8/3/2019 Financial Supply Chain & Working Capital Managment

1/234 TMI | Issue 188

Financial Supply Chain& Working CapitalManagement

When we look at a successful

corporation, the first things we

notice are the excellent products

and services on offer. On a closer look theless immediately visible aspects, that play a

major part in the success of a successful

company, become more apparent. A key

component is efficient supply and working

capital management. Often, despite the

development of innovative products,

entrepreneurial failure is due to the lack of a

sufficient cash flow to finance operations.

Both businesses and financial institutions

have realised the need to focus on the active

management of working capital and the

related financial supply chain management,

in the same way as in recent years,

corporates have optimised their physicalsupply chains.

According to various studies some 4% of

production costs are related to financing

costs. With this in mind, and considering

that the so-called order-to-live cycles

continue to be further extended, there is an

increasing tendency to focus on the

qualities of an optimised financial supply

chain. Buyers are required to increase their

payment terms to the maximum as well as to

reduce their stock and inventory, leaving

this burden to their suppliers. But not all

suppliers, even strategic ones, can manage

the request for longer payment termsconsidering the changed regulatory

environments (Basel II & III force banks to

differentiate the equity allocation according

to the relevant rating of the borrower) and

market conditions (the reduced number of

banks).

GTB and Trade Purchase

The efficient management of the financial

supply chain and working capital is one of

the strengths of UniCredits product line

Global Transaction Banking (GTB). GTBs

product offering has been developed to help

UniCredits clients optimise the different

elements of their working capital

throughout the entire supply chain and

deliver successful win-win solutions to the

parties involved.

Safeguarding ones own liquidity is the

key not only to survival during a financial

crisis but also to further success; moreover,the support of, active management and co-

operation with core suppliers plays an

important part in ensuring a constant and

by Markus Wohlgeschaffen, Head of Global

Trade Finance & Services, UniCredit

Safeguarding ones own liquidity is the key not

only to survival during a financial crisis but also

to further success.

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special report

quality-assured supply chain.

UniCredit has developed a dedicated

product - an internet-based system called

Trade Purchase, that automatically links the

real supply chain with the money supply.

There is a great toolbox offering numerous

effects and tailored solutions. Trade

Purchase is accessible round the clock: an

easy to use, web-based internet solution

which enables UniCredit Groups customers

an automated and revolving purchase of

buyer-accepted invoices at attractive rates.

One of our key clients in the automotive

sector, a tier-one supplier, recognised the

need to increase its working capital

management and also to provide as much

support as possible to its core suppliers. For

this corporation sustainability and reliability

are fundamental, and are also reflected in

their dealing with suppliers. Many of those

suppliers were adversely affected by the

financial crisis and the lack of demand in

the sector. The company decided to support

them by giving them a good rating but the

question remained: how to provide the

urgently needed liquidity to them withoutjeopardising the firms own liquidity and/or

affecting its own key financial ratios (e.g.,

increase of debt to equity ratio)?

To help the suppliers on one hand, while

aiming to optimise its own working capital

situation on the other, it was decided to

implement a supplier financing model that

avoids manual processes and ensures a high

degree of flexibility. During the structuring

and technical set-up of the transaction, it

was a challenge to make sure that the

system was able to deal with credit notes

and different currencies as well as

individual limits for each supplier in order

to mitigate or reduce risk to the buyer..

UniCredits final solution to dealing with

all the individual, sometimes quite difficult,

requirements, was to tailor its Trade

Purchase product to the clients specific

needs. After the implementation and testing

phase the system went live in June this year.The suppliers who are now using the system

are satisfied with both the easy-to-use

platform and the attractive conditions. As a

next step, we intend to open the system to a

larger number of suppliers across Europe

and CEE. The aim is to cover a volume of

approximately EUR 600m over the coming

months. UniCredit Groups excellent, in-

depth network will ensure a smooth on-

boarding process as well as providing an

excellent knowledge of local market

conditions.

Another decisive factor was UniCredits

particular strategic approach which

combines state-of-the-art IT with a

proficient know-how and a wide network of

physical branches. As a result of this,

UniCredit not only provides liquidity

through the specific supplier finance

programme, but also offers additional

financial services to the suppliers via its

branch network. The clients statement:

Within this transaction there are only

winners reflects the success UniCredit

Group has been able to deliver. n

Markus WohlgeschaffenHead of Global Trade Finance & Services, UniCredit

Markus Wohlgeschaffen is Head of Global Trade Finance & Services

at UniCredit. He is responsible for the commercial trade finance &

services and supply chain finance business.

Markus has been working in the trade finance sector for 25 years

and was previously in charge of trade & payment products as well

as the trade finance activities (both commercial and medium- and long-term trade

finance products) in Japan and Italy for UniCredit Bank AG (formerly

HypoVereinsbank).

The value proposition

The value proposition can be briefly summarised as follows:

For the supplierl Cheaper cost of finance, because based on buyers credit risk

l Conversion of accounts receivable to cash through attractively priced, true non-

recourse sale

l Credit lines freed up to capture additional business with lenders

l Improvement of financial ratios

l Attractive liquidity management tool via the early payment option

l No need to provide collateral or the factor with credit information on own company

For the buyerl Improvement of commercial payment terms (expansion of Days Sales Outstanding)

without adding additional costs to the supply chain therefore helps make revision of

sales terms more acceptable

l Improvement of working capital using trade payables without increase of bank

indebtedness

l Improvement of key ratios (e.g., ROI, debt-to-equity, Quick Ratio)

l Increased loyalty of suppliers and market reputation

l Active involvement in liquidity management of suppliers

l Further revenue potential (guarantee fees) for the allocation of own credit risk via

irrevocable invoice acceptance towards suppliers