Liquidity is vital during a crisis and corporates are working harder than ever to get more out of their operating capital, as well as support their supply chains.


As the Covid-19 pandemic began ripping through global markets and economies, corporates acted quickly to ensure they had enough liquidity to protect their businesses, remembering the lessons learned from the 2007-09 financial crisis. And while not all crises play out in the same way, ready access to liquidity is one way for corporates to increase their chances of survival.

Corporates’ first response was a “flurry of drawdowns” against revolving credit facilities, early on in the pandemic, according to Matthew Davies, head of global transaction services, Europe, the Middle East and Africa (EMEA), and global co-head of corporate sales at Bank of America (BofA). “In the next phase, corporates were eyeing the relatively cheap debt in the markets and saw that they could lock in good long-term funding, which resulted in a bout of issuances, with some then deciding to pay back those credit facilities,” he says.

BofA, for example, raised $461bn in capital in the first half of 2020 on behalf of clients. “But once all of that activity settled down, then corporates turned their attention to working capital,” he adds.

Ed Thurman, head of global transaction banking at Lloyds Banking Group, describes impact of the Covid-19 lockdown as a crisis of cash and working capital. The bank’s clients were eager to utilise the facilities that were being put in place by the UK government, including the Coronavirus Business Interruption Loan Scheme, the Bounce Back Loan Scheme and forbearance provisions.

“We’ve approved around 33,000 capital repayment holidays to support small businesses and corporates during the pandemic lockdown,” he reports. Importantly, Lloyds Bank set up a £2bn Covid fund in early March, which enabled the bank to approve overdraft extensions with no additional fees.

“We focused on making sure that we had the right forbearance treatments for the right clients in the right places, and then worked very intensely with the government and policymakers on the official policy response, ensuring that we could operationalise that as quickly as possible,” says Mr Thurman. Lloyds Bank’s client outreach is now focused around three main areas: preserving cash and working capital; managing risk, in particular, and supply chains; and building resilience “in the broadest sense of the word”.

Working capital to the fore

“The importance of effective working capital management has become front and centre as companies globally look to tap internal sources of funding to manage the uncertainties presented by the Covid-19 crisis. While the full impact of the pandemic remains to be seen, it is paramount that companies look to improve their liquidity by adopting efficient working capital strategies in order to emerge from the crisis stronger,” states JPMorgan’s Working Capital Index 2020 report.

The report continues: “There remains significant liquidity tied up in the supply chains across the S&P 1500 companies, as observed in the days sales outstanding, days payable outstanding and the days inventory outstanding metrics, as well as the cash levels within industries.”

Alexandre Maymat, head of global transaction and payment services at Société Générale (SocGen), identifies several areas that can improve working capital. “In an increasingly complex, real-time and regulated world, optimising balance sheet management and working capital ratios covers a number of aspects such as optimising cash allocation between business lines and geographies; securing supply chains in a global and fast paced environment; reducing inventory errors caused by shorter product life cycles and increased volatility; and finally improving sales efficiency – most notably by mitigating the impact of delinquent receivables,” he explains.

Unsurprisingly, many are seeing increasing corporate interest in working capital solutions. “We’ve seen an acceleration of interest from companies that were never interested in payables or securitisation programmes before, to help them manage their working capital in a more efficient way,” says Luca Corsini, head of global transaction banking at UniCredit.

Wolfgang Koester, senior strategist and chief evangelist at cloud liquidity solutions provider Kyriba, identifies two main drivers. First is the very low interest rate and unpredictable economic environment in which they are operating.

“Companies are looking at ways to use their cash better and create more money with their cash,” he says. “They could deposit their cash in a bank and receive maybe 1%; or they could receive a premium – perhaps 8% – for paying a supplier early. This is a material improvement in liquidity, something the C-suite is focused on.”

Second is the need to ensure the robustness of their supply chains. “Corporates need to identify their top suppliers and whether any of them are in trouble, so they can step in and help finance them,” Mr Koester says.

Supporting suppliers

As widely reported, many companies have experienced serious disruptions in their supply chains. This had led many to rethink their supply chains and look at diversifying their supplier base. “Equally, the stability of those supply chains is absolutely key,” says Mr Davies.

He reports that BofA onboarded 160% more suppliers in EMEA in the first few months of this year than it did in the whole of 2019. “This increase is driven by demand from the suppliers themselves – they need access to liquidity and our corporate clients want to provide that financial support to critical suppliers,” he adds.

“The finance and procurement departments of large enterprises need to understand the stability and health of their supply chain to ensure supply chain continuity,” says Cedric Bru, president and CEO of Taulia, a fintech that provides working capital solutions. “Before the pandemic, the objective was to pay suppliers on time; now, they want to pay early, especially small suppliers.”

In addition, environmental, social and governance (ESG) goals have become critical, particularly in terms of sustainability, according to Soraya Ahmed, global trade finance EMEA sales head, JPMorgan. “Encouraged by governments, and also in their own right, corporates are increasingly also focused on the ‘S’ in ESG and looking at how they can better support small and medium-sized suppliers, the backbone of every economy, by releasing working capital on their balance sheets,” she explains.

And there is a lot of room for growth. During JPMorgan’s ‘Optimising working capital for today’s challenges’ webinar in April, a straw poll found that 45% did not employ any finance structures to improve working capital metrics, while a third used supply chain finance (SCF) and a quarter used receivables purchase/sales finance. Less than one in 10 were using dynamic discounting or off-balance-sheet inventory financing.

“In an environment where many suppliers will suffer, contributing to securitising their liquidity situation will be important. SCF programmes are definitively a good means for the biggest corporate groups to secure the commitment of the small and medium-sized suppliers,” says Mr Maymat.

