Navigating Market Turbulence

Amid tariff announcements, market selloffs and related economic events, there are ways for businesses to partner with your bank to address short-term needs while building long-term financial resiliency. Consider the questions below and specific recommendations that could make a noticeable impact.

How can a bank support automated treasury functions or integrated payments? Integrating with your bank is key to properly managing your day-to-day processes and maximizing cash flow. This can be done through automated file feeds of account transactions, lockbox details and wire/ACH inflows/outflows to enhance operational efficiency and allow for data exchange and treasury function management.

Employing an integrated payables platform can also streamline your entire payables process — from invoice receipt to approval routing to payment. It can also transform your finance/accounting team into a revenue generator through monthly credit card rebates.

What tools can help a business manage working capital in tighter credit markets with potentially delayed payments? Establishing access to short-term financing options like working capital loans or a line of credit provides liquidity for immediate needs without affecting cash reserves. Working with your banker early on potential lending requirements is crucial.

Supplier relations are also key, and discussing potential options with trading partners regarding revised payment terms or early pay discounts can optimize short-term working capital. Coupling this with shifting as many payables as possible to a commercial credit card is an effective strategy to not only lag purchases but also earn a monthly cash rebate.

Another tool that can maximize your cash flow, reduce borrowing costs and drive internal efficiency is a loan sweep—if available at your bank, this treasury management product will automatically pay down or pull from your line of credit and eliminate the need for manual online transfers and reduce the risk of overdrafts.

Can businesses partner with their bank on specific financing to reduce cost pressure from tariffs? A business’s relationship with its bank is the most important partnership in times of economic uncertainty. This helps provide access to working capital with flexible terms to better cover additional cash needs to pay for tariffs. Over-communicating with your banker on near- and long-term impacts of tariffs and cash flow projections is critical to successful financing options.

How can businesses improve cash flow visibility and forecasting, including stress-testing economic scenarios? Business owners can partner with their banker, CPA or financial consultants to help prepare cash flow and income statement projections. Cash flow projections typically project over 9-12 weeks with daily updates. The model projects the working capital needs of the company and helps minimize the risk of running out of cash. Income statement projections help manage revenue, expense management, margin analysis and net income. Executives typically prepare models that provide outcomes under best-case, expected and worst-case scenarios.

How can businesses identify overleveraged areas or underutilized credit facilities? There are many ways to assess capitalization appropriateness that change based upon industry, lifecycle and other factors. The following are good starting points for your own business capitalization:

• Operating leverage, excluding large CRE debt, tends to correlate with the ability to handle operational volatility. Businesses should try to be as objective as possible about their situation and adjust for industry and other factors.
• Debt-to-equity ratio is another way to determine how leveraged a business is compared to its assets. This may be more useful for asset-heavy businesses or those with lower margins.
• Businesses can assess a few factors related to their revolving line of credit. If there is meaningful additional availability, appropriately sizing the commitment can act as a safety net for accessing necessary liquidity, but should only be done to finance short-term assets. A business can also focus on asset conversion to access more liquidity, seeking flexibility on payable due dates, collecting A/R quicker (at a minimum, not allowing them to stretch), and managing inventory as efficiently as possible. If the business has not been able to revolve balances, it could be an indication of an evergreen balance and the business should consider planning to pay down.

In a time of uncertainty, conservatism is recommended with regard to capitalization. The bigger share of “patient” capital, the more flexible a business can be. However, debt can be useful if appropriately utilized. Ultimately, a business should size its indebtedness using base case projections, and possibly shocks to the downside, to see how much the business can fall and still make payments adequately.

Businesses should always work closely with their banker and other advisors to help make the best decisions for their unique situation.