The Pulp & Paper Cash Squeeze: Why Working Capital Has Become a Strategic Priority

For decades, operational success in the pulp and paper industry was measured by throughput. Mills focused on maximizing machine utilization, spreading fixed costs across higher production volumes, and shipping as much product as possible. Today, however, another metric is moving into the boardroom: cash conversion.

The global paper and paperboard packaging market continues to show steady growth. According to MarketsandMarkets, the sector is projected to expand from USD 391 billion in 2025 to USD 452 billion by 2030, driven by demand for sustainable packaging, e-commerce, and regulations limiting single-use plastics. Yet, beneath this positive market outlook, producers are facing a more complex financial reality. Revenue growth no longer translates into stronger cash generation as reliably as it once did.

Margin Pressure Is Reshaping the Industry

Recent research by McKinsey & Company describes the industry's current environment as a structural reset rather than a temporary downturn. Demand has normalized after the post-pandemic surge, while overcapacity in several grades, volatile raw material prices, and elevated financing costs continue to pressure profitability.

Fiber remains the industry's largest cost component, accounting for roughly 25 to 70 percent of production costs depending on integration and geography. Energy typically represents another 10 to 25 percent, chemicals 8 to 25 percent, and logistics between 10 and 15 percent.

Capacity utilization has also become increasingly important. As utilization rates decline toward 70 percent, fixed costs are spread across fewer tons of production, significantly increasing unit costs. Traditional efficiency measures—including procurement optimization, lean manufacturing, and energy management—remain essential, but many producers are finding that operational improvements alone are no longer sufficient to protect margins.

As a result, working capital management is becoming a strategic lever rather than simply a financial reporting metric.

The Ripple Effect Across Supply Chains

Cash pressure rarely remains confined to a single organization. When manufacturers seek to preserve liquidity, one of the most common responses is extending supplier payment terms. While this improves the buyer's short-term cash position, it can transfer financial strain to suppliers that often operate with smaller balance sheets and higher borrowing costs.

This dynamic has become increasingly relevant as the industry continues to consolidate and financing conditions remain relatively tight in many markets. Protecting one company's liquidity at the expense of supplier stability can introduce new risks into the supply chain, particularly for critical suppliers of fiber, chemicals, maintenance services, and transportation.

Consequently, many organizations are evaluating approaches that improve liquidity for both buyers and suppliers rather than shifting financial pressure from one party to another.

Supply Chain Finance Moves into the Spotlight

Supply chain finance (SCF) has emerged as one of the tools companies are using to address these challenges.

Unlike conventional payment-term extensions, SCF programs allow suppliers to receive early payment on approved invoices through financing providers, typically at rates linked to the buyer's stronger credit profile. Buyers, meanwhile, retain their negotiated payment terms while improving working capital efficiency.

Successful implementation depends on more than financing alone. Invoice visibility, standardized approval workflows, ERP integration, and automation are critical for scaling programs without increasing administrative complexity.

According to data provided by Monkey, a technology provider specializing in working capital solutions for the forest, paper, and packaging sector, its platform supports supply chain finance programs involving more than USD 14 billion in financed payment volume and over 4,000 suppliers across multiple producers, including companies such as Sylvamo, Arauco, CMPC, Eldorado Brasil, Veracel, LD Celulose, and Adami. The company reports that participating programs have collectively achieved significant improvements in supplier payment flexibility while maintaining buyer liquidity.

While these figures reflect the experience of a single platform provider, they illustrate the growing role technology is playing in working capital management across the industry.

Case Study: Suzano's Multi-Funder Financing Model

One example of supply chain finance at scale is Suzano, which has implemented a program supported by Monkey's technology platform.

The program combines two financing structures. Strategic suppliers can participate in a buyer-funded dynamic discounting model, while a broader supplier base accesses financing through a multi-funder reverse auction. Multiple financial institutions compete in real time to finance approved invoices, allowing financing rates to be determined through market competition rather than bilateral negotiation.

According to program data provided by Monkey, Suzano's initiative has processed more than USD 1.78 billion in payment volume across approximately one million transactions. More than 1,600 suppliers have been onboarded, with around 60 percent actively participating in the program. The company reports that payment terms improved by approximately 33 percent, generating an estimated cumulative cash-flow benefit of USD 56 million.

An additional feature of the program is funding diversification. By engaging multiple financial institutions rather than relying on a single lender, the financing structure continued operating through periods of elevated interest rates and regulatory changes in Brazil, including adjustments to the country's financial transaction tax (IOF). Although these conditions are specific to the Brazilian market, they provide an example of how diversified funding structures may improve resilience during periods of market volatility.

The project received international recognition in 2025, earning the Best Use of Technology for a Working Capital Project award at The Working Capital Awards.

Automation Enables Scale

Technology is becoming an increasingly important component of financial operations across the packaging industry. McKinsey's 2026 research found that 43 percent of packaging companies have already adopted artificial intelligence in procurement, while 37 percent are applying it within supply chain and logistics functions.

Working capital management follows a similar trajectory. Digital platforms that automate invoice processing, approval workflows, reconciliation, and accounting integration reduce manual effort while providing real-time visibility across payment cycles.

These capabilities allow treasury, procurement, and suppliers to access the same operational information, improving transparency while reducing administrative workloads that can otherwise limit the scalability of financing programs.

Looking Ahead

The financial environment facing pulp and paper producers has fundamentally changed. Persistent cost volatility, competitive pricing pressures, and more disciplined capital allocation are making working capital an increasingly important component of operational strategy.

While no single financing model fits every organization, industry experience suggests that collaborative approaches capable of improving liquidity for both buyers and suppliers can strengthen supply chain resilience during periods of economic uncertainty.

As producers continue investing in digital transformation, working capital management is likely to become more integrated with procurement, treasury, and supply chain operations. In an industry where operational efficiency has long been the primary competitive advantage, the ability to convert revenue into cash efficiently may prove equally important in the years ahead.