In all the time I’ve worked for Woodsford TradeBridge – first as Managing Director, and in more recent years as CEO, one question that I have never been asked by a CFO is “What is liquidity – and why is it important”? Ask a CFO how important liquidity is to his business, and he’s likely to look at you like you are crazy. For a CFO, liquidity is like the air we breathe. Without it, the business has little flexibility to pay suppliers to invest in growth and to make the strategic decisions necessary for the business to thrive.
An in-depth guide designed to help senior financial decision-makers assess the impact of liquidity on a business by exploring real-life business scenarios.
At Woodsford TradeBridge, we work every day with hugely successful businesses that are looking to improve their liquidity even further. In business, liquidity is freedom. It is power. And in an uncertain world, the working capital flexibility that improved liquidity gives the business can make a huge difference to how the company conducts itself.
In recent years, businesses have experienced this pressure from many directions – whether it’s pressure from new competitors stealing market share, from movements in international markets or from speculation about changes to borders and duties and our relationship with the European Union – to challenges around business rate hikes, automation and the need to invest in new technology, the move from high-street to online shopping, or environmental concerns.
Regardless of your size or sector, there are unprecedented levels of uncertainty which mean that it simply won’t be “business as usual” for many organisations over the next 18 months at least. Businesses need to be able to react, to restructure, to relocate, to invest in technology and to optimise their warehousing, stock and manufacturing capabilities.
My advice is always that it is better to have too much working capital provision in place, rather than too little. With improved liquidity, the business gains the space and time needed to make the right decisions to deal with these uncertain times. And whilst many working capital facilities will cost the business money regardless of whether they are used, my gut feeling is that the peace of mind is almost always worth more to the business than the associated costs of borrowing. To be able to respond quickly to an RFP, to take on a new client regardless of the payment terms they are demanding or to allow you to bring on new suppliers in time for a seasonal peak – all these things will make the business stronger.
The reality is that challenging times also see the demise of some established and historically strong businesses. When times are hard, it can be challenging (if not impossible) to arrange new working capital facilities. Banks may reduce the drawdown percentage on your invoice discounting facility.
At Woodsford TradeBridge, we are sometimes approached by businesses who are at the end of their tether financially – but this is not an ideal scenario for us, or for the business. The risks at that point are usually way too high. Because a Woodsford TradeBridge supply chain finance facility is typically unsecured, we prefer to work with a business when they are in a strong position. It’s easy for a financial provider to say “no” to a person that they do not know. But with a relationship spanning several years, where we know and trust the board and the CFO in particular, we can continue to extend lending facilities to businesses that on paper look like a high-risk option.
This guide is designed for any business that wants to remain strong – to become both stronger and more financially flexible – in these uncertain times. It will share insights into how other businesses have improved their liquidity as well as offering an expert opinion on other options available in the market, and exploring some specific scenarios and their impact on liquidity.
I hope you find this guide useful.