Enhancing Working Capital Management in Asia

Despite the importance of working capital management and even after the lessons of the past year, a significant number of companies in the region still aren’t adequately prepared. The KPMG 2009 China Cash Management Survey, for example, found that “in excess of 90% of respondents highlighted management of cash as one of their top priorities for their organisation. However, only 14% said they had adequate visibility of their cash.” While “most corporates recognise the importance of effective cash management,” according to the survey, “very few of them have the necessary tools, processes and structures to provide them with the visibility they require.” Companies in a number of other countries in the region are in a similar position.

Still, many companies are using a variety of strategies to apply the lessons from the downturn and manage their working capital better. While solutions such as inventory reduction, better collections and extending days payable are common, companies have also taken other approaches to improve working capital management.

One strategy in Asia that continues to receive extensive focus, as Deutsche Bank’s Roger Packham told Trade Finance, is “financial supply chain (FSC) solutions, which allow a corporate to improve its own working capital position while also assisting key suppliers.” As one example, Deutsche Bank “delivered a 180 day non-recourse discount export facility of approximately US$84m which was partially backed by credit insurance” and used “trust receipt loans to settle against discounted bills upon maturity” for the rest.

Another creative approach, especially at highly capital-intensive companies, is to refurbish rather than replace equipment. “We have seen a ten-fold increase in the level of enquiry for rebuild work,” Australia’s Q-Pave director Paul Commins told Pipeliner, as “people are telling us that in the current market, rebuilding part of their existing fleet is helping them manage capital drain.”

Technology is playing its part as well. Simon Hawks at Alpha Southeast Asia said that many treasurers “now demand solutions that harness web-based platforms with a wide variety of investment tools so that their working capital can be better managed and funding costs lowered by as much as technologically possible.” Better processing and cash visibility are key parts of the solution they’re seeking.

To ensure access to adequate working capital, companies are still continuing their contingency planning. As Standard Chartered Bank’s Karen Fawcett told Global Finance, “corporates that historically relied on large global cash management banks – mostly from the US – are expressing concern about the support they are receiving from these banks and want to ensure there is a contingency bank in place to support their regional cash management needs.” While some companies still limit bank relationships in order to watch their cash better, a significant number have continued to grow and strengthen those relationships, often with a local bank.

Even as the recovery continues apace and the focus has shifted to growth, more companies are leveraging what they learned and are not letting up on using technology and innovation to continue to manage working capital better.

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