Pressure Valve - Barclays

With pressure increasing on extended supply chains, large corporates are keen to find financing solutions that can increase liquidity. Angela Potter tells Jim Banks how Barclays’ web-based Supplier Finance Service is helping suppliers and buyers alike.

As supply chains stretch further across the globe, encompassing more partners, they become increasingly complex and – without the right supply chain finance solutions in place – fragile.

Against the background of the credit squeeze, it is clear to see why more large corporates are eager to simplify and solidify their financial and physical supply chains. On the financial side, banks are looking to leverage technology to help them achieve just that.

Angela Potter, head of Barclays International Trade and Cash Solutions, says: ‘From a macro-economic perspective the buyer/supplier interchange is global and more complex. It used to be paper-based, but is now more technology based, so you can see more clearly how supply chain transactions work. This means we can look at options for process improvement and financing.’

The new paradigm, in which working capital management is increasingly the responsibility of the finance department, paves the way for integrated, web-based solutions to support supply chain finance.

She says: ‘In the past, there were many piecemeal solutions. Now, global technological solutions provide different ways to address this environment. There is massive pressure on cash flow management, because of the liquidity crunch. The management of working capital is more important, and it is now in the finance director’s environment.’

Barclays has built on its reputation in cash flow management to launch its web-based Supplier Finance Service. Potter adds: ‘It is increasingly on the treasurer’s radar, as they are being drawn more into cash and working capital management. Our large clients are already there. To date, companies have usually used debtor finance, but this new service has a buyer-centric focus.’

UNLOCKING WORKING CAPITAL

The Supplier Finance Service targets improvements in working capital efficiency through an electronic payment service, which provides finance to corporate suppliers. Large corporates can maintain their internal order-to-pay processes, needing only to send data for each approved payment to the service.

Suppliers are made aware of electronic payment instructions and may ask the bank to discount that amount. If accepted, the bank settles the net amount with the supplier and debits the buyer’s account on the original due date. This allows buyers and sellers to better manage commercial negotiations, settlements and working capital cycle. Full reporting functions are also included.

Buyers have the opportunity to benefit from extended payment terms, improving days payables outstanding, providing for closer supplier relationships, better price negotiation and the ability to integrate the service with other procure-to-pay solutions.

Furthermore, the service can help mitigate the risk of dealing with new suppliers. At the same time, suppliers can reduce their days sales outstanding through accelerated payment, reduce financing costs, improve cash flow predictions and tap off-balance sheet financing.

IMPLEMENTING THE SUPPLIER

Finance Service is an ‘intense’ process. The advantages in terms of WACC and purchase-to-pay cycles, for example, may nevertheless outweigh the costs, and the bank does much of the heavy lifting.

Potter says: ‘Companies have squeezed the supply chain with just-intime delivery, and they risk breaking it. We want to create win-win situations, where the buyer can leverage its rating to offer more standardised terms of trade and early payment to suppliers at a preferential rate. From the supplier perspective, we provide finance and reduce the price of funds so they can be more competitive on price. And once the programme is in place, it is global, so a company has access to liquidity for suppliers anywhere in the world.’

Corporates need to work more closely with banks, sharing more details of their supply chains, so they need partners they can trust. Match the track record of the bank with the right solutions and the market could well reach tipping point for this technology.

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