CredAble Launches Report on Transforming Treasury Management and Optimising Cashflows Amidst Rising Liquidity Challenges.

by Suman Gupta

• The report highlights a 20% increase in the Interest Service Coverage Ratio, reflecting improved debt management strategies for listed service firms
• Insights underscore the impact of inflation nearing 6% and rising interest rates at 6.5%, urging strategic working capital management for stability

Mumbai, India, July 2024: CredAble, India’s leading working capital technology platform, proudly announces the release of its latest whitepaper, “The Business Value of Working Capital Financing: A Working Capital Guide for the Corporate Treasurer.” The whitepaper (https://www.credable.in/whitepapers/corporate-treasury/ )  delves into the fundamental concept of working capital, its significance within the corporate world, and the economic factors influencing working capital requirements. It addresses treasury-specific challenges and demonstrates how strategic working capital solutions can generate substantial financial value, impacting both top and bottom lines.

The whitepaper reveals key findings, such as the potential for a 6.8% increase in return on assets through efficient cash flow management. It also addresses the impact of rising inflation, projected to reach 6%, and increased interest rates, now at 6.5%, on working capital requirements – further highlighting a 20% rise in the interest service coverage ratio across listed firms, in the recent past. Additionally, the report highlights how implementing a software-based Cash Management System (CMS) can improve cash flows by 10%.

Ram Kewalramani, Co-founder & Managing Director, CredAble, said, “The effective management of working capital is crucial for businesses, especially in today’s asset-light and uncertain economic environment. Our whitepaper provides corporate treasurers with the knowledge and tools they need to navigate these challenges and optimise their working capital strategies for sustained financial success.”

Key Findings from the Whitepaper:

1. Economic Headwinds Impacting Working Capital Requirements:

Inflationary Pressure: With inflation anticipated to rise close to 6% within the Reserve Bank of India’s (RBI) tolerance band, cost-push inflation driven by rising brent crude (35% increase over three years) and coal prices (75% increase) has significantly impacted operational costs across industries.

Interest Rates: The RBI has raised the key lending rate by 2.5% over a single year, now standing at 6.5%. This escalation has increased borrowing costs for enterprises, exerting pressure on their working capital.

1. Debt Market Movement:

The yield spread between corporate and government bonds has narrowed over the past three years, indicating reduced market liquidity. The inclusion of Indian government bonds in the JP Morgan emerging debt index is expected to increase government bond yields further, potentially reducing liquidity in the market.

1. Treasury-Specific Challenges and Solutions:

Cashflow Management: Effective management of cash flow is crucial, especially in an environment where 82% of enterprises face insolvency due to prolonged monetary crunches (SBA, 2021).

Debt Administration and Risk Mitigation: The report outlines strategies to manage debt efficiently and mitigate financial risks amidst rising interest rates and economic volatility.

1. Value Creation through Supply Chain Finance: Companies engaging in cash flow management have experienced a higher return on assets (6.8%). The report discusses how supply chain finance can generate substantial financial value, impacting both top and bottom lines and enhancing overall financial performance.
2. Working Capital Optimisation Strategies: CredAble’s pioneering programs are highlighted, showcasing how automated and multifaceted working capital management initiatives can help enterprises optimise their financial resources. Real-world examples and case studies illustrate successful implementations of these strategies.
3. Cash Ratio Comparison: Indian firms listed on the NSE have a cash ratio of 0.29 compared to 0.64 for firms listed on the S&P 500, highlighting liquidity differences between these markets.
4. Effects of Short-Term Debt: From FY22 to FY23, excessive short-term debt has significantly impacted firms, leading to increased financial pressure. Implementing a software-based Cash Management System (CMS) can improve cash flows by 10%.
5. ISCR Improvement: A 20% rise in the Interest Service Coverage Ratio (ISCR) across listed service firms (excluding IT) and a 40% rise in ISCR across listed manufacturing firms indicate improved ability to cover interest obligations due to better working capital management.
6. Working Capital Days and Revenue: The white paper includes a graph from the PwC Working Capital Study 2022-2023 showing the inverse relationship between working capital days and top-line performance. Efficient working capital management can lead to better financial performance.
7. Commercial Paper Yields: The document highlights a consistent upward trajectory in commercial paper yields over the past two years, reflecting increased costs for short-term corporate debt. This trend is expected to continue, influenced by the performance of sovereign bonds.

As businesses move towards asset-light models, the importance of optimising working capital cannot be overstated. CredAble’s whitepaper serves as a comprehensive guide for corporate treasurers, providing them with the expertise needed to manage this vital financial resource effectively.