ACT Working Capital Conference – key takeaways

ACT Working Capital Conference took place on 8 December in London, UK. Lead sponsor: NatWest.

It was my privilege to chair the ACT’s first in-person conference for 2021 in early December. From personal experience in the industry, I have generally found that working capital management is either not done or done badly. This is often because senior management cannot break down the silos sufficiently for treasury to play more than an advisory part. AP and AR teams can be quite large and often have important advocates in the C-suite.

Attending the conference was a reminder of the power and impact that active management of working capital can provide as well as an opportunity to hear case studies first hand and new developments in this space. 

It was great to see NatWest in force on the day and to catch up with James Waud - Managing Director, Head of Banks & Transaction Services at the bank. I first met James over a decade ago and catching up on work and personal lives was a reminder of the value of face to face conversations.

There were lots of important messages but I wanted to share some of my key takeaways:

• According to a senior economist from NatWest – Marcus Wright, there is an underlying strength and depth to the UK’s recovery and I hope the current lockdown does not have a significant impact on growth prospects in 2022 he outlined. Marcus included some data from Google which brought to life some of the metrics they now use providing more up-to-date data that is also far more granular (in terms of location and activity) than I have seen before.
   
• As we head into a period of higher inflation for longer, this will have an impact on all of the components of working capital. With insights from an academic, we looked at how inflation may affect the various parts of working capital in different ways and we may see companies actively managing working capital to mitigate some of the asymmetric risks that will arise. There was some discussion over the links between interest rates and inflation and as the recent announcement from the Bank of England shows, rising inflation will lead to an increase in financing costs and this may affect how businesses look at working capital. The last decade has seen plentiful supplies of liquidity and the increasing role of non-bank lenders. Rises in interest rates may affect smaller lenders and those without the luxury of a diversified income base and it may be that treasurers will need to be more cautious about who they borrow from in the next few years.
   
• There are some big changes coming in 2022 with a new bill that will help to digitise the processing of trade finance. Chris Southworth, Secretary-General, International Chamber of Commerce UK, outlined the significant savings in costs and time that this will offer and it sounds like a great opportunity to take advantage of this before competitors do. The benefits are more than just the costs and may shorten the time it takes for goods to arrive – speeding up the ability to get goods on shelves. According to Craig Gray, Head of Sales, NatWest, it sounds like the bank, is already starting to gear up for this. Craig shared some of the challenges his customers face and that although there was plenty of liquidity, a lot of it was still not accessible to businesses that needed it. We know that banks have access to huge amounts of data on their customers and their supply chains and it seems this is an area attracting increasing focus from the bank – how to leverage this for the benefit of customers.
   
• Technology can play a key role in managing working capital and we heard from several Fintechs – Cashforce, cflox and Coupa, and a corporate about the work they are doing. Effective working capital depends on good insights on AP and AR and these Fintechs shared the work they are doing in looking at patterns in data to provide insights on spending patterns (in the case of Coupa) and in AP and AR (in the case of Cashforce). cflox took us through how they provide financing into the supply chain and why they decided to be a Payment Services Provider, regulated by BaFin, to enable them to process payments on behalf of their customers. 

  We’re surrounded by data and trying to make sense of the increasing volumes of it is getting harder. It is clear that partnering with a FinTech can take out some of the pain, though as the voice of the corporate said, you also need your people to be trained and engaged.
   

• The final session of the day was around ESG and its role in working capital and the supply chain. ESG is such as broad canvas of activities and as many on the panel pointed out, it’s not just about the environment. Paying suppliers quickly (not always on time if payment terms are 90 days) can relieve mental stress from these companies – especially the small ones. If these businesses can focus on running their own businesses rather than chasing up invoices, it releases time to focus on their own ESG efforts. Given the size of the SME sector (apparently 5.7m companies employing 60% of our workforce), the scale of the prize is not to be ignored. 

  A number of financial institutions are developing sustainable supply chain financing whereby suppliers can access cheaper financing depending on their ESG KPIs. Rowan Austin - Head of Trade Finance Origination & Advisory at NatWest shared some background to the programmes being developed by the bank and it sounds like a case of a win-win for everyone. There’s clearly a number of challenges still to be faced before it becomes commonplace but it did sound exciting and more importantly, impactful.

At the start of the day, we ran a poll to ask the audience if working capital management required a loser for every winner. Interestingly, 98% felt that it could result in winning for both suppliers and buyers. This is very different to what I have experienced earlier in my career where the challenge was to pay late and collect early. It is great to see that the ecosystem has changed its approach and people see the benefits of working in partnership rather than taking the advantage of size or influence.