Donna McNamaraDirector, Working Capital Finance, Treasury and Trade Solutions, Citi

Treasury and Trade Solutions

Working Capital Management “On Demand”

Artifi cial intelligence, machine learning, big data, robotics, cloud computing, and the Internet of Things (IoT) are just some of the technology trends that are viewed to be fueling a digital transformation that is expected to infl uence nearly every sector and every region of the globe.

Digitization and globalization are some of the primary drivers for Industry 4.0 as companies may scale more rapidly across the globe, through digital, app, and mobile channels, while seeking to maximize the spending power of international consumers. In this new digital economy, the key to success can be in how organizations best bring these technologies together and how they can help harness them to create value, generate revenue, and improve and increase relatability to their customers.

Corporate challenges in preparing for the futureIn the face of these dynamic changes, we are seeing that corporates are under increasing pressure to invest in emerging technologies in order to be more effi cient, optimize resources, and increase growth. However, challenges abound when it comes to implementing and fi nancing digital transformation initiatives.

In an environment where interest rates are rising, global growth is slowing and geopolitical uncertainty remains a constant threat that can cloud the landscape, treasury and fi nance professionals continue to have impact as they strive to improve asset effi ciency and reduce reliance on external capital. Perhaps that is why, according to a recent report, only 14 percent of surveyed executives feel highly confi dent that their organizations are ready to harness the opportunities associated with Industry 4.0.1

1https://www2.deloitte.com/content/dam/Deloitte/tr/Documents/manufacturing/Industry4-0_Are-you-ready_Report.pdf

Treasury and Trade Solutions2

The onus is on treasury professionals to optimize working capital management so that they may have more opportunities to free up trapped cash for possible reinvestment in future innovation, digitization, and R&D efforts that support Industry 4.0 advancements and critical growth objectives.

Digital transformation helps improve working capital efficiencyWe understand that improving asset efficiency and reducing reliance on external capital remains one of the key priorities for corporates who are seeking to finance digital transformation initiatives. This has led more companies to explore strategies that may reduce the need to borrow and improve utilization of existing capital that is tied-up in the working capital cycle.

As may be the case, working capital can be underutilized within an enterprise. By accelerating sales and margin performance through working capital management programs that focus on lengthening days payable outstanding (DPO), improving days inventory outstanding (DIO), reducing days sales outstanding (DSO), and leveraging contract monetization, a more strategic working capital plan can help to achieve greater capital efficiency.

Supply chain finance programs can offer corporates an opportunity to support their global suppliers, while lengthening DPO and extracting cash from the working capital cycle. For suppliers, particularly in emerging markets, accessing a reliable and relatively cost-effective source of capital, which is not dependent on their own credit rating and volatile local market credit cycle, can be highly sought after. On the flipside, buyers may benefit by being able to negotiate longer payment terms without adversely affecting their critical supply base, thus extending the optimization of the balance sheet.

More recently, companies have begun to deploy dynamic discounting as a complementary early payment solution in combination with supplier finance, enabling our customers to address their working capital needs more holistically. Citi has partnered with fin-tech, C2FO, to deliver an offering that leverages a unique patented technology, which can help corporates become more prescriptive about applying excess short-term cash toward early payment of approved supplier invoices. This approach can help buyers to achieve meaningful discount returns and EBITDA improvements, while suppliers gain access to on demand liquidity and the ability to improve important balance metrics.

With more data, banks can help treasurers be more nimbleData can help banks and corporates better understand trade flows and have visibility into market trends and financial patterns in order to take a tailored approach to treasury. The idea of “good enough” or “one-size-fits all” appears no longer viable. As markets become more dynamic and data is accessible more on a real-time basis, treasurers are looking for tools and access that can help them be agile and able to adjust tactics and strategy.

Similar to the rise of the sharing economy, corporates may also be looking for a way to face the challenge of buying and holding inventories without adversely affecting their working capital position. This means having access to the right-sized working capital strategy and being able to rent it whenever they want in order to make strategically important purchases of valuable commodities at key price points. DIO programs can be effective in helping to address this complex challenge by combining efficient supply chain strategies with an electronic trade loan that enables corporates and their trading partners to manage future delivery at a predetermined time.

1.0 2.0

3.04.0

ERP systems, Systems Integration

APIs, Fintechs, Mobile Banking

Fully integrated digital ecosystems, Blockchain

Commercialization of Supply Chain Financing

PAST FUTURE

3Working Capital Management “On Demand”

As customers struggle to access capital, which can reduce their purchasing strength, corporates may be concerned with how this might affect their sales growth globally. Sales finance programs have emerged as an effective strategy to help accelerate sales by potentially increasing purchasing power. Corporates can accomplish this by offering structures to help improve the free cash flow of the client base through longer sales terms — often without negatively affecting DSO. In return for the longer terms, the buyer may be able to accept higher sales volume targets from the customer.

Contract monetization programs that offer sales of multi-year contracts are another means for corporates to explore further extending working capital. Whether used with managed service or bundled service contracts, customers can convert large, single-period capital expenditures into multi-accounting-period operating expenditures. This can also help enable corporates to recognize the revenue and the free cash flow at the point of sale.

Choosing the right banking partner for this new worldFinding the right banking partner can be crucial for optimizing working capital. With the rapid pace of change, it is key that corporates look for a bank that is also transforming to meet the needs of this evolving digital economy.

At Citi, we are digitizing many aspects of our operating model, client interactions, product and solutions delivery, processing and servicing. By shifting to a digital model, we have greatly improved the onboarding experience, requiring less paperwork and redundancies, which can help enable clients to get on our network more efficiently. We are shifting toward increasing digital and API options in cross-border payments by enhancing our platforms and looking at further ways to link strategies in end-to-end digital pathways for the future.

Our clients can rely on Citi as one of the world’s leading working capital finance banks with our oldest supply chain finance program established over 17 years ago and still active and growing.

As change becomes a constant in our industrial, regulatory and market environments, corporates need an agile banking partner with flexible strategies to meet their evolving financing needs. With an integrated global suite of working capital solutions, coupled with specialized industry insight, Citi is ready to collaborate and assist corporates in increasing their sources of liquidity while helping them to embrace the opportunities of Industry 4.0.

Data can help banks and corporates better understand trade flows and have visibility into market trends and financial patterns in order to take a tailored approach to treasury.

Treasury and Trade Solutionsciti.com/treasuryandtradesolutions

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1820355 04/19