As the credit and banking crisis segues into a global recession it may be tempting to indulge in a bout of finger-pointing and blame allocation, but this really isn’t the time. If the corporate and the banking industries aren’t careful, the credit freeze could turn into a working capital freeze. An unfortunate but inevitable consequence of any economic downturn is that an increasing number of businesses will fail. Many that go under will, in essence, be sound business ideas brought low simply because they have run out of cash. Treasurers in corporates have to ensure that they are driving the cashflow planning to ensure that a working capital squeeze does not turn into a crisis that threatens the company’s very existence. At such times it is tempting to reach for any tools or methods possible to preserve cash in the business, even if that comes at the expense of suppliers which may not possess the same financial clout. Treasurers should urge their colleagues not to be tempted into such short-term financial irresponsibility. If no other argument wins, in the long run it can’t be good for companies to see their key suppliers forced to shut down. There has to be a better way. Treasurers need to re-emphasise the tools of cashflow forecasting and planning. They have to work with the business to ensure that working capital and balance sheet management is done well, and that means a great deal more than simply locking away the cheque book. As well as using their technical skills, treasurers have to ensure that an open dialogue is maintained. They need to talk to their lenders if they see problems ahead, and crucially they also have to talk to others in the working capital chain. For companies facing financial difficulties it is much better to be open and transparent, and to make commitments and promises they can keep, rather than duck and dive in the hope that the crisis will blow itself out. If we learned anything over the last few months it is how trust, confidence and reputations can disappear irretrievably overnight. Treasurers must not allow short-term difficulties with working capital to lead to bigger and more intractable problems.
