Deutsche Bank has released a comprehensive new publication, “Payables finance: A guide to working capital optimisation, 2nd edition”, revising and updating the original paper released almost two years ago at the beginning of 2018. The paper continues the ongoing work of defining and codifying the payables finance industry as it evolves, shifting priorities and practices in the process.
Headline updates include an examination of how businesses are looking to payables finance as a way to offset the impact of economic volatility – not only on themselves, but also on their suppliers. As a result, more and more companies are looking to set up programmes – and extend the benefits to as many suppliers as possible in a bid to bolster supply-chain resilience.
"Traditionally, payables finance programmes have been the preserve of large investmentgrade buyers,” says Daniel Schmand, global head of trade finance at Deutsche Bank. “But as uncertainty bites, we are increasingly seeing non-investment-grade companies looking to set up their own programmes as well in a bid to protect their suppliers and improve their own liquidity. This has always been done, but the prevailing environment is bringing the benefits into sharper focus."
The paper also addresses the headwinds faced by the payables finance industry. In 2018, for instance, the warning signs of British construction company Carillion’s financial collapse were, in part, obscured by its use of payables finance in the form of its “Early payments facility”. This put the accounting practices of payables finance programmes in the spotlight, with Anil Walia, EMEA head of supply chain finance at Deutsche Bank, explaining that “further clarity of the product offering, and structure is needed to avert the danger of a negative watershed event for the supply chain finance business.”
Despite such challenges, payables finance continues to find new ways to be a force for good. In the past year, much discussion has centred on the implementation of sustainable business practices across global supply chains. Conscious of the benefits from both a brand and business perspective, innovative companies have begun to offer incentivised rates of financing to suppliers that meet certain sustainability criteria.