Company leaders remain largely confident in their organizations' abilities to manage cash and liquidity, despite a 9.5% decline in sentiment from 2020 polling and a moderate year-over-year increase in labor market concerns, according to a new Deloitte poll.

In May 2024, three-quarters (75.1%) of polled C-suite and other executives said they are confident in their organization's ability to manage cash and liquidity (40.5% = highly confident; 34.6% = somewhat confident), representing a 4.2% month-over-month decline in confidence compared to polling conducted in April 2024 and a 9.5% decrease in confidence from October 2020 when Deloitte first began polling on this topic.

Even though high interest rates continue to be the most challenging for respondents' organizations in achieving target working capital levels, unease is growing somewhat among polled leaders regarding the tight labor market and risk profiles of customer bases, growing 3.5% and 1% respectively year-over-year. Comparatively, worries about rising goods inflation or "cost of goods sold" (COGS) are down 6.4% in year-over-year polling, while concerns regarding interest rates, which can affect the cost of credit or vendor payment terms, eased slightly by 3.4%.

"Four years ago, the unique operating conditions of the pandemic led to unusually high cash reserves, boosting confidence in liquidity management across many organizations. Today, we are likely witnessing a shift back to more traditional conditions," said Anthony Jackson, a Deloitte Risk & Financial Advisory principal and Cash & Working Capital Services leader, Deloitte Transactions and Business Analytics LLP. "It's important to note that despite the drawdown of these cash surpluses and other economic challenges, business leaders maintain significant trust in their organizations' financial management capabilities. To further enhance confidence in cash management, organizations should concentrate on controlling manageable factors and planning for uncertainties. For many, this will involve equipping finance and accounting teams with advanced tools to better manage cash flow and safeguard the business."

Most respondents said that their organization's finance and accounting function will prioritize improvements in financial forecasting and reporting (23.5%) and streamlining financial operations and processes (21.8%) in the next 12 months. Others reported that their finance and accounting functions plan to prioritize working capital management enhancements (13.7%) and the implementation of new financial technologies like AI, automation and cloud (15.3%).

Generative AI gaining as a tool for working capital management

The poll also found that the use of Generative AI to support working capital management is in its early stages, with many organizations currently exploring it for future use. While only a few (3.9%) polled executives say their organization is currently extensively using Generative AI for working capital management, 11.4% say their company is using the technology in a limited fashion while another 31.6% are exploring the use of Generative AI tools for future working capital management needs. This indicates that the momentum is shifting to more companies experimenting with its benefits.

"Deloitte sees immense potential in leveraging Generative AI for working capital management even though use cases are still broad and in early testing," said Wanya du Preez, a Deloitte Risk & Financial Advisory managing director specializing in cash and working capital services, Deloitte Transactions and Business Analytics LLP. "Organizations looking to use Generative AI to enhance working capital need to carefully assess its financial impact, ensuring that the technology's benefits outweigh its costs. This includes considering not only the initial investment but also secondary and tertiary expenses like upgrading data centers and training for financial professionals. Companies will also need to address potential risks related to data security, regulatory compliance, and the need for continuous AI system maintenance, measures which are crucial to delivering meaningful AI insights that can positively impact cash flow and liquidity management."

Nearly one-quarter of C-suite and other executives (24.9%) say that cash management could benefit the most from Generative AI-powered working capital tools, followed by receivables management (15.4%), payables management (15.3%), and inventory management (14.2%).