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Treasury and Payments

Optimizing working capital with innovative, sustainable supplier payments

The global pandemic placed greater demand on working capital needs across all businesses. Now treasury teams are adopting a holistic approach to supplier payment solutions to optimize supply chain management, enable new efficiencies and drive sustainability.


Over the past 12 months, the onset of the global pandemic has increased the focus on cash visibility and working capital management. Treasurers have had to adapt to sudden supply chain disruptions in addition to using short-term sources of internal and external liquidity to sustain operations.1 In fact, the working capital needs of corporates across industries have increased due to macroeconomic events fueled by the pandemic.

J.P. Morgan’s Working Capital Index2 rose significantly in 2020, reaching its highest level in nine years. This sharp rise was visible across 15 out of the 19 industries analyzed, which experienced longer cash conversion cycles despite an increase in days payable outstanding (DPO) largely driven by holding more inventory on balance sheets.

In this article we cover three trends, strategies and best-practice use cases that are influencing treasurers to create a more holistic approach to achieve their working capital objectives.

 

Three trends driving working capital strategy

As the global economy transitions through various phases of the pandemic, treasurers are proactively reviewing and future-proofing their working capital strategy in line with three key trends:

1. Growing interest in optimizing supply chain management across both strategic suppliers that are critical to value creation, as well as small-to-medium supplier segments.

2. Many multi-national corporates acknowledge the benefits of centralized treasury functions, enhanced visibility and operational efficiency in deploying working capital where it’s needed.

3. Aligned to the 2015 Paris Accord, there is growing momentum among corporates toward net zero targets, prompting the need to review the carbon footprint of their supply chains.

Traditionally, these aspects might have been addressed in isolation or even by different departments within an organization. However, the onset of the pandemic has led to increased cross-functional collaboration and a rapid elevation of treasury’s, procurement’s and finance’s role in navigating the headwinds.

 


How to benchmark your working capital

Read the 2021 Working Capital Index report for insights into the working capital performance of S&P 1500 companies over the past year.


 

How to future-proof your working capital strategy




Three working capital best-practice examples

 

icon optimizing working capital with virtual card

Optimizing working capital with virtual card

A U.S.-based manufacturer aiming to optimize working capital realized that a one-size-fits-all solution would not be practical across its entire supplier base. J.P. Morgan launched terms standardization with supply chain finance for strategic suppliers domestically, expanding the scope of payables with virtual cards. This solution extended terms on $1.5 billion of spend, and it progressively captures up to $5 billion in total spend, which provides the client with multiple channels to expedite receipt of payments for its most strategic opportunities. Converting spend to virtual cards helped maximize rebates and encourage collaboration and joint governance to think about suppliers holistically.

Making supplier payment processing more efficient with virtual card

Making supplier payment processing more efficient with virtual card

A global company with headquarters in Europe that specialized in construction and transportation infrastructure management was looking for solutions to optimize their supplier payables processing. J.P. Morgan presented and innovative proprietary closed-loop solution to grow business-to-business virtual card acceptance, which addresses the main challenges around costs, manual processing and reconciliation. The solution provides all-in customized pricing for the supplier with one rate and no additional fees in exchange for open acceptance of J.P. Morgan virtual cards. Furthermore, it provides competitive rates covering all supplier segments with end-to-end visibility by automatically delivering remittance details back to the customer’s ERP system.

Overcoming disruption with supply chain financing and dynamic discounting

Overcoming disruption with supply chain financing and dynamic discounting

An Asian tire manufacturer with a significant presence in the EMEA region had a working capital optimization need due to major supply chain disruptions from the global pandemic. J.P. Morgan combined a supply chain financing and dynamic discounting solution via its strategic alliance with Taulia, allowing for working capital improvements, extended payment terms and an improved yield. With this solution, the business can seamlessly switch between supply chain financing and dynamic discounting as its working capital needs evolve

 

Take the next steps to optimize your working capital

A combination of internal and external drivers fueled by the pandemic are creating a renewed focus on working capital optimization, payables efficiency and future-proofing supply chains. This requires balancing short-term financial objectives with long-term sustainability ambitions across the organization. Treasury is best positioned to champion this evolution.

As your business explores the concepts presented in this article, you don’t have to do it alone. We are committed to helping you on your journey and crafting tailored solutions to meet your needs along the way.

 



Connect with your J.P. Morgan representative to get started today.


1. “Addressing the financial impact of COVID-19: Credit solutions for companies with urgent cash needs,” Deloitte, March 2020. https://www2.deloitte.com/se/sv/pages/finance/articles/covid-19-liquidity-and-cash-response.html
2. “Working Capital Index 2021,” J.P. Morgan, 2021. https://www.jpmorgan.com/content/dam/jpm/treasury-services/documents/jpmc-working-capital-index-2021.pdf

 

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