Enhancing working capital for growth and competitive advantage

While cash management has long been a priority for corporate treasurers, optimising working capital has emerged strongly as a key objective both in Germany and across Europe. With complex global supply chains and growing pressure on margins, unlocking working capital can be key to maintaining a competitive advantage and achieving growth.

By Kate Pohl, Region Head Transaction Services Sales, Germany and Austria, ING, with Yesim Erdem Onat, Director Working Capital Solutions, Germany and Austria, ING and Hans Sawatzki, Director Transaction Services Sales, Germany, ING

According to PwC’s ‘Global Working Capital Survey, 2014, Cash for Growth’, improvements in working capital performance have slowed in recent years following initial success during the global financial crisis. Indeed, according to the study, absolute levels of working capital have continued to grow, resulting in the world’s largest multinationals having to find an additional €500bn simply to finance working capital rather than investing in growth. European companies are making the most substantial improvements, but performance continues to lag behind the rest of the world, with the predictable impact on competitiveness and hampering growth. To address this, treasurers and finance managers of German corporations are becoming proactive in identifying and delivering on opportunities to enhance working capital.

With complex global supply chains and growing pressure on margins, unlocking working capital can be key to maintaining a competitive advantage and achieving growth.

The business imperative

In Germany, working capital levels are typically higher than corporations headquartered in other parts of Europe as well as the United States, partly due to German corporation often being more conservative in their approach to cash and liquidity management. While financial conservatism remains an important characteristic, it can be costly. With cash often trapped in complex supply chains extending around the globe, economic uncertainty in China and Europe, and growing competition from both established and emerging players, cash tied up in working capital is preventing companies from paying down debt, expanding into new markets and investing in innovation.

Developing the business case

While working capital optimisation is a priority for companies across Europe, it can often be difficult for treasurers and finance managers to identify and prioritise opportunities for working capital improvement as well as aligning with other internal stake holders like Procurement. Working with an expert banking partner can be valuable as an enabler of financial and operational efficiency. Such cooperation can be a rich source of information helping to identify improvement areas and learning from experiences observed in the market. For example, performance benchmarking against industry peers has become increasingly important in order to measure working capital performance and determine priorities. It is not only treasurers and finance managers who use benchmarking to evaluate the performance of their own organisations, but analysts and shareholders are also paying greater attention to these metrics.

Industry standards and differentiation

Underpinning all working capital initiatives is the need for timely, accurate and complete cash visibility. This is putting increased pressure on banks and vendors to deliver real-time information in a format that can be integrated with core processes and decision-making frameworks. Having achieved this (often a challenging process in itself given the diversity of banks, countries, currencies and formats involved), priorities can differ widely by industry and business model. In manufacturing industries in particular, inventory levels are often necessarily high, so the focus may be more on accounts receivable or payables. In some cases, this can result in initiatives to refine customer credit and reduce days sales outstanding (DSO) or extend payment terms e.g., by introducing commercial cards or supply chain finance. We note that some treasurers and finance managers are implementing highly automated order-to-cash processes from eInvoicing through to customer collection and reconciliation.

Balancing objectives

The specific nature of each company’s working capital requirements and priorities means that banks need to take a highly personalised approach to addressing these needs, building integrated solutions across the financial supply chain. Given the number of points in the working capital cycle at which value can be created, banks that are most successful in supporting financial supply chain efficiency are those with the ability to understand the client’s needs and design solutions using comprehensive trade finance, working capital and cash management techniques. Furthermore, solutions need to be sufficiently flexible and scalable to support clients’ requirements as they change over time.

ING in Germany is particularly well-equipped to support corporations in achieving their working capital objectives and implementing an integrated approach to financial and operational efficiency.

Managing working capital and embarking on initiatives to increase efficiency, lower costs and reduce overall working capital levels cannot be done in isolation. For example, if a project that results in significant cost reductions harms customer or supplier relationships, or erodes the company’s product and service offering, it does not meet the needs of the business, even if it allows a particular department to achieve its performance metrics. Consequently, treasurers and finance managers need to work with their internal stakeholders, banks and vendors to balance the working capital agenda with wider business objectives. 

A working capital partner

ING in Germany is particularly well-equipped to support corporations in achieving their working capital objectives and implementing an integrated approach to financial and operational efficiency. We draw on our extensive expertise in cash, trade and working capital tools, and rich experience derived from working with many of the world’s largest and most successful organisations, to analyse the balance sheet and benchmark the corporation against wider industry performance. We then help the client to evaluate their strategic priorities or pressing issues and to determine what can be done to address these, keeping the interests of the various stakeholders in balance.

