Strategic Working Capital Allocation Helps CFOs Realize Stronger ROI

In today’s environment, managing working capital means putting capital to work.

In challenging macro environments, process improvements are about more than just optimizing working capital and strengthening balance sheets — they’re about having the right insights and protocols in place to succeed in the face of the unexpected.

Efficiency is the new priority, and strategic forecasting is the new baseline.

“Whereas everyone was kind of like, ‘Where can I invest,’ now they’re thinking about, ‘OK, money’s a little bit more expensive now. Let me be much more strategic and focused on where I do invest,” said Julie Lubell , global head of trends and advisory at J.P. Morgan Payments , in a recent February interview with PYMNTS’s CEO Karen Webster.

After all, no one wants to end up like the shipping industry, where a self-inflicted problem of oversupply is becoming evident as carriers invested billions in hundreds of new ships that are set to arrive just as freight rates and global trade demand start to soften significantly .

Data can determine which path to take when there’s a fork in the road

PYMNTS’ research shows that as organizations look to update their in-house operations using years of relevant data to inform their decisions, there are meaningful shifts in investment priorities based on business-specific cash flow, working capital and liquidity strategies.

“The data shows that if you adopt technology and harness the services that are out there, you can drive more business for your company,” Mark Hoyt , CFO at restaurant solutions provider Popmenu , told PYMNTS last week (Feb. 9).

Many firms have gone through multiple stages of technology spending. The business landscape is currently in the midst of a pivotal migration toward modern and increasingly digital solutions, many of which are designed to help organizations achieve sustainable scalability through actionable transparency.

“We’re really focused on data analytics,” Jerry Fadden , CFO at direct-to-consumer (D2C) insurance provider Kin said to PYMNTS last month . “So, our decisions tend to be rooted in really rigorous analysis… I’ve compared being a CFO to the idea of a navigator on a plane…you’re constantly making adjustments and covering a broad array of both operational issues as well as treasury and cash management issues, as well as capital planning.”

Investments need to align with organizational goals, Fadden added.

Richard Cheung , CFO at the world’s first 3D robotics supply chain company, Attabotics , said in a January interview that for his business, “the new challenge now is capital allocation — it’s extremely important to understand where we should continue to invest, where we throttle back spend, and how do we continue to evolve by leveraging better technologies, how can we achieve the optimal return on our investments.”

Fortunately, new digital tools allow businesses and internal leaders to play offense and scale their businesses while helping preserve cash.

Businesses want technology to help them be strategically proactive with growth

Cheung underscored that by leveraging next-generation technology, Attabotics could pinpoint inventory movement in real-time, enhancing the company’s ERP system to become more predictive of future inventory needs based on sales pipelines and allowing the business, as well as its clients and partners, to maximize for cash-flow by optimizing the balance between carrying inventory on-hand versus pre-ordering longer lead time items.

PYMNTS has been closely tracking how digital tools are evolving the responsibilities of finance teams by powering next-generation, wholly transformative approaches to business planning.

“A lot of what the CFO job entails is helping the rest of the business move fast by making informed decisions that leverage trusted data, and creating the foundational infrastructure to allow for that,” Nathaniel Katz, CFO at eCommerce software provider Rokt, told PYMNTS .

To continue to grow sustainably relative to the competition, organizations need to put in place the right infrastructure to support their near- and long-term goals.

“The challenge is to manage [your] growth to such a degree that you can maximize it, but at the same time to do so in a reliable, predictable, and scalable fashion without spending too much money,” Bas Brukx , CFO at Allego , said in a conversation with PYMNTS earlier this month. “Nobody wants to spend a lot of money on efforts that won’t provide a return in a downturn, but no one wants to be on the sidelines either and miss a growth cycle.”

Modernization is irreversible. Once businesses leverage future-fit digital tools to support key processes, there will be no going back to the unsophisticated methods they once used.

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