He says that SocGen’s factoring division took part in the negotiations with the French government to develop a state-guaranteed programme allowing the bank to finance clients from their purchase orders rather than from their receivables. The programme will be available in September. In addition, SocGen has been actively supporting the different government programmes put in place in most countries to support the liquidity situation of corporate clients.

However, one of the biggest challenges to a holistic SCF programme is onboarding the long tail of small suppliers. In The Banker’s podcast series ‘Banking under pressure’, Andres Ricaurte, senior vice-president and global head of payments at Mphasis, reported speaking to a chief procurement officer at a large company with a ‘best-in-class’ SCF programme, yet it only addresses 10% of the supplier base. “This means that 90% of suppliers are alienated as they can’t access financing and, in many cases, those small suppliers are the weakest link in the chain,” he said. “Chief financial officers are looking at resilience across the entire supply chain and making sure that every supplier gets the type of financial assistance needed. So the question is how to go from 10% adoption to 90 or 95% adoption. That will take a real rethink of the SCF model.”

He advises designing a programme for the entirety of the supply chain. “Banks also need move away from just thinking about deploying liquidity to taking the lead in helping clients build resilience in their supply chains,” he adds.

To address the onboarding pain point, Kyriba worked on its onboarding technology as an important differentiator. The company manages a supplier database, organised by industry, which means each supplier is onboarded only once and can be automatically incorporated into other corporates’ SCF programmes with minimal account customisation.

Digital imperatives

Digitisation is another trend that the Covid-19 pandemic has accelerated, according to Taulia's Mr Bru. “Many enterprises have spent several years on digitisation, but there are always reasons to not do it, whether due to cost or not being high on their list of priorities. But Covid-19 has created a need to automate processes so that people can work from anywhere, as well as remove paper transactions,” he says.

“Some corporates that were reluctant to move away from paper, but obliged to during the onset of Covid-19, have discovered how easy and safe it is to do everything digitally,” adds Mr Corsini.

JPMorgan’s Ms Ahmed agrees. “Our clients are looking to leverage digital interfaces, to unlock working capital and enhance returns and cash flow, as well as derive additional benefits such as reducing fraud, obtaining data analytics and streamlining operations. Covid has highlighted that companies are open to risks from manual processes,” she says.

Many banks have invested heavily in their digital transformation over the past few years. “BofA has invested in digitising the end-to-end client experience to take paper out of the process and move everything online. Clients can sign documents digitally and have visibility over every step of the corresponding processes,” says Mr Davies. “The digital transformation work we had completed meant that our clients didn't skip a beat during the pandemic. They could very quickly and easily continue their normal processes with BofA.” He believes corporates are now more self-reflective about their own digital transformation.

Lloyds Bank is also doing a lot of work on the digital side, says Mr Thurman, “particularly in the payments space, around enabling processes within ecommerce business models, as well as deploying application programming interface technology”. He also mentions digital signatures and digitising trade workflows.

Likewise, Mr Maymat reports that SocGen is working on developing a seamless digital customer path for corporate clients. “SocGen already has an efficient one-stop-shop digital platform, SG Markets, which will be the canvas for it. We have already started building its components, from scratch in some cases or by migrating existing ones, such as our cash management tool, ‘Global Cash’, which is already up and running,” he says. “We are also developing a dynamic data strategy, [in line with] data privacy and compliance, with the objective to better use the flows data we have to improve our capacity to advise clients on their treasury management.” 

Fintech friends

Many banks are also working with fintechs. For example, SocGen is recently signed a partnership with Trustpair, a fintech protecting corporate clients against fraudulent transfers and the digitised validation of vendor payments. “Our ‘SCF Servicing’ platform is bridged with several international fintechs active in the payables finance area, and we are actively investigating in some new partnerships,” adds Mr Maymat.

Both JPM and UniCredit are working with SCF specialist Taulia, among other fintechs. Taulia is cloud-based and integrates into a corporate’s enterprise resource planning systems, managing the flow of invoices into those systems.

“To deploy a SCF programme on a scaleable basis, banks need to offer it to everyone – large suppliers, small suppliers and everything in between. And there is only one way to do that: using technology,” says Mr Bru. For example, Taulia’s onboarding process takes just 90 seconds. “Once onboarded, suppliers can see all their receivables so that they can decide whether to accelerate them if they want to be paid earlier,” he adds.

“The biggest benefit for suppliers using the Taulia platform is that they can see and plan against the status of their invoices via an intuitive portal, in addition to the ability to choose to receive early payment and be rapidly onboarded,” says Ms Ahmed.

Mr Corsini says: “The co-operation with Taulia allows us to offer to our clients a platform, which is very efficient in terms of onboarding suppliers, as well as extend our geographical reach.” The Italian lender is also working with fintech partner FinDynamic, in which UniCredit holds an equity stake, to roll-out digital dynamic discounting.

While BofA has its own robust platform, it also plugs into other platforms. For example, it is working with a fintech to convert a card payment to a locally cleared automated clearing house payment, which is useful in instances when card payments are not allowed, such as taxes or lease payments. “The tax office, such as [the UK’s] HM Revenues & Customs, receives the payment on the due date, but our client can effectively defer the payment by 30 or 60 days, with the working capital benefits associated with that,” says Mr Davies.

He believes banks have an important role to play in partnering with the best-of-breed fintechs. “Our clients may not want to share commercially sensitive data with multiple providers in order for the solution to work,” he says. “Instead, they’re looking to access those solutions under the umbrella of their key banking partner, which already has robust processes in place and can manage the due diligence to ensure a safe environment.”


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