Financial Supply Chain

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Pioneering Scalable Working Capital Solutions Working capital optimisation is a priority for corporations globally, and is a trend expected to grow as banks adopt Basel III - leading to ongoing constraints in the cost and availability of capital.

Pioneering Scalable Working Capital Solutions

by William Orsini, Managing Director and Senior Banker, Head of MNC Americas, and Douglas Riahi, Managing Director, Head of Industrials, Energy & Technology – Americas MNC, UniCredit Bank AG, New York 

Working capital optimisation is a priority for corporations globally, a trend that we expect to grow as banks adopt Basel III leading to ongoing constraints in the cost and availability of capital. A major component of our Global Transaction Banking (GTB) strategy at UniCredit is to support customers in managing their working capital needs globally through innovative financing solutions and advisory services. By taking a global approach and leveraging our skills, experience and technology across the bank, we are able to offer customers a cohesive value proposition in our core markets. This approach allows us to deliver innovative solutions that meet the specific needs of our customers, not only in our home markets but across our footprint. This article outlines the experiences of a major customer with whom we recently completed a supply chain finance project, which was spearheaded by UniCredit New York but relied on considerable collaboration across the bank.

Focus on shareholder value

There is a tendency to think of many GTB solutions, such as payments, collections and cash management, as commoditised products. However, at UniCredit, our focus is on combining products and services to deliver solutions that are specifically geared to the needs of each customer. While every organisation has a different business strategy, organisational structure and risk appetite, ultimately the aim of every business is to maximise shareholder value; however, this is achieved through a wide variety of means. For large multinationals operating in low margin industries, there is no room for inefficiency in financing, business processes or supply chain management. These companies therefore rely on their banking partners to provide scalable solutions that reduce the margin for error and inefficiency, and deliver demonstrable value.

Working capital objectives

This was the expectation of one of the largest global technology companies, which has substantial business activities across both Europe and North America. The Treasury Department is highly centralised, in order to achieve operational and financial efficiency, build economies of scale and observe risk and compliance requirements. The company had already enjoyed a decade-long relationship with UniCredit in US, Germany and Central & Eastern Europe, and therefore sought our support in achieving these objectives.

With a customer base extending into the hundreds of thousands, from the world’s largest multinationals to small & medium enterprises (SME) in multiple countries and with diverse collection methods, the company was experiencing considerable challenges in optimising working capital and managing credit risk.

Figure 1

The company approached UniCredit to optimise working capital by minimising days sales outstanding (DSO). This resulted in the development of a new receivables purchase programme, outlined in figure 1.

This involved consolidating and financing receivables from thousands of SME customers, supported by a $100m credit facility. Also involved was a vendor financing partner that is specialised in financing a large number of customers. Consequently, UniCredit purchases the receivables that our customer holds against the vendor partners.

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