Caught Between Managing for Today and Investing in Tomorrow

Despite an ongoing shift toward electronic and digital transactions, insiders have told PYMNTS that more than 6 in 10 firms (62%) still use legacy methods to pay for commercial goods and services.

“People are not saying, ‘Our biggest problem is paper checks’ — that is not currently in the debate … The general managers, decision makers, these folks are usually within a few years of their retirement, and they don’t want a lot of change because they want to finish out and let somebody else take on the next effort,” Jake Joraanstad, CEO at Bushel, told PYMNTS.

Admittedly, rug-pull system updates aren’t easy. The fear of a heavy lift is typically because the lift tends to be, well, heavy — and expensive. Most organizations enter into long term contracts with their core systems providers, and changing workflows impacts nearly every vendor and third party in a firm’s halo.

But that doesn’t change the fact that making those sweeping updates is becoming increasingly necessary to compete.

CFOs have got a “real challenge on their hands, balancing the day-to-day working capital needs with continuing to invest in the business,” Ed Chandler, SVP and head of Commercial and Money Movement Solutions for Europe at Visa, told PYMNTS.

As for how they can do it most effectively? An innovative working capital solution wouldn’t be the worst place to start.

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