by Markus Wohlgeschaffen, Head of Global Trade Finance & Services, UniCredit
When we look at a successful corporation, the first things we notice are the excellent products and services on offer. On a closer look the less 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 physical supply 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 terms considering 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).