Eurozone companies recorded growth for the third consecutive month.
The rise was driven primarily by better-than-expected economic data from Germany's services and manufacturing sectors, according to the Wall Street Journal.
That's good news for a region that has suffered for years from an economic slowdown caused by rising interest rates and soaring food and energy prices following Russia's invasion of Ukraine.The positive economic news is also undoubtedly being welcomed by executives at what Visa and PYMNTS Intelligence label “growth companies” — mid-market organizations generating between $50 million and $1 billion in annual revenue that are often overlooked by smaller companies and larger corporations.
We recently published a series of reports examining the impact of working capital on growing companies around the world.
The 2023-2024 Growth Working Capital Index: Europe focuses on mid-market companies in Europe and finds that 79% of companies have used working capital solutions in the past year, a higher percentage than almost every other region surveyed.
The report, based on a survey of more than 100 CFOs or financial executives, primarily from mid-market companies, and our global survey of 873 CFOs and financial executives, found that European growth companies are primarily leveraging external capital solutions to obtain favorable costs of capital or to underwrite new business or partnerships.However, PYMNTS Intelligence also found that many growth companies are using their capital inefficiently.
But not all: Top-performing mid-sized companies in Europe, like top performers in the other regions analyzed, use external working capital solutions primarily for strategic purposes, not as a tactical stop-gap measure. (Other regions surveyed include Asia Pacific (APAC), Central Europe, Middle East, and Africa (CEMEA), Latin America and the Caribbean (LAC), and North America.)
In Europe, 73% of top performers used working capital for growth initiatives, while 24% funded projected cash flows. Interestingly, none of the top European performers used funding solutions to address unanticipated gaps or opportunities, a strategy that does not correlate with best practice efficiency.
Conversely, 37% of lower-performing growth companies in Europe used external working capital solutions last year to address urgent needs, compared to 19% of mid-market companies. In other words, financial imperatives thwarted the best intentions of European mid-market companies, causing unexpected or urgent needs to take priority over strategy.
While it remains to be seen whether Europe's recent economic recovery will result in fewer unexpected boardroom emergencies, it could allow these mid-market companies to stick to their strategies, including how they will fund their working capital going forward.
When Europe's top growth businesses were asked how they planned to access financing over the coming months, letters of credit or bank guarantees were particularly popular, with 30% saying they plan to rely on this financing method, compared to just 5.1% of mid-sized European businesses overall planning to use letters of credit or bank guarantees.
Similarly, while 22% of top-performing respondents plan to leverage third-party revolving credit solutions, only 4.6% of growing businesses across the region plan to do the same — a difference that suggests increased use of either could improve performance.
Conversely, while 33% of European growth companies have accessed working capital loans, less than 7% of top performers do so, suggesting that lower-performing growth companies may be over-reliant on this solution.
While it's too early to tell whether Europe's gradually improving economic conditions will deliver windfall benefits to mid-market companies in the region, it's not too early for executives at these organizations to find out which working capital solutions top companies plan to use to avoid being left behind.
