Cash & Liquidity Management

All together now: integrating payments, trade and working capital

Published: Oct 2013
Stack of coins

The complexity of modern business means that a client and solution focused mindset is increasingly necessary to meet a corporate’s daily transactional challenges. Integrated delivery, driven by this understanding, can help client organisations become more efficient in both their key business processes and in managing their finances.

Gerlach Jacobs

Global Head Transaction Services

Gerlach Jacobs is Global Head Transaction Services at ING Commercial Banking since March 2011 and member of Commercial Banking’s Executive Team. Jacobs held various positions within ING in Hong Kong, Los Angeles, Mexico City, New York, London and Amsterdam.

Transactions Services includes Payments and Cash Management, Trade Finance Services, Working Capital Solutions, as well as ING’s specialised cash management subsidiary Bank Mendes Gans.

For ING, Transaction Services has brought three distinct but closely allied product domains into a single line of business, as a third product pillar of Commercial Banking, alongside Financial Markets and Lending Services. Transaction Services merges the core flow businesses of Payments and Cash Management, Trade Finance Services and Working Capital Solutions, together with the highly specialised cash management and pooling business of Bank Mendes Gans. How does this approach influence ING’s view of the world and more importantly, what does this mean for its clients?

The cash management challenge

It is no secret that as a result of the financial crisis, the professional view of treasury departments in companies has become even more important. However, treasurers also have a number of new important challenges to meet. Gerlach Jacobs, Global Head Transaction Services, ING Commercial Banking, immediately focuses on the growing pressure to optimise working capital management (WCM). “More than ever it is vital to combine the financial and the physical operational supply chain, and to become as efficient as possible in managing working capital, because during the crisis many corporates had to face reduced availability of bank credit.”

Whilst Jacobs acknowledges that WCM continues to be a challenge, “because we are still living in difficult times and banks and the financial industry are still re-organising and responding to constantly changing regulation”, he believes that the more a company treasurer focuses on managing working capital, the more efficient that business will become and the less dependent it will be on traditional forms of lending.

Working capital: staying focused

Of course, treasurers have always sought to manage their working capital; “it is part of their core remit”, says Jacobs. But pre-crisis, when there was ample liquidity available in the market, it was natural for them to focus on other, more pressing issues. “Now we are in the midst of another difficult economic cycle and companies must once more look to improve all their financial metrics,” he adds. And one way to do that is to ensure that their working capital is at peak efficiency.

It stands to reason that superior WCM improves key financial metrics including profitability, return on equity, risk perception and even access to funding. “What we see are companies focusing more and more on the different aspects of working capital – not just on cash and liquidity – and many are increasingly looking for tailor-made working capital solutions.” Using products that are designed to enhance the working capital position of a company, corporates are looking at those parts of working capital which can generate optimal financing; Jacobs notes for example the increased appetite for payable solutions, with supply chain finance (SCF) in particular having “finally really come to the market”.

It is easy to make bold statements of intent about improving WCM, perhaps by stretching payables or demanding quicker payment but Jacobs warns, it is essential to look deeper into commercial relationships across the physical supply chain than this would normally suggest. Corporates are focusing a lot on their core physical supply chain relationships but are so internally focused that it puts key suppliers under pressure. It is, he explains, vital to look at the right mix of products but also be very aware that the physical and the financial supply chain are very closely connected. “It is about making sure that you value your corporate supplier and buyer relationships, and ensuring that you have a good overview of your total supply chain and that it continues to work as optimally as possible. SCF is an obvious example where you can improve your working capital without creating a liquidity squeeze for your core suppliers.”

Difficulties can arise if a business does not have oversight of all the different aspects of WCM, especially if there are competing metrics for each department involved in the overall process. Jacobs believes that part of the reason why corporate treasuries are more important is because the business units really need that overall view, now more than ever. Technology has a role to play in delivery, he notes, but reporting on working capital and on liquidity “is becoming increasingly professionalised” requiring a deep skill-set to correctly understand results.

There is also a need for ever more timely data, so that companies know exactly what their working capital and liquidity position is, on a real-time basis. “In some large corporates where all these activities were run completely separately, perhaps out of the accounts receivables (AR) or accounts payable (AP) departments, the quest now is for a more harmonised approach; it has to align because they all support each other.”

But had there been a temptation to let WCM slip a little in times of easier credit? The focus may have shifted to other matters but Jacobs is adamant that treasurers have never “taken their eye off the ball”. There is a constant demand for more up-to-date financial information, “and that is not going to change”. Companies invest in technology, such as enterprise resource planning (ERP) systems, and that, he notes, is not going to change either. “All the measures that companies have taken to protect themselves against the financial crisis are going to continue and once they have started I do not think they are going to loosen their grip on WCM.”

Working capital solutions

Supply chain finance:

ING’s SCF offering for suppliers and buyers combines outgoing payment services and a web-based portal. It features reconciliation functionality and full electronic trading of invoices. The ING concept aims to deliver a range of benefits to clients including access to transparent trade receivables and payables statuses and provision of automatic payments and faster funding. The bank’s broad global network enables local supplier support during on-boarding, and its robust SCF legal structure is based on current best practice. In addition, ING’s customised client support for programme rollouts can accelerate collaboration between finance, purchasing, sales and trade partners.


As a cash flow tool, accounts receivable financing, also known as factoring, has a long history. Within ING it has been offered for more than 40 years as a means of raising working capital by financing their receivables, inventory and purchase orders. If a business is concerned with adding fixed costs, has slow turnover of receivables, is highly seasonal or challenged by lengthy manufacturing cycles (or is just undercapitalised), factoring may be used to accelerate the monitisation of receivables, improve cash flow and act as a risk management tool.

Trade receivables finance:

The import and export business is full of financial and regulatory hurdles