Resilient treasury management to boost liquidity

Companies today want to be prepared to navigate bouts of inflation, market volatility, changes in taxes and tariffs, supply chain disruptions and more. For all these business challenges, working capital serves as a vital buffer—it acts as the lifeblood of a company. The ability of the treasury team to forecast and optimize working capital is increasingly valuable. 

Against this backdrop, sound treasury management strategies are more important now than ever. There are simple steps the treasury team can take to boost working capital and find value by efficiently managing payables—steps that will improve the company’s financial position.  

A sound treasury framework ensures resiliency and optimal cash flow by embracing best practices across three core areas: receivables, payables and cash flow.

Faster payments are better, of course, and data and analysis can speed payments. As a starting point, analyze the average amount of time customers take to pay. This is your day's sales outstanding (DSO)—total accounts receivable divided by total credit sales in a period (30 days, for instance) times the number of days in the period.  

A clear grasp of DSO helps the team find opportunities to get paid faster. Calculate the value of a one-day improvement in DSO—the interest on average outstanding receivables for one day—to better understand what’s at stake. The amount can easily run into the thousands or tens of thousands of dollars. 

The treasury team should identify slower payers, targeting customers who take longer than the average DSO to pay. A range of options are available to influence customer behavior and get receivables paid more quickly, including: 

• Improved use of automated invoicing and reminders

• Expanded digital payment offerings

• Incentives for early payment

• Disincentives for slow payment, including late penalties

“Good money today is better than money maybe tomorrow,” Dave Benjamin, Vice President, Client Advisory and Development at Capital One, said during a recent webinar. “So you’re looking for digitalization, among other things, that will give your clients the opportunity to get money to you faster.” 

Review the payment options your organization offers. Technology offers significant potential to benefit your customers and your DSO at the same time. For instance, Online Bill Presentment and Payment (OBPP) options allow clients to view and pay invoices faster. Similarly, accepting card payments can be a highly effective way to essentially outsource the credit and collection process (and the associated risk) to the issuing bank, accelerating your cash flow without burdening your internal team.

Benchmarking your DSO against other similar businesses can help identify where there's room to improve. From there, calculate the value of a one-day improvement, set clear goals and track progress over time to measure the impact of your efforts.   

Customer segmentation may help the treasury team tailor collection strategies based on payment behavior and risk profile. Look at DSO for different business segments, geographies and products to better understand payment behavior and find strategies to speed things up.

When focusing on payables, the metric is days payables outstanding (DPO) and your primary goal is to extend time. But your DPO is someone else’s DSO, and strategic management of payments will involve collaborative, respectful negotiation with vendors. 

The goal is to find the right balance, achieving your DPO objectives while keeping strong supplier relationships. A supplier might value consistency or predictability in payments, which could provide your organization with leverage to seek better terms. Consider whether the supplier is a single source or one vendor among many. In some cases, a vendor’s early payment discounts may justify a faster schedule.  

While extending DPO is a primary goal, treasury teams must evaluate the strategic advantage of accelerating payments. When excess liquidity is available, the estimated return from capturing an early payment discount often significantly outweighs the interest rate earned by holding the cash in an investment account. For example, common trade terms such as 2/10, net 30 (a 2% discount for payment within 10 days) offer an equivalent annualized return of up to 36.7%. This analysis is a key strategic tool for maximizing working capital returns, one you can use to guide decisions while recognizing the unique dynamics of every vendor relationship.

Digital solutions are another avenue to help manage DPO. Virtual cards pay the vendor before you pay your bank, giving you a float. Rebates and terms from the card issuer may vary based on the timing of your payments. Supply chain finance with a third party is another option. With careful analysis to compare options, it becomes possible to find hidden value. 

Robust and predictable liquidity is the ultimate goal. To get there, the treasury team needs strong data strategies and analytics. The right forecasting and scenario analysis capabilities create real-time cash visibility. Being able to share data among the treasury system and other systems in the organization is also important. System links and APIs should be automated and seamless. 

“You need to have the analytics that will allow you to identify opportunities to find value in the management of cash flow,” Erol Aspromatis, Senior Business Director, Treasury Management Go-to-Market at Capital One, said on the webinar. “Without data and analysis, you are making decisions in the dark.” 

Throughout these efforts, mitigating risk and preventing fraud are a primary concern. Centralized cash management and controls will help to reduce risk while also serving analysis, forecasting and automation objectives. Clearing away idle accounts is good practice.  

With a clear picture of how funds move through the business, it becomes possible to find trapped cash and increase yields on reserves. Proper allocation of liquidity across banking and investment products will unlock value. 

One way to organize this process is to divide cash into three tiers: 

• Tier 1—Operating cash used for ready liquidity in the range of one to three months 

• Tier 2—Core cash for liquidity needs across three to 12 months; managed with incremental yield in mind 

• Tier 3—Strategic cash for a longer-term horizon, one to two years; managed for total return and incremental yield

Across this entire framework, the treasury team will need to develop strong relationships with banking, finance and technology partners. The ability of your partners to integrate their technology with yours will influence the automation and analytics your team needs. More advanced solutions make it easier to digitize receivables and deploy all the tools in the arsenal to speed payments and improve DSO. More sophisticated virtual card offerings may be important to achieve payables objectives. 

Beyond all of that, the right partners should offer both strategic guidance and practical solutions that help optimize working capital. Partnerships with providers like Capital One Trade Credit can give businesses greater flexibility to manage payables, strengthen liquidity and reduce operational risk.

In today's unpredictable economic environment, a reactive approach to treasury management is no longer sufficient. By proactively optimizing receivables, strategically extending payables and maintaining a sharp focus on cash flow analytics, treasury teams can do more than just navigate uncertainty—they can build a foundation of financial resilience. Leveraging strong banking partnerships and modern digital tools is key to unlocking this value. Ultimately, these disciplined efforts transform working capital into a strategic asset that not only protects the business from volatility but also positions it to seize opportunities and thrive.

 

Explore how Capital One Treasury Management Solutions can help your business strengthen liquidity and build financial resilience.