By: Dariella Gentile


We are living through an extremely challenging world situation. When we thought that we were already coming out of the effects of the COVID pandemic, we are now facing one of the most intense inflations in recent times, exacerbated by a context of war in Europe, which has sharply increased energy prices and of food around the world. Central banks have reacted by raising interest rates to try to contain this inflationary spiral and, in parallel, restrictions continue in global supply chains due to structural logistical problems, a lockdown in China due to the new outbreak of the pandemic, high prices of freight, among others.

In such a convulsed world, business management presents new challenges, and particularly financial management presents important challenges. Just to cite an obvious example, this global context forces companies to increase their stock levels and the consequent capital immobilized there, not only due to the growth in the prices of raw materials but also due to the expansion required in the days of safety inventory to be able to meet the needs of its clients in a timely manner, taking into account the logistical problems mentioned above. This factor, in addition to increasing the financing needs of working capital, also impacts the generation of profits of the companies because, although the sale prices have also increased, not all the increase in costs is passed on to the final customer.

In this order of ideas, we see two extremely important action fronts that financial management can implement to improve the cash generation of organizations:

  • Increase in the amount, diversity and term of short-term financing sources, both open and traditional lines of credit, as well as financing directed to accounts receivable (invoices and bills) and supplier payments (for example , confirming). It is important to take into consideration that with respect to the directed financing sources, there is the advantage of a greater appetite and probability of success in the approval by the potential financiers, given that the use of the resources disbursed through these credit facilities it has a clear, specific and more controlled destiny. In addition, there is a greater presence of other actors complementary to banking, such as investment funds, which undoubtedly can very well meet the need for greater liquidity of companies with their special service platforms for this segment. On the other hand, and continuing with the directed financing sources, these have another additional benefit, depending on the way they are implemented, and that is that they may not affect the credit lines of the companies or even mitigate the calculation of the financial debt, for effects of the calculation of the covenants or financial safeguards to which they have committed.
    However, these financing alternatives will generate value for companies to the extent that the working capital assets they finance (mainly accounts receivable and inventories) are healthy and of quality, and also do not generate indicators of over-indebtedness, which usually are measured against EBITDA and equity levels. In this sense, the good management of the financial area plays a key role in determining when it is necessary to resort to a complementary injection of fresh equity resources, depending on the case, in order to protect the soundness and continuity of the business.

  • Reprofiling in the conditions of long-term structural debt is an alternative that should be evaluated in cases where the generation of EBITDA is not comfortably covering the service of the structural debt (principal plus interest), in such a way that they can accommodate their future amortizations to the new reality of cash generation. Likewise, it should also be used to review, or resize, if applicable, the covenants or financial safeguards to which they have committed in the past, also evaluating the structure of guarantees granted to financiers.
    In this last point I mean that the current structure of guarantees should be reviewed, as it is conceived, in terms of the instruments used (mortgages, trusts, etc.), wondering if they are efficient for the current moment of the company and for the participation of various entities, in such a way as to facilitate a more expeditious and timely approval process for new requests made.

All the actions mentioned above require a solid financial area, which is capable of analyzing the company’s situation in light of the context of our times and of the corporate strategy, constantly rethinking its strategies and having the necessary tools for analysis and decision-making. of decisions, in order to propose and execute the necessary action plans, in the shortest time possible.

Last but not least, none of this is possible without fluid and permanent communication on two levels, first, between the company’s top management and shareholders and, second, between the CFO and the financial entities, which will always value transparency and timeliness in the presentation of relevant company information, thus generating greater trust and, consequently, better and more timely response times