7
In practice, working capital components such as
accounts payables and receivables are often
centralized at centers of scale such as SSCs or
payment factories. These centralized structures
help to drive financial operational efficiency, and
are measured by key performance indicators
(KPIs), such as days payable outstanding (DPO)
and days sales outstanding (DSO), respectively.
In recent years, we have seen greater treasury
involvement in the management of working
capital components as chief executives and
corporate boards are demanding greater
visibility on cash flows. For example, direct
involvement in the financial flows and KPI
measurements, such as payments, collections
and the cash conversion cycle, allow treasurers
to incorporate working capital financing
strategies to connect financial efficiency of the
business to that of buyers and/or suppliers.
Best Practices from the Industrials Sector
For companies in the Industrials sector, higher
focus on growth in emerging markets in Asia
translates to greater requirements for working
capital. This has resulted in greater treasury
involvement in working capital financing as
corporations and their banks seek alternative
funding solutions such as trade financing and
asset securitization, rather than utilizing bank
credit facilities.
Companies can learn a lot by investigating the
working capital metrics of their suppliers and
customers. With publicly available information,
it has become easier for treasurers to gain a
high-level view of their supply chain ecosystem
in order to quantify the tangible benefits of their
supply chain financing (SCF) program. As an
example, Citi uses its Global Flows Analytics
interactive solution, developed at its Innovation
Lab in Singapore, to bring to life the working
capital opportunities and financial benefits to
clients. Driven by big data, the solution overlays
multiple dimensions of proprietary and public
data, maps out supply chain networks, analyzes
credit risk arbitrages and provides strategic
insights into the flows of corporations.
Payables are often a logical starting point. Citi
has worked with many clients on SCF programs
to accelerate their cash flow cycle and reduce
the need for working capital. By investigating
the working capital metrics of our clients and
their suppliers and customers, our approach
enables companies to extend their DPO and
standardize their payment terms while positively
impacting suppliers’ DSO.
Despite the opportunities presented by SCF
programs, the proportion of companies that
actually implement them in Asia Pacific has
been relatively small until recently. Today, an
increasing number of foreign multinational
companies and large local corporates, especially
those with strong credit ratings, are starting to
leverage SCF programs to help unlock liquidity
and increase the resilience of their financial
supply chain.
Foreign multinationals typically replicate in Asia
supplier financing programs that have been
successfully implemented in other regions,
as the approach has proved successful to
support the financial stability and access to
liquidity in the supply chain. Asia’s national
champions, on the other hand, often take a more
regional approach. In both scenarios, the key
prerequisite is treasury’s ability to understand
the financial implications and benefits a SCF
program will bring to the supply chain.
Making Working Capital Work Harder in Asia
The geographic diversity and country specific
regulatory landscape in Asia presents treasurers
with many hurdles in freeing up liquidity to a
central location. Managing working capital is
particularly challenging in markets where capital
and currency restrictions differ considerably.
Against this backdrop, how can treasurers enhance
agility and take quick advantage of opportunities
to make working capital work harder?
1 Take advantage of regulatory reforms
The uneven pace of regulatory change
across Asia’s liberal, semi-restricted and
restricted markets means treasurers need to
stay informed of opportunities as they arise.
For example, continuing RMB liberalization
now allow for cross-border liquidity flows
in foreign and domestic currencies. This
enables companies to connect China with
their regional and global cash and liquidity
management structures.
At the moment, all eyes are on Southeast
Asian nations as they prepare for the
formation of the ASEAN Economic
Community (AEC) by 2015. While opinions
are mixed on the integration timeline,
companies are generally optimistic about
the positive impact the AEC is expected
to bring. A recent study
1
has shown that
53% of multinational companies have a
strategy in place to take advantage of the
AEC implementation. Contrary to the view of
some market commentators that things will
not start moving until payment and
Asia Pacific Sector Insights
| The Agile Treasurer: Making Working Capital Work Harder
Citi uses its
Global Flows
Analytics
interactive
solution,
developed at its
Innovation Lab
in Singapore, to
bring to life the
working capital
opportunities
and financial
benefits to
clients.
1
“ASEAN Business Outlook
Survey 2015”, American
Chamber of Commerce
Singapore and US
Chamber of Commerce
