From trapped liquidity to cash in motion: working capital excellence in LATAM

Third installment in a series on liquidity management in Latin America

In the first installment, we explored regulatory complexity as one of the major obstacles to liquidity management in LATAM. In the second, we addressed how FX volatility erodes margins and complicates treasury decision-making across the region. In this third and final installment, we focus on a challenge that ties them all together and that often determines whether a treasury function is truly delivering strategic value: working capital optimization.

For multinational treasury teams operating in LATAM, working capital is much more than an accounting metric. It is the most direct expression of how efficiently the organization converts operations into cash, and one of the few levers that can simultaneously improve liquidity, reduce financing costs, and strengthen resilience against macroeconomic shocks. In a region where access to credit is expensive, currencies are volatile, and regulation can restrict the free movement of cash, every day of working capital tied up in the operation has a real and measurable cost.

The context: why working capital matters more in LATAM

In mature markets, working capital optimization is often viewed as a continuous improvement exercise. In LATAM, it is a financial necessity. Three structural conditions of the region make it so:

• High cost of capital. Local interest rates in countries such as Brazil, Mexico, Colombia, or Argentina remain higher than in the U.S. or Europe. Every additional day of DSO, every excess inventory unit, and every prepayment to suppliers represents working capital financed at higher rates.

• Long and uneven collection cycles. Commercial practices vary widely across countries, but it is common to find payment terms of 60, 90, or even 120 days, often combined with informal extensions. These extended terms stretch the cash conversion cycle and amplify FX and credit risk.

• Restrictions on the movement of cash. Capital controls, repatriation requirements, and limits on intercompany lending mean that cash generated in one country cannot always be redeployed where the group needs it most. The result is a phenomenon that many regional CFOs know well: trapped cash, i.e., liquidity that exists on paper but is not operationally available.

In this environment, working capital is not just a measure of operational efficiency. It is a strategic source of liquidity, often more accessible, faster, and cheaper than any external financing alternative.

The three main working capital challenges for corporate treasury in LATAM

Working capital management in LATAM tends to face the same root issues across industries and company sizes. Three stand out for their recurrence and financial impact.

1. Fragmented visibility across receivables, payables, and inventory

The first challenge is structural: most multinationals operate with a combination of local ERPs, regional shared service centers, and country-specific banking relationships. As a result, treasury rarely has a single, real-time view of:

• Outstanding receivables by customer, country, and currency

• Payables and upcoming disbursements by supplier and entity

• Inventory levels and their financial impact on the cash conversion cycle

Without consolidated visibility, working capital decisions are taken locally, with limited coordination, and based on lagging indicators. This fragmentation makes it nearly impossible to identify where cash is truly tied up and where the highest-impact opportunities lie.

2. Suboptimal commercial and payment terms

In many LATAM organizations, payment terms with customers and suppliers have been negotiated over years by commercial or procurement teams, with limited input from treasury or finance. The consequences are well known:

• DSO exceeds industry benchmarks, often without a corresponding commercial benefit.

• DPO is artificially low because suppliers, especially SMEs, demand faster payment due to their own financing constraints.

• Inventory policies are designed to mitigate supply chain risk, but rarely calibrated against the cost of carrying that inventory in a high-rate environment.

The combined effect is a cash conversion cycle that is structurally longer than it needs to be, financed with expensive local debt or trapped intercompany balances.

3. Trapped cash and limited intercompany mobility

Even when working capital is generated efficiently, moving it across borders in LATAM is rarely straightforward. Capital controls in countries like Argentina, foreign exchange registration requirements in Colombia, tax-driven restrictions on intercompany loans in Brazil, and remittance approvals in several other jurisdictions create real frictions.

For regional treasury teams, this reality means that headline cash balances can be misleading. The relevant question is not how much cash the group has, but how much of it is actually deployable, and at what cost in terms of taxes, FX conversion, and regulatory compliance.

Key indicators to monitor for working capital performance

A modern treasury function in LATAM should monitor working capital with the same discipline applied to liquidity or FX risk. The following indicators provide a balanced view across the cash conversion cycle:

• DSO (Days Sales Outstanding): by country, customer segment, and currency. Sharp variations often anticipate credit deterioration or commercial concessions that have not been formally approved.

• DPO (Days Payable Outstanding): monitored alongside supplier health. Excessively long DPO can erode strategic supplier relationships and increase supply chain risk.

• DIO (Days Inventory Outstanding): especially relevant in inflationary economies, where inventory may appear to gain value but actually represents a costly use of capital.

• Cash Conversion Cycle (CCC): the integrated view of DSO + DIO − DPO, ideally tracked at entity, country, and consolidated levels.

