According to Maureen Sullivan, managing director at Bank of America Merrill Lynch (BAML), the Association for Financial Professionals annual conference used to not be a big draw for supply-chain finance types. That’s because SCF wasn’t always high on the list of “must knows” for treasurers. But that has changed recently.
“We’ve seen significant growth in SCF and more focus on working capital,” Ms. Sullivan said in an interview at the AFP conference. But now the AFP, she added, is “attracting more trade finance people in the last three years.”
Those last three years of course being those since the financial crisis. According to Ms. Sullivan, the crisis made working capital management more critical than ever. “The financial crisis created working capital religion,” she said. Thus the greater focus on SCF.
In the world of “do more with less,” treasurers have been gravitating toward anything that can save money and at the same time add benefits. And supply chain finance in many instances can do just that. Cleaning it up, getting it better organized and adding the right bank partner can help free up working capital, mitigate risk and offer operational efficiencies.
The interest in SCF from treasurers has increased so much that BAML has been continually updating its trade platform, Trade Pro, to meet the need. The bank recently launched a new supply chain module for the platform, Trade Pro Supply Chain Finance.
With the new module BAML is looking to help both parties reduce the costs of SCF. It can also help them communicate better, which can then help the buyer and the supplier smooth out any issues. Ms. Sullivan said the bank often needs to play referee when it comes to demands from one party or another. If, say, the buyer suddenly wants to extend the payment terms to 160 days from 30, that could put significant pressure on the supply – not being able to afford the wait, the supplier might go out of business or it might slow down production; but a bank can add the finances to lessen the stress.
For treasury, getting the right partner is key to help mitigate the risks that can easily crop up, either from within the transaction – the above mentioned company-created stresses – or natural disasters like 2011 tsunami in Japan. SCF programs that are structured correctly can be a low-impact, high-value way of teasing out more dollars for the company.