Following a year-long stint of negative business optimism, Q4 of 2019 shone a glimmer of light at the end of the tunnel, which seems set to stay. 80% of CFOs are now more optimistic about the future compared to this time last year, and with that in mind here are three reasons why working capital should be prioritised in 2020.

1) Quick and easy liquidity is more difficult to access

Until now it has been relatively simple to ease one’s working capital position without traditional borrowing; push up creditor days. However, having been pushed to the brink of sustainability, creditor days are now falling. Consequentially, boosting working capital must come from tightening the receivables side by making meaningful reductions in days sales outstanding (DSO).

2) Risk appetite is up

Corporate risk appetite has hit a 4-year high as capital expenditure hits its first positive in the same time. As companies are set to scale up their capex, they will need increasing access to fresh funds in order to a) maintain continued investment b) to protect against the, albeit lessened, threat of uncertainty. Cutting the inefficiencies out of one’s existing working capital position will be the easiest way to generate this extra value.

3) Risk is receding

In addition to the appetite for risk rising, actual risk has receded. The effects of Brexit, increased global trade tensions, and economic weakness in Europe have all been eased with the latest round of economic data (Q4 2019). While risk is lower, companies should begin scrutinise their value chains and look for meaningful as well as marginal gains. Shortening the value chain through DSO, DIO, and DPO improvements will improve available capital levels at a time they are most required.