• Trapped cash ratio: the share of total cash balances that cannot be repatriated or redeployed in the short term without material cost or regulatory friction.

• Cost of working capital financing: the implicit financial cost of funding the cash conversion cycle, calculated using local rates by country and currency. This metric is particularly powerful in LATAM because it translates operational inefficiencies into real financial impact.

Strategies for working capital optimization in LATAM

Organizations that have meaningfully improved their working capital position in the region tend to share a structured approach that combines governance, process, and technology.

Establish working capital as a cross-functional priority. Treasury, finance, commercial, and procurement teams must operate under shared KPIs. Without this alignment, every initiative tends to be undone by decisions taken elsewhere in the organization.

Segment customers and suppliers strategically. Strategic customers may justify longer payment terms; critical suppliers may benefit from faster payment in exchange for better commercial conditions. Segmentation enables differentiated policies rather than one-size-fits-all rules.

Leverage receivables finance and supply chain finance programs. In LATAM, where the cost of capital is high and SMEs often face restricted access to credit, structured programs can unlock significant value:

• Receivables finance and factoring allow companies to accelerate collections without straining customer relationships, converting DSO into immediate liquidity.

• Payables finance (supply chain finance or reverse factoring) enables suppliers to be paid early at the buyer's cost of funding, while the buyer maintains or extends payment terms. This arrangement is especially impactful in markets where suppliers' financing costs are several percentage points higher than the buyer's.

• Dynamic discounting uses the company's own cash to capture early-payment discounts, resulting in lower cost of goods sold and margin improvement.

Optimize intercompany flows and netting. Where regulation allows, intercompany netting, in-house banks, and centralized payment factories reduce the number of cross-border transactions, lower FX conversion costs, and improve visibility. Even in restrictive jurisdictions, partial netting and coordinated funding strategies can materially improve cash mobility.

Manage trapped cash actively. Trapped cash should not be treated as a passive constraint. Leading treasury teams in LATAM build a structured playbook that includes dividend planning, royalty and service fee structures, intercompany lending where permitted, and local short-term investment policies to ensure that even restricted balances are generating returns aligned with the local cost of capital.

Automate and standardize working capital reporting. Manual consolidation across entities and ERPs introduces delays and errors that obscure the real working capital position. Automation enables faster cycles, more reliable data, and the ability to act on opportunities before they disappear.

The role of technology in working capital management

Treasury and working capital solutions such as Kyriba provide specific capabilities to address the challenges described above:

• Real-time visibility across cash, receivables, and payables, consolidated across entities, countries, and currencies in a single view.

• Receivables Finance and Supply Chain Finance modules that enable companies to launch and scale structured programs with multiple banks and funders, supporting both buyer-led and seller-led models.

• Payments and bank connectivity with regional banks in LATAM, allowing standardized execution of disbursements, collections, and intercompany transfers.

• Cash forecasting and scenario analysis that integrate working capital assumptions, FX rates, and regulatory constraints into a single planning view.

• Configurable dashboards and KPIs for DSO, DPO, DIO, CCC, and trapped cash, with automatic alerts when thresholds are exceeded.

Technology impact should also be measured in tangible outcomes. In working capital and payments implementations, Kyriba clients have reported productivity gains of more than 65% through automation, significant reductions in the cash conversion cycle, and measurable improvements in the cost of funding their operations. When combined with the visibility and risk management capabilities discussed in the previous installments, these results show how an integrated treasury platform can convert working capital from an operational metric into a strategic source of liquidity.

Conclusion: from trapped cash to working cash

In LATAM, working capital is one of the few financial levers that treasury teams can influence directly, consistently, and with measurable impact. In a region where capital is expensive, currencies are volatile, and regulatory constraints limit cash mobility, optimizing the cash conversion cycle is not a continuous improvement exercise; it is a strategic priority.

The organizations that lead in this space share a common pattern: they treat working capital as a cross-functional discipline, supported by clear policies, structured financing programs, and technology that provides real-time visibility and execution capabilities. They do not simply measure DSO, DPO, or trapped cash. They actively manage them.

This series begins by addressing the regulatory complexity that defines treasury operations in LATAM, continues with the FX volatility that pressures margins and decision-making, and closes with working capital as the lever that ties everything together. The common thread is clear: in a region defined by uncertainty, treasury teams that thrive are those that move from reaction to anticipation, from fragmentation to integration, and from visibility to control.

For corporate treasury in LATAM, the opportunity is significant. The combination of disciplined working capital management, appropriate financing instruments, and a unified technology platform can release liquidity that is already inside the organization, reduce dependence on expensive external funding, and turn treasury into a true strategic partner for the business.