No one knows what the future holds is a truism for the ages. But it is also true. What today’s growth companies do know is that access and strategic use of working capital is vital to navigating unforeseen market changes and responding with agility to business opportunities.
These growth businesses, defined by the industry as “middle market” companies, range in size from $100M to $1B in annual revenue, with anywhere from 500 to 10,000 employees – and they wield significant influence in driving economic growth, outnumbering large enterprises by a ratio of 9:1. However, as Visa’s recent Working Capital Index survey of nearly 1000 middle market executives shows, when it comes to access to funding, growth corporates are often overlooked.
Access to working capital remains a persistent challenge for growth corporates
The recent rise in interest rates, persistent global supply chain issues and rumours of an inconsistent economic outlook have impacted the cost and accessibility of traditional financing for middle market businesses. According to a 2022 report, investments in middle market companies from private equity firms have drifted downward over the past 10 years, while lending to middle market companies has fallen nearly 60% over the past year. This comes as several major macroeconomic factors shape the working capital priorities of today’s growth corporates. Economic uncertainty is driving growth businesses to rethink their finances and manage costs to plan for what lies ahead. According to those surveyed, they are also seeking flexibility from their working capital, so it’s there when they need it.
Working capital can solve planned and unplanned cash flow shortfalls, whether smoothing over irregular sales, planning for seasonal business cycles, addressing staffing shortages or even taking advantage of favourable product prices to optimise production costs. But in the face of rising borrowing costs, middle market companies also require diverse and cost-effective strategies to maximise cash flow and working capital.
To access these vital funds, embracing secure and efficient digital solutions for global money movement is the key to extending payables and accelerating receivables.
The role of financial institutions in elevating middle market companies
Given their size and complexity, middle market companies unsurprisingly require a level of resources and expertise from financial institutions similar to that of large enterprises. With the large number of business-to-business transactions occurring between buyers and suppliers, we might assume middle market companies have fully automated, integrated, and streamlined financial and payment processes. Yet, the reality is that this segment continues to be underrepresented, facing challenges relating to cash flow and working capital.
Middle market companies tend to fly under the radar of banks and technology companies that may have solutions for smaller companies with less complex business operations or larger companies with complex operations and a broad finance team of CFOs, treasurers, and controllers. Many financial institutions misunderstand their distinct needs, characteristics, and preferences, leaving areas for optimisation underdeveloped. Bridging this gap in understanding can enable middle market companies to access working capital and find opportunities for expansion. After all, what research shows is that US middle market companies maintain long relationships with their banking institutions, for an average of more than 17 years.
Liquidity has emerged as a top priority for many middle market companies, underscoring the importance of efficient cash flow and working capital management. These growth companies are particularly focused on embracing digital solutions for global payments that offer streamlined and secure payment methods. Simultaneously, identifying and mitigating risks associated with fraud remains a paramount concern, which requires rigorous measures to safeguard the integrity of every transaction and protect the corresponding data.
Financial institutions can play a crucial role in meeting these priorities. Offering automation and tech integration solutions can enable these growth companies to check their cash position and forecast future cash flow more accurately. Offering digital tools with the ability to synchronise data across multiple platforms in real-time can provide enhanced visibility. When middle market companies are presented with fully integrated technologies tailored to their unique needs, they can eliminate the need for static and disconnected payment options like check payments. Instead, they can leverage automatic tools that improve cash flow management, provide quicker access to working capital, and reduce administrative costs.
Leveraging digital tools to bridge the divide with Visa
Growth and resilience are both indicators that the performance of middle market companies can outpace the capabilities of their business systems, processes and payment solutions. Additionally, the current uncertain economy has underscored the importance of collaborative commerce that advances working capital tools. Modern digital solutions must step up to deliver integrated, easy-to-use and vertical-specific offerings to meet these evolving needs and level the playing field for these businesses.
In recognition of its potential within this market segment, Visa has developed a comprehensive set of treasury and working capital solutions to meet middle market companies where they are. Through its newly launched Corporate Growth Business Working Capital Index, Visa provides deeper insights across the ecosystem, extending a forward view of the evolving priorities that are top of mind for middle market finance leaders. The index also provides the dollar impact of using alternative working capital solutions, highlighting to banks the next steps in addressing middle market needs.
These growth companies are poised to become the new enterprises as they continue to scale new territories and reach new global audiences. To further support this growth, Visa has partnered with financial institutions and fintechs to energise corporate growth and offer advanced solutions suitable for the market segment. These partnerships leverage digital innovation to create new solutions that amplify the reach of global money movement across bank accounts, wallets, and cards.
As growth corporates continue to navigate the myriad of challenges in today’s economic landscape, access to working and managing cash flow continues to be a significant pain point. While this segment remains underrepresented among large and small businesses, they are serving the economy in a meaningful way; they could even be considered the engine of the supply chain.
As middle market companies grow, they need advanced financial infrastructure to keep up. Financial institutions are uniquely positioned to transform payments through automation and connected tools. To support this transformation, Visa’s Working Capital Index provides deep insights into how CFOs worldwide manage their working capital needs. Visa’s commitment to partnering with banks and fintechs will continue to redefine supply chain dynamics and offer buyers and suppliers a range of payment options that allow for quicker cash flow. These same resources and tools can also help middle markets to power economic growth.
