The evolution of working capital management for MNCs and SMEs


Adeline de Metz, Global Co-Head of Trade and Working Capital Solutions at UniCredit, talks about the increasing demand for working capital solutions and the challenges faced by corporates against a backdrop of economic uncertainty and lengthening global supply chains.

How corporates address this challenge, however, will depend on the size of their business. A significant portion of multi-national corporations (MNCs), for instance, already have payables finance programmes in place to stabilise their supply chain so, for them, the challenge is tightening their belts to drive further efficiencies. Smaller businesses, on the other hand, are less likely to have such measures in place. They may be part of a large buyer’s payables programme, but even if that is not the case, they can now turn to an increasingly broad range of alternatives as banks seek to redress the balance for what has historically been an underserved market. The result is that, regardless of size, there are steps that businesses can take to improve their working capital management.

Consolidated payables finance programmes

For the biggest corporates – who often have several payables finance programmes in place – the goal is to rationalise and drive the efficiency of these programmes. In many cases, payables programmes have grown organically within MNCs – with numerous independent programmes springing up to cater for different offices and subsidiaries. As a result, corporations often leak efficiencies by managing multiple programmes, through multiple banks, contracts and portals.

The next step for MNCs seeking efficiency in their payables set-up is to consolidate their current activities into a smaller number of regional or even global programmes. This reduces the number of contracts,  banks, and portals they have to juggle and eliminates most scenarios where work is duplicated across subsidiaries or departments. What’s more, with banks more likely to offer discount rates to bring in large amounts of business, this model has the potential to deliver better prices for suppliers.

SME solutions on the rise

Smaller corporates also benefit from participating in payables programmes, of course, but historically their options have been limited if their buyers don’t offer such support – or if this support is only provided to selected large suppliers (as is often the case). Today, however, not only has the number of payables programmes increased – making it more likely for smaller businesses to secure support from a buyer – but the list of alternative financing options is growing rapidly.

The next step for MNCs seeking efficiency in their payables set-up is to consolidate their current activities into a smaller number of regional or even global programmes. For instance, blockchain-based platform “we. trade” offers a new way to transact with trading partners – simplifying trade processes by  addressing the challenge of tracking, managing and securing domestic and international trade  transactions. Run by a consortium of thirteen banks, we.trade is targeted specifically at smaller businesses – creating a formalised channel for contract negotiation and other interactions between trading partners. Once the clauses of a smart contract between buyer andseller are agreed on the platform and registered in the distributed ledger, banks can use them as collateral for services such as guarantee of payment at the due date and invoice discounting. This solution is already live, with UniCredit completing its first transaction on the 2nd of August this year. The first of its kind in the German market, the transaction saw navabi GmbH – an internationally active plus-size online retailer – use the platform to place an order with a Spanish supplier.

Beyond we.trade, there are other initiatives expanding options for SMEs. For instance, many banks are developing their own proprietary solutions based on advanced technology.

UniCredit, for its part, now offers its Italian clients a service that connects groups of clients with reciprocal payments and collections, using an algorithm to generate closed loops of client invoices. Having identified these loops, the bank then initiates early payments that ensures all parties receive their funds in advance of the due date – freeing up working capital, reducing risks, and promoting strength across the supply chain.

Refined receivables options

With a greater number of working capital and trade finance tools at corporates’ disposal than ever before, the task for banks now is to foster greater awareness of new solutions. This is crucial to ensuring the corporates have access to the most appropriate solutions for their needs. That said, businesses should not forget about traditional receivables finance, which remains a highly valuable financing technique. It is often easier to implement and more flexible in terms of its usage than payables finance.

What’s more, this is another area where banks have managed to make life easier for businesses. When selling diverse receivables portfolios, firms often struggle to find solutions that are both competitive and simple to execute. To overcome these difficulties, banks are now offering tailored solutions that combine different products, such as factoring, forfaiting and securitisation.

This approach enables corporates to sidestep the laborious task of dismantling portfolios and selling them piecemeal to multiple buyers – adding a further tool to their growing range of options for raising finance against their receivables. From sizeable, global payables finance programmes to simple factoring agreements, the world of working capital and trade finance is becoming extremely diverse. But as the banking and fintech spheres continue to roll out solutions that cater to all manner of corporate needs, there is a danger that it will become increasingly difficult for corporates to discern which solution is the best fit for them. This is where banks must step in and assume a more proactive advisory role – understanding clients’ unique issues and guiding them to the most appropriate solution (or, indeed, combination of solutions). With so many innovations coming through – alongside valuable refinements to existing techniques – the opportunity to drive more efficient and more effective working capital management is there for the taking.