Rates volatility, supply chain risks, and working capital

As businesses navigate the current economic landscape, their treasurers are facing an increasingly complex and volatile environment. Two key areas of concern are the implications of high interest rates and supply chain risks. These factors can impact a company's liquidity position and working capital, making effective management of these areas of critical importance.

High Interest Rates

Interest rates are a crucial component of the financial system, influencing borrowing costs, savings rates, and investment returns. When interest rates rise, there are implications for treasurers, with two primary ways that high-interest rates can impact a business’s finances. 

Firstly, the cost of refinancing debt increases. As interest rates rise, the cost of borrowing for companies also goes up. With 78.8% of investment-grade U.S. corporate debt maturing this year, the impact of higher borrowing costs for companies to refinance their debt can impact their cash flows and profitability. Treasurers need to assess the implications of rising interest rates on their organization’s debt servicing costs and develop strategies to mitigate the impact. At times like this, access to excess cash reserves and optimizing receivables management become paramount.

Secondly, treasurers need to re-evaluate their hedging strategies. These could be both on and off-balance sheet. The more obvious hedges companies can take advantage of are where companies enter derivative hedging contracts to manage interest rate risk. When interest rates increase, the value of these contracts may change triggering calls on cash. There also remain the need for hedging embedded risks in a company’s supply chain.

Supply Chain Risks

The pandemic has disrupted global supply chains, increasing the focus on diversifying the supplier base and near-shoring production centers. However, these strategies also come with their own set of potential risks, such as increased freight costs, fewer discounts due to lower individual purchase orders and foreign exchange risk. Adding to this could be the differing approaches by central banks in their response to inflation and subsequent rate hikes which have increased volatility in the foreign exchange markets. All of this could trigger re-pricing clauses in supply contracts, increasing the demand for cash to fund payables.

Managing Liquidity Positions and Working Capital

Given the uncertainties in the current economic environment, treasurers should adopt a proactive approach to managing their liquidity positions and working capital. Some strategies that treasurers could use to manage their liquidity positions and working capital effectively include:

1. Improve visibility on cash flows and off-balance sheet liabilities

Treasurers should have a clear understanding of their cash flow requirements and develop robust cash flow forecasting models to manage their liquidity positions effectively. Treasurers should work closely with the business development and procurement teams to advise them on the re-pricing risks embedded in supply contracts and to thereafter include these contingent liabilities into their cash flow projections. These should be considered when procurement might not be able to lock in pricing for future deliveries creating uncertainty for cash outflows and their timing.

2. Optimize working capital across the supply chain

Treasurers should work closely with their procurement and supply chain teams to optimize their working capital, as they could potentially reduce the amount of cash tied up in inventory and accounts receivable and have plans ready to extend payables if required.

3. Work closely with suppliers

Given the supply chain risks, treasurers may work closely with suppliers through their procurement teams to ensure they are meeting their contractual obligations and to develop contingency plans in case of disruptions and shipping delays even as their companies execute plans to diversify their supplier base.

4. Consider alternative financing options

Treasurers could consider alternative financing options, such as factoring or supply chain finance, to improve their liquidity positions. Smaller companies could benefit from supplier financing if the supplier has lower financing costs. For smaller ticket items, corporate purchase card programs could be considered.

5. Work closely with their bank

Treasurers should review their bank’s capital, short term liquidity metrics, and discuss their lending capacity. Treasurers should ensure that their bank is aware of any refinancing or new financing plans.


The current economic environment is characterized by high interest rates and supply chain risks, making it critical for treasurers to manage their liquidity positions and working capital effectively. By focusing on cash flow forecasting, optimizing working capital, refocusing on supply chain risks, and considering alternative financing options, treasurers can mitigate the impact of these risks on their working capital in an effort to ensure that their organizations remain financially stable.