The use of working capital management tactics gained some further credibility during the past 16 months as certain industries, and many small businesses struggled to keep afloat amidst lockdowns. This was/is applied globally since no region escaped the effects of the pandemic, although certain markets were less impacted than others.
The posting is located in Outlook Money and was penned by a co-founder of Cashinvoice, a 2017 startup based in Italy that is described as a demobilization of commercial credits, recourse, assignment of credits, factoring, and purchase of credits. Members will know that we cover the trade finance space in detail.
‘It is a fact that some difficult questions have been posed in recent months due to the Covid pandemic and the disruptions it brought with it. Consumption has gone down and affected the entire supply chain. But the cashflow issue existed before the pandemic too. The pandemic has just complicated the situation further….For most distributors, the margins they work with are quite small, especially if you are not dealing with large quantities of products. Having cash in hand to take larger quantities is a solution but it is quite difficult to manage if you are a small business. There is also the option of working capital loans. This is one area that has been impacted by Covid. Banks and financial institutions are reluctant lenders these days….But even if things were normal, the rates at which these funds are procured would leave distributors with not much at the end. These are structural issues, and are being subjected to a pressure test now, with Covid.’
The author goes on to discuss the importance of supply chain finance as an option for improved corporate liquidity, although the various types of SCF is not reviewed. The major point of the posting is that technology now plays a large role in the implementation and usage of the many SCF capabilities that are available.
Integrating these capabilities directly into treasury management operations and ERP workflow is relatively easy in today’s tech environment, which provides much-needed flexibility for financial professionals when developing working capital strategies and executing against these initiatives. This is just another example of the impact that latest-gen tech is making as financial operations become more of an end-to-end process that incorporates digital information to make and improve decisions, often on an instantaneous basis.
‘Manufacturing organisations can take a leading role in ensuring the stability of the whole supply chain. By offering an early settlement of invoices or through working capital loans, the manufacturer can improve the cash flow significantly for the suppliers and distributors. The value you drive is not just by the cost of funds that you earn but also by fueling growth in small-cap and mid-cap organisations that are dependent on them….Technology has a major role to play here. Next-Gen SCF platforms can help make better decisions and help you manage your funds more efficiently. By automating the processes and the communication, you can ensure that your treasury management is more effective. There is a lot of value to be derived from supply chain finance, both in the short and long term. It is also one of these areas where the rewards are manifold for the risks you have to take on. There is some risk of course, but data-backed decisions are key to managing this.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group