Access and optimise working capital: innovative financing solutions

Corporate financial decision-makers across Asia Pacific have no choice but to modernise how they interact with buyers and suppliers, to shorten their cost cycle and capture new business opportunities.

With the economic environment still unpredictable, chief financial officers (CFOs) globally have had to rethink their traditional treasury activities while exploring ways to better manage their cash flows. In particular, optimising working capital has become ever-more important in the last three years according to 84% of CFOs Asia who responded to the HSBC Corporate Treasury Risk Management Survey 2021.

The answer to this problem for Amcor – as it has been for many other corporates – is scaling up digital capabilities. In line with this, the role of technology generally in Asia Pacific has moved from it being a “nice to have” to it offering a differentiator for treasury functions.

Among practical examples of this, HSBC has encouraged more real-time data exchanges with customers, to go entirely paperless, plus it has integrated with customers’ enterprise resource planning (ERP) systems, to create greater operational efficiently.

For a consumer goods packaging firm like Amcor, the fast-paced and competitive nature of its business makes funding efficiency essential, along with improving its financial ratios. “We have had to focus on making our data integration faster and smoother, requiring innovation and digital tools,” explained Yang.

Progress along these lines has been common in China, where the path of technological adoption for accessing funds and optimising working capital in today’s unpredictable environment is well established.

“As the sudden outbreak of the Covid-19 pandemic, we had very little time to react to be able to support our customers in maintaining their business operations virtually,” said Tan.

This played to HSBC’s strengths given the bank had been driving an automation strategy for some time with many of its transaction banking customers already. As a result, they could immediately start submitting their trade documents online.

With supply chain management being significantly impacted by the pandemic, many companies in Asia Pacific have been seeking opportunities for innovative supply chain financing solutions.

Amcor, for instance, has had to work hard over the past two years to reduce its cash cycle due to supply constraints and uncertainties. “Given we don’t know when cargo will arrive, we have to create stock and capital buffers. This has created a need to look at supply chain financing solutions,” explained Yang.

To tackle this, the company has worked with HSBC in China, using bank acceptance drafts (the BAD scheme), driven by the People’s Bank of China to digitise financing.

More broadly, HSBC’s approach has included providing smaller suppliers with desired financing support, leveraging the creditworthiness of their anchor buyers. “This helps lift the burden off suppliers’ shoulders during challenging times, which in turn enhances the overall supply chain resilience,” said Tan.

Further, as environmental, social and governance (ESG) factors have become a strategic focus for more corporates worldwide, ESG has become a key component of smart supply chain solutions. “We strive to support corporates’ ambitions to transition to net zero by aligning their financing and sustainability objectives,” said Tan.

Inevitably, next-gen tech will form part of the toolkit for the treasurers of tomorrow. This is needed as finance teams look to mitigate risks and make the best use of their cash.

For example, Tan highlighted three key areas in which treasurers typically look for support from their banks:

To correctly predict cash positions – to shorten or optimise the cycle
To enhance tech efficiency – not just in terms of solutions at the front end, but also connecting and providing support for transactions in a digitised and automated way
To provide security – given that every new digitised solution with a customer involves a governance process to protect the customer against cybersecurity or fraud

“Efficiency and security are key areas for us to consider,” added Yang. “Tech can really help us with cash flow forecasting accuracy and visibility.”

The responsibility for this falls on banking partners like HSBC. “We need our banks to help us with secure system integration, and then to detect any cash anomalies combined with insights to help us address them,” he explained.

This reflects a broader trend among corporates – that ‘Banking as a Service’ is on an upward trend. “By leveraging APIs and through ‘embedded finance’, an organisation can offer valuable banking services to its ecosystem of buyers, customers and suppliers through existing digital channels,” said Tan.

From Amcor’s perspective, it is working on embedding banking services within its ERP, but it is looking to enhance it to cover its FX cash flow too. “The key issue for us is knowing the business demand based on the growth strategy, and therefore how finance and HSBC can help to support that strategy. Managing our cash better is very important."