Having completed this structured, consultative process, we then present possible solutions that deliver the greatest value in line with the diverse needs of the organisation. These solutions combine components that have been designed to support financial and operational best practices, leveraging the bank’s coverage and depth of capability, including e.g. pan-European card solutions, which few banks are able to offer. 

Innovation for efficiency and mobility

One of the important ways in which we achieve efficient, flexible and scalable working capital solutions is our innovative, integrated approach to technology design and delivery. For example, we are investing heavily in real-time cash visibility to enable clients to understand where cash is trapped, either within particular accounts or countries, or at different points in the supply chain, and thereby facilitate timely decision-making. As the use of smartphones and tablets becomes ubiquitous for business purposes, we are leveraging the strengths of these devices to provide convenient, secure access to key data and analytics. As we invest and innovate in technology, we work closely with clients to understand their needs, focusing on the quality of data, ease of integration, and efficiency of processes. In addition to our client-facing technology, we continue to invest in the high-speed, high-capacity, secure platforms that are required to support large volumes of transactions.

A process of evolution

Over the coming years, reducing working capital requirements and streamlining the financial supply chain will continue to be vitally important to our clients, but evolving regulatory and economic conditions will mean that treasurers and finance managers should continue to review and refine their strategies. For example, the European Union Directive for combating late payment in commercial transactions is resulting in greater interest in supply chain finance programmes to achieve better days payables outstanding (DPO) metrics whilst supporting suppliers and complying with the regulation. In Germany, for example, we see considerable interest in working capital financial techniques as opposed to simply extending supplier payment terms.

Similarly, the advent of Basel III and the liquidity coverage ratio will mean that some tools for managing liquidity will change as banks’ capital costs continue to grow and liquidity requirements change. In this environment, treasurers are seeking to optimise banking relationships to avoid concentration risk, whilst maintaining financial and operational efficiency and ensuring sufficient share of wallet with each partner bank. We have seen this trend developing over some years in cash management, but this is now extending to working capital as well. This development is not only impacting bank relationships, it is also resulting in corporations seeking greater operational independence from their banks by leveraging electronic payment services from technology providers and non-bank financial institutions and multi-bank portals. This allows treasurers and finance managers to add or change banking providers without impacting their underlying architecture. At the same time, specialist capabilities available through trusted partner banks can be integrated closely with these solutions. Independent or bank-agnostic services are likely to grow in importance; however, not to the detriment of financial or operational discipline. For example, while new liquidity opportunities, such as peer-to-peer financing, are now emerging in some parts of the world, regulators and corporations alike are likely to be wary of the development of an unregulated, shadow banking sector that is inconsistent with the more conservative approach to liquidity and risk that is associated with European corporations, particularly in Germany. In tandem, however, opportunities to manage working capital in a secure, transparent and innovative way are continuing to flourish, championed by trusted partner banks such as ING.


Kate Pohl

Region Head Transaction Services Sales, Germany and Austria, ING

Kate (Kathryn) Pohl joined ING Bank in Frankfurt in 2014 as Transaction Services Sales Region Head for Germany and Austria. Before joining ING she worked at the Irving Trust Company/Bank of New York, Chase Manhattan Bank AG, ABN AMRO Bank and Citigroup.

She has a BA from the University of California at Riverside and an MBA in International Finance from the Wharton School.


Yesim Erdem Onat

Director Working Capital Solutions, Germany and Austria, ING

Yesim Erdem Onat joined ING in 2013. Yesim has more than 15 years of industry experience. Before joining ING, she was with JP Morgan in Frankfurt as Vice President in Treasury Services. Previously, she worked for Yapi Kredi Bank (a member of the UniCredit Group) as Head of Financial Institutions and Treasury in Germany and also worked for Yapi Kredi Bank, Istanbul.


Hans Sawatzki

Director Transaction Services Sales, Germany, ING

Hans Sawatzki joined ING in 2008. He had previously worked for Citigroup Frankfurt as Vice President, where he held various positions in the Transaction Banking sector, providing him with more than 25 years of industry experience.


Source: TMI’s special report ‘A treasurers’s guide to corporate treasury in Germany 2015’