Why CFOs need to adopt new tools for trade resilience

CFOs increasingly need to leverage innovative tools to balance stabilising working capital with planning for future growth opportunities.

Corporates are beginning to look beyond the initial economic shock following the outbreak of COVID-19. They are now turning their focus from short-term business continuity plans to tactical moves to keep trade moving. At the forefront of this challenge are CFOs, who will need to leverage innovative tools to balance stabilising working capital with planning for future growth opportunities.

COVID-19 has undoubtably had significant cash flow implications across supply chains. Yet as companies increasingly make the switch to the longer-term view, CFOs are facing unprecedented challenges – but also unexpected opportunities to innovate.

“We see CFOs rapidly adapting to this transformed environment,” says Victoria Claverie, Head, Open Account Trade – Platforms & Data at Standard Chartered. “COVID-19 has amplified the pressures that already existed around supply chains, and corporates now need to think more strategically about the health of the entire ecosystem as they work to operationalise in the new world.”

Physical and financial supply chains: Bridging the gap

Short-term solutions, such as increasing supplier payment terms, were important in many cases to mitigate the immediate impact of COVID-19 on cash flows. However, this poses an over-stretching risk to critical suppliers in the longer term.

To build more resilience into their supply chains, many CFOs are engaging with their banks to adopt financing solutions (in a shift from self-funded programmes) which enable them to conserve cash while shoring up key partners. “There has as a result been a rise in requests for supply chain finance programmes,” says Claverie.

A growing number of organisations are now going even further, utilising the relative strength of their balance sheet to mitigate risks along their supply chains at an even earlier stage of the procurement cycle. An increased interest in solutions such as purchase order financing for suppliers, which enables them to access financing even before goods are shipped, demonstrates the extent to which CFOs are seeking to bring together their physical and financial supply chains.

Internal alignment, better performance

“Forward-looking CFOs are working closely with their procurement and sales partners to better understand where the pressure points are,” says Claverie. She explains that breaking out of traditional silos to hold these conversations with different functions is critical to the success of reducing stress on cashflows. “This really requires a lot of alignment, but it enables CFOs to ensure that suppliers are able to fulfil their purchase orders, and distributor channels are able to carry out stock and sell to their clients,” she says.

Achieving this means rethinking internal business models and removing competing priorities between departments. As an example, a corporate will often use a procure-to-pay platform to collaborate with their suppliers, but its supply chain finance programme will be on another, separate platform – a clunky experience for suppliers that doesn’t lend itself to easy alignment between the treasury and procurement functions.

To tackle this issue, Standard Chartered and SAP Ariba, have collaborated to brings together supply chain finance and the procure-to-pay process in one place. “The Standard Chartered-SAP Ariba initiative provides corporates with a tool to enable CFOs and CPOs to achieve their KPIs jointly. We are leveraging on the integration that a client already has with SAP Ariba, and using that to connect and transact with the bank directly,” says Claverie. She adds that this means that there is no need for additional spend on IT resources when setting up a supply chain finance programme.

Digitisation: from luxury to necessity

Finding ways to keep business going even as the physical signing (and in many cases sending and receiving of) documents has been brought to a halt by confinement measures led to a flurry of innovation by exporters and buyers alike. Digitisation has become of existential importance as corporates seek to make fundamental improvements in end-to-end supply chain visibility.

“COVID-19 has caused a realisation among CFOs that digitisation is no longer just about efficiency gains or new business acquisition,” says Tim Zhang, Director, Global Trade Digital Product Management at Standard Chartered. “Digitisation can ensure the resilience of your business in situations like this with large-scale restrictions on physical interaction.”

He points to the world’s first RMB international letter of credit transaction over blockchain between mining company Rio Tinto and Chinese state-owned steel firm Baosteel as an example. In this case, seven parties (including Standard Chartered) came together on blockchain trade finance network Contour to create an entirely digital end-to-end process for a shipment of RMB100 million worth of iron ore; an example of what can be achieved via digitisation across the ecosystem.

“With Contour, it is so easy to track the status of a transaction in real time, giving the transparency needed in this current environment where everybody wants to have a little bit more visibility into how the supply chain is doing. Something that may have seemed difficult to achieve previously can be realised quickly and have a real impact on trade,” says Zhang.

Securing financial resilience while pursuing competitive advantages calls for new ways of thinking. Enhanced tools for cash and working capital forecasting, as well as ways to protect supplier solvency in order to maintain healthy supply chains, will not only enable CFOs to survive the current crisis, but will positively change their visibility over the entire supply chain, setting them in good stead to capture future opportunities.

This article first appeared in Global Trade Review.

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