Published: July 01, 2013
Corporate banking products have become highly sophisticated and functionally rich over recent years, and are capable of supporting a wide spectrum of activities across the financial supply chain. The challenge is that these are not necessarily aligned with the specific needs of corporate customers, nor combined into appropriate solutions that are aligned with a customer’s financial supply chain. This article outlines a new and innovative way in which we at Commerzbank’s Cash Management & International Business division are engaging with customers and structuring our solutions to meet the changing needs of businesses operating internationally.
During the 1990s and 2000s, many corporations invested heavily in their physical supply chains with considerable success. Today, integrated ERP platforms to provide visibility and control across the supply chain, efficient inventory management and ‘just-in-time’ manufacturing allows companies in a wide range of industries to meet customer demand for their products and services very precisely. While the physical supply chain involves the sourcing, production and distribution of goods and services, the financial supply chain (figure 1) refers to the flow of cash from customers (order-to-cash) through to suppliers (purchase to pay). It is therefore effectively a mirror of the financial supply chain, and is at least as important to the company’s performance as the physical supply chain. However, many companies have yet to achieve the degree of efficiency in their financial supply that they have with their physical supply chain, despite the equivalent benefits of doing so.
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As companies’ supply chains – both physical and therefore financial – become more complex and geographically diverse, the need to enhance automation, visibility and control, and mitigate risk across the supply chain becomes more compelling. Corporate treasurers and CFOs are increasingly recognising this, and are working with procurement, sales, accounts payable and receivable to try and align objectives and streamline processes with a view to reducing working capital levels and enhancing liquidity.
One of the most significant challenges when approaching the financial supply chain is that the product-oriented way in which banks have traditionally approached their customers is inconsistent with a holistic, integrated approach to financial supply chain. Furthermore, banks and their corporate customers will not necessarily have a common language and terms of reference when describing products, again leading to a disconnect between the needs of corporate customers and solutions offered by their banks.
By working with customers directly across their entire financial supply chain, we at Commerzbank are able to move beyond individual products and services, and instead focus on identifying scope for improvement in the financial supply chain and transforming processes into a financial value chain.
One customer’s financial supply chain will connect companies of quite different profiles. For example, a German small/ medium-sized enterprise may have a variety of international suppliers and customers of different sizes and industries whose needs may be addressed by different parts of the bank. Consequently, one of the roles of the Sales Strategy team is to bring together different departments within the bank to offer an integrated approach to our customers.[[[PAGE]]]
A value-added approach that recognises the complexities of international business, whether sourcing or sales, and the diversity of payment and collection instruments, technology, market infrastructure, regulation and business culture that all impact on a company’s financial supply chain is enormous. By helping to identify opportunities for enhanced visibility, automation or control, or more structured communication between departments, we can assist our customers in significantly reducing financial supply chain risk and cost, and minimising working capital levels, a key way in which companies can improve access to liquidity. This approach is quite distinct from a typical ‘product sell’. For example, supply chain finance programmes have become increasingly popular amongst corporations in recent years. The success of these programmes has been variable, however, emphasising the need to focus not on individual products and their potential benefit, but on understanding the entire financial supply chain and designing integrated solutions to meet each customer’s specific needs. In some cases, these solutions will include supply chain financing of course, but as part of a wider working capital, liquidity, risk and efficiency strategy.
The Single Euro Payments Area (SEPA) offers considerable opportunity for financial supply chain optimisation. By standardising payment and collection instruments and communication formats across the Eurozone, companies can both rationalise their order-to-cash and purchase-to-pay processes, but also align the two more closely. SEPA direct debits also offer considerable potential for both domestic and cross-border B2C and B2B collections, improving the timeliness and predictability of flows.
With the SEPA migration deadline only a few months away, treasurers and finance managers are already working closely with purchasing, sales, IT, accounts payable and receivable to ensure compliance with the deadline. As these are the same stakeholders in a financial supply chain optimisation project, this is therefore an ideal opportunity to work together to achieve demonstrable value through an optimised financial supply chain, supported by a bank that has aligned its approach and solutions to match that of its customers.
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