by Jon Richman, Managing Director and Head of Trade Finance North America and Financial Supply Chain Americas, Global Transaction Banking, Deutsche Bank
As globalisation continues to gather momentum, supply chains have lengthened and become more complex. This process has been accompanied by greater risk awareness and this has acted as the catalyst for a growing appetite for financial supply chain solutions (FSC).
When they are employed effectively, FSC programmes can help manage risk, optimise working capital and cash flow, and improve the flow of transaction data between trade counterparties, without the need for costly implementation processes. FSC solutions have come to the fore in the aftermath of the financial crisis of 2008. The so-called credit crunch was responsible for many things, including the reduction in availability of bank-supplied credit lines and more limited access to capital markets – which is still being painfully felt today. The result of all this is that corporates worldwide are reducing their dependency on debt by improving working capital management and working more closely with trading partners. Advances in working capital management solutions are being promoted not only by the major trade banks, but also by corporate treasurers – notably from the MNC sector – who are also driving the agenda.
So how can corporates improve liquidity and risk management? The benefits of FSC solutions as a stable and reliable source of liquidity are widely acknowledged. Unlike other sources of liquidity, such as credit from the capital markets, FSC programmes are flexible and serve as an incremental source of credit as they add to, rather than consume, existing cash resources.