Medium-sized companies are planning ahead for the introduction of Basel III by increasing their room to manoeuvre in terms of liquidity now. More than half of all companies have introduced more rigorous payment reminder mechanisms (59 per cent) and reduced stock holding (45 per cent). These are the areas in which the companies see the greatest potential for the future. These figures are from the results of a representative study conducted by Deutsche Bank among German Mittelstand companies.
The objective of systematic working capital management is to reduce capital lockup within a company and increase its liquidity, with measures such as changes in payment reminder procedures, reduction of stock holding or shortening payment terms. In this way, companies can avoid liquidity bottlenecks, increase their returns and reduce their debts.
When Basel III introduces stricter capital requirements, banks will need to keep more capital resources available when granting loans and ensure that refinancing will take place within the period prescribed. In the medium term, this may mean that the range of loans on offer from some banks may be reduced and additionally become more expensive.
“The implementation of Basel III may lead to tight spots in terms of financing for medium-sized compaines with lower creditworthiness”, said Cornel Wisskirchen, Co-Head German Mid Caps. “Medium-sized companies who have done their homework will see it pay off when Basel III takes effect. Companies should be focusing on strengthening their equity basis. Systematic working capital management can make an essential contribution to this. Finally, companies should be aiming for solid financing by means of long-term loans and capital market instruments, or instruments close to the capital market.”
85 per cent of the companies surveyed consider working capital management to be important or very important. The majority of the companies (70 per cent) already have systematic working capital management in place, which is mostly taken care of by the finance department (43 per cent) or by executive management (39 per cent).
86 per cent of the companies intend to optimise their existing working capital management. The survey participants see their greatest potential for cost savings in the reduction of trade receivables (72 per cent), in making full use of payment terms with suppliers (66 per cent) and in reducing stock holding (64 per cent).
The study encompassed interviews with 200 companies. Financial decision-makers in 200 companies with annual revenues of more than EUR 25 million were interviewed.
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