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High interest rates demand fresh thinking on company finances Four ways corporate treasury departments can improve financial security in this unfamiliar environment In any business, adapting to changing market conditions is critical to long-term prosperity. Corporate CFOs and treasury departments should take that advice to heart, as nearly two years of rising interest rates require new approaches to managing the company coffers. “Interest rates have been low for so long that many of today’s finance professionals weren’t even in the workforce the last time high rates were an issue,” said Marica King, treasury sales associate at BOK Financial®. “What this means for businesses is they have to think differently about how they optimize their working capital, debt and liquidity.” It was 2007 when America last saw a Federal Funds rate over 5.0%. From late 2008 through mid-2017, the rate never rose above 1%. But since early 2022, the Federal Reserve has hiked rates aggressively, attempting to stem rampant By BOK FINANCIAL
inflation in the aftermath of the COVID-19 pandemic. As of January 2023, the rate was 5.25% to 5.5%, with few economists predicting a decrease any time soon. “On one hand, higher interest rates can be challenging for companies who need to borrow money. But high rates also create new opportunities to generate stronger returns on bank deposits and liquid investments,” she said. A Confluence of Curveballs Of course, interest rates are only one factor out of many affecting the fortunes of companies large and small. Inflation over the past two years has made supply costs higher and led many customers to put purchases on hold, creating a cash crisis for the organizations caught in the middle. With the addition of ongoing supply chain issues, geopolitical uncertainties and recent turmoil in the banking industry, many companies are seeking new solutions to maintain financial resilience. “We think the top three priorities for most companies should be safety, liquidity and yield, in that order,” said King. “These are always important goals, but given current economic conditions, companies may need to make some adjustments to their long-held strategies.”
30 The Acumen
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