SIBOS SUPERSECTION 2014 | CASH & TRADE CONVERGENCE
As more companies focus on gaining visibility into both their physical and financial supply chains, banks and technology vendors are further integrating their cash management and trade solutions.
The trade function, historically overseen by the procurement area within many companies, is steadily moving to corporate treasury, where it often becomes part of companies’ overall working-capital management initiatives. “Companies are designing holistic working-capital solutions” that often cross functional boundaries within their organizations, bringing together, for instance, treasury, procurement, logistics and other areas, says Andrew Gelb, North American head of treasury and trade services with Citigroup.
Indeed, while some companies approach trade finance projects focused on potential cost reductions, they often discover that by streamlining the processes, they’re also taking days off transaction cycle times, says Tom Rahder, vice president of product strategy with Bolero, a provider of trade finance solutions with global headquarters in London.
In addition, as many companies’ physical and financial supply chains have become increasingly complex and geographically disbursed, they need to enhance automation and visibility and mitigate risk across both the trade and cash management areas, says Prasad Chintamaneni, president of banking and financial services with Cognizant, a provider of information technology, consulting, and business process outsourcing services.
This has become key as companies transact more business on open account. The shift means “corporate treasurers and CFOs need to be willing to take on more risk, but many of them are finding that the efficiency and visibility they gain from open accounts outweighs the additional risk,” says Martin Runow, Americas head of cash management for corporates with Deutsche Bank.
SERVICE PROVIDERS RESPOND
As companies shift focus, banks and technology service providers are changing their own processes. More than 80% of bank respondents to a 2013 report by Celent, “Trends in Transaction Banking: A Global Survey,” had reorganized their transaction banking operations in the past three years.
Like their corporate clients, some banks are bringing together their own cash and trade personnel. “Corporates had been complaining that they didn’t want to deal with all these functions” within their banking partner, says Dan Scanlan, regional transaction banking head for the Americas with Standard Chartered. Few companies distinguish between cash and trade, the way banks used to, he says; instead, they just focus on payables and receivables.
Although the cash and payments areas of banks regularly invested in new products, trade finance did not really start to see those investment dollars until recently, Rahder says. “Trade has lagged but is catching up.”
“There are a number of cash management and trade finance tools that help clients across the working-capital spectrum, enabling them to improve the way they pay, receive and manage cash” and determine optimal terms of trade, says Jon Richman, head of trade finance North America and of financial supply chain for the Americas, at Deutsche Bank.
In Asia a growing number of local and regional banks are putting in place the technology they’ll need to offer electronic trade finance services, says Neil Katkov, senior vice president for Asia with consultancy Celent. “They’re trying to get more business” that otherwise might go to larger institutions, he notes.
Technology companies are getting in on the action, as well. One example: solutions that enable purchasing companies to check the status of shipments and offer suppliers early payment, typically at a discount, says Kurt Cavano, vice chair and chief strategy officer with GT Nexus, a supply chain technology vendor.
But many companies have yet to achieve the degree of efficiency in their financial supply chains that they have with their physical supply chains, says Cognizant’s Chintamaneni.
Prabhat Vira, regional head of global trade and receivables finance, North America, and Michael Cummins, EVP and head of payments and cash management for North America, both with HSBC, say that as they do match efficiency in the physical and financial supply chains, they’ll also gain a “heretofore unavailable holistic view of their working capital.”