Thursday, 3 May 2018

Optimise your working capital performance

Improving working capital requires more than just the right financial solutions. In a series of recent forums HSBC held with KPMG around Australia, experts pointed out that cultural change and operational efficiencies are also vital for an organisation to achieve its working capital objectives.

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New supply chains, pressure from customers, buyers and suppliers, growing international trade and changing regulations are all compelling businesses in Australia to pay closer attention to their working capital.

Many companies are investing heavily to ensure they can deliver products more quickly to customers while expanding their business overseas.

According to Joseph Arena, HSBC’s Australian Head of Global Trade and Receivables Finance, businesses want to drive their balance sheets and improve the overall efficiency of their books. “The focus is clearly on optimising working capital,” he says.

A survey of the finance professionals who attended HSBC’s forums found that collecting cash faster and extending payment terms are two of the most important factors in optimising working capital. Both were cited as top-three drivers by one in five respondents.

To improve their working capital, businesses are discovering that they need to use the latest financing solutions supported by organisational change, operational efficiencies and better processes.

Deploying financing solutions

Financial solutions such as receivables finance and supply chain finance are helping companies maintain liquidity and keep their operations running smoothly. Receivables finance allows them to use outstanding invoices as collateral for financing, while supply chain finance provides suppliers with short-term credit through the discounted sale of their invoices.

Global contractor CIMIC Group, for example, has used both receivables finance and supply chain finance to optimise its working capital.

If we’re aiming to maximise return for our shareholders, a key objective for us is to minimise the capital deployed as much as possible.

Michael Azzi, General Manager Treasury at CIMIC

In the HSBC survey, more than 20 per cent of finance professionals said receivables collection posed the greatest challenge to their working capital management. To help clients deal with this challenge, HSBC recently upgraded its receivables finance platform and launched its next-generation supply chain platform, bringing its group expertise into the Australian market.

According to Arena, the bank has also invested in making these platforms digitally enabled.

We have launched a mobile phone app called Trade Tracker, which allows clients to track their trade and guarantees transactions on a real-time basis – a first in Australia

Joseph Arena, HSBC's Australian Head of Global Trade and Receivables Finance

Changing organisational cultures

The effectiveness of a financial solution requires the support of an entire organisation. This includes ingraining the value of good working capital management into the company culture.

At CIMIC, highlighting the importance of supply chain finance to its procurement department has been critical to making the company’s solution work.

“Procurement staff, who are negotiating with suppliers, don’t really think of supply chain finance,” says Azzi. “They just want to get the best price and product for the company. So, it’s important to get that cultural change, to make them realise the importance of the solution and to focus on it.”

According to Vince Dimasi, Director of KPMG Australia’s Working Capital Advisory Practice, it is vital to focus on a company’s ‘cash culture’ as part of any business initiative to improve cash and working capital performance. Better organisations ensure that staff at all levels recognise how important cash is to business success – whether they are using cash to fund growth opportunities, reduce debt or keep supply chains moving.

But influencing cash culture is challenging. It calls for education on the role of cash and working capital at all levels of an organisation, particularly among those outside the finance and treasury department.

Shifting the organisation’s culture through effort and investment, so that cash becomes part of its everyday DNA, is often the secret formula to achieving a step change in working capital performance

Vince Dimasi, Director of KPMG Australia’s Working Capital Advisory Practice

Achieving operational efficiencies

In its survey, HSBC found that businesses are looking to improve their operations and processes. Twenty per cent of finance professionals surveyed named operational efficiencies and systems as the top area they wanted to address, while 10 per cent ranked it as second most important.

From documentation and due diligence to supplier contracts and evaluation, companies must identify areas and processes that can be made more efficient to support working capital optimisation. For example, companies usually need to have high-quality documentation in place in order to access third-party financing solutions.

Finding the right banking partner

Embarking on a working capital journey requires significant time and preparation, and there are many potential stumbling blocks along the way. That’s why it’s important to find a partner that can make the process as simple and painless as possible.

“HSBC is a trade bank with over 150 years of experience in this space, and it’s our role to guide you through that process,” says Arena. “We cover more than 90 per cent of global trade flows from our offices in over 67 countries, and in Asia Pacific we have more than 2,800 trade professionals working across 19 markets. Our scale and coverage provide us with a deep insight into the changing nature of trade flows and trends in working capital.”

For HSBC, optimising working capital means applying the right financial solutions to make the relevant components of your business work towards achieving better operational performance for you, your suppliers and buyers.

Joseph Arena, HSBC’s Australian Head of Global Trade and Receivables Finance

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