Miami – November 2, 2023 – Middle market businesses in Latin America & the Caribbean (LAC) hold tremendous potential to become the new enterprise giants of tomorrow as they continue to scale, show remarkable resilience and reach new global audiences.
As these growth corporates continue to navigate the challenges of today’s economic landscape, Visa (NYSE: V) announced its first-ever 2023-2024 Growth Corporates Working Capital Index (WCI), which examines the business conditions, needs and working capital requirements of these companies. The findings reveal that while these organizations face challenges securing working capital solutions, the LAC region has become a global leader in working capital solution utilization among growth corporates; 84% of growth corporates from LAC accessed working capital solutions in the past year, becoming the highest rate of utilization across regions analysed in the study.
The Working Capital Index highlights that 7 in 10 respondents from LAC said they were better able to meet customer demand and take advantage of opportunities with working capital solutions with 94% of these businesses projected to access external working capital solutions in 2024. The region also leads in growth corporates’ strategic use of working capital, with 41% using it for planned initiatives to grow their business, in turn receiving the greatest efficiency and driving the highest average index scores.
“It is thrilling to see that our region is taking the lead in adopting working capital solutions to fuel their growth, enhance operational efficiencies and respond with agility to business opportunities,” said Jose Luis Gonzales, head of Visa Commercial Solutions for Visa Latin America & the Caribbean. “These results show us that the health of this vibrant sector in LAC is very promising, and at Visa, we’re committed to helping these businesses thrive with the best digital money movement solutions and unique industry perspectives across the ecosystem, extending a forward view of the evolving priorities that are top of mind for middle market finance leaders.”
The study surveyed CFOs and treasurers of growth corporates — often denoted as middle market companies — that have unique needs and capabilities but often fall through the cracks between small businesses and enterprises with their purpose-built solutions. Although most banks tend to classify them as businesses generating between $50 million and $1 billion in annual revenue, this report digs deeper to determine what differentiates businesses that help drive economies and why they need the right working capital solutions to fuel their steady growth.
The benefits of accessing external working capital
Visa’s new Working Capital Index highlights that growth corporates from LAC view substantial benefits in accessing external working capital: more than 8 in 10 CFOs said working capital solutions enable growth corporates to achieve better cost of capital and payments terms when venturing into new partnerships and business initiatives. In addition, more than 8 in 10 also credit external working capital solutions for safeguarding the business from macroeconomic instability.
Additional findings from the WCI for Latin America include:
- External working capital solution choice in the LAC region depends more on industry than geography. Fleet and mobility growth corporates primarily accessed overdrafts and corporate cards. Commercial travel firms stand out for their high use of invoice factoring, while agriculture LAC companies relied mostly on working capital loans and bank lines of credit. The very few firms that could not access any working capital solution (4%) identified cost and lender requirements as barriers.
- Utilization or working capital for the explicit purpose of growing the business with planned initiatives is especially high among LAC fleet and mobility firms, with almost 6 in 10 citing this reason as the primary driver of their utilization — the highest across industries and regions in our analysis.
- The LAC region also exhibited above-average utilization of invoice factoring solutions across industries examined, with 11% accessing this solution the most often; in Central Europe, the Middle East and Africa (CEMEA), this share is 3%.
- Corporate virtual cards present a significant opportunity for LAC businesses as they were tapped by 8.3% of LAC growth corporates in commercial travel, 25% of those in fleet and mobility, and 16% in agriculture. Virtual cards’ use as a working capital option is expected to triple next year, with the most substantial increase projected for marketplace firms globally and those operating in the LAC region. Top performers are 35% more likely than the average LAC growth corporates to access corporate virtual cards next year, representing half of projected users.
- Bankers are the most popular sources of financing advice in the LAC region as 61% of firms in that region seek advice from bankers.
“Visa is focused on and investing in uplifting growth corporates – middle market businesses today that hold tremendous potential to become tomorrow’s enterprise giants,” noted Alan Koenigsberg, SVP, global head of large/middle market, treasury and industry verticals, Visa Commercial Solutions. “Visa’s goal with the 2023-2024 Growth Corporates Working Capital Index was to gain a better understanding of the impact of working capital solutions on the operational efficiency of these businesses. This report is an important benchmark for measuring the health of this vibrant business sector and the ability to align working capital solutions with the needs and expectations of the CFOs and treasurers who rely on them to grow their businesses.”
The 2023 Growth Corporates Working Capital Index ranks firms on a scale from 0 to 100, with 100 representing the perfect ratio of operational efficiency with the use of working capital solutions. The average working capital index (WCI) score for the 873 CFOs studied is 49, indicative of the broader misalignment of sector needs with available working capital options and access to them.
Looking ahead, majority of CFOs surveyed across regions expect more stable market conditions in 2024 and seem less concerned about an upcoming recession or supply chain frictions than in past years. They also expect business conditions to improve across the board. For that reason, CFOs seem more interested in expanding their use of working capital solutions to fund more strategic investments and drive growth.
Methodology
The 2023 Growth Corporates Working Capital Index, a Visa report, surveyed 873 CFOs and treasurers across five industry segments (fleet and mobility, marketplaces, commercial travel, healthcare/medical and agriculture), five global regions and 23 countries. PYMNTS Intelligence, a leading global research and data analytics firm, designed and conducted the study between March 9 and June 12 as well as developed the methodology to analyze and produce the index’s key findings. For more information about the WCI, please visit: https://visa-business-solutions.foleon.com/vbs/knowledge-hub/report-working-capital-index
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