Barclays: How to Win the Working Capital War - Tony Pinn

Companies seeking to improve their management of working capital have seen financial institutions position themselves as vital links in the supply chain, but large organisations have mainly taken the lead in using these services. Tony Pinn of Barclays Commercial Bank tells us why now is also the time for smaller companies to follow suit.

The importance of working capital management has risen dramatically in recent years, partly because of a tide of regulation, and because analysts increasingly look at working capital position when deciding equity and credit ratings. As a result, more organisations are looking to improve supply chain management processes and use the sophisticated financing solutions that some banks now offer.

‘The economic environment means companies are looking at all aspects of their balance sheet. They have been reminded that working capital is an important area on which many have not focused enough in the past. Managing working capital can bring real value, and it is very clear that the supply chain is a major driver of a company’s working capital,’ says Tony Pinn, head of supply chain in the international trade and cash solutions division of Barclays Commercial Bank.

Given the importance of supply chain activities, improving management of working capital means breaking down some walls within an organisation.

‘It is very much in the domain of the finance department. Companies are realising that to optimise working capital there must be a close link between finance and operations. Any change to how a business operates is felt in finance,’ says Pinn.

‘CFOs are now pushing treasury operations, which have traditionally been seen as a service provider to the rest of the business, to take a more holistic, hands-on approach to managing the parts that use liquidity. But managing liquidity is almost like managing the symptom, not the cause. The cause is the supply chain, to which treasury must be linked.’

Simultaneously, there is a need to automate supply chain processes, particularly as globalisation extends their reach.

‘Working capital management needs good data flow through an organisation and its partners. Information underpins effective management, as well as improving compliance with regulations like Sarbanes-Oxley, so in the supply chain we are now seeing a more integrated approach to technology,’ adds Pinn.

Procure-to-pay

The last decade has seen technologies emerge for specific supply chain functions such as logistics, procurement and payment management. ERP provided some level of integration, but more is needed.

‘The problem is that the data is not transmitted through the organisation and is not always in useable form. So now technology integration targets an end-to-end flow of information. That is where the value will come from – ensuring that people have the right data in the right form at the right time,’ suggests Pinn.

Integrated procure-to-pay solutions are starting to appear, giving banks and their clients a better view of both risks and opportunities, as are solutions such as the supplier finance service (SFS) from Barclays. SFS enables buyers to leverage their rating to offer more standardised terms of trade and early payment to suppliers at a preferential discount rate. Furthermore, suppliers receive finance from the bank, reducing the price of funds and allowing them to compete more effectively on price.

‘In the current economic climate smaller suppliers have pressure on working capital finance,’ explains Pinn. ‘SFS helps maintain liquidity and get that liquidity into the supply chain. Companies want to extend credit terms with suppliers, which puts more pressure on them. We introduce some elasticity into what was a rigid environment. We add flexibility to what has become a tug-of-war, but the efficacy of supplier finance is governed by the efficiency of a company’s supply chain processes.’

Further enhancements, including e-invoicing, may help draw smaller companies to services like SFS.

‘Smaller companies are key parts of the supply chain. Helping them helps the big companies. If the plankton die, the whale dies,’ says Pinn.

The success of end-to-end, procure-to-pay solutions will depend on greater openness between companies, their suppliers and their banks and between finance and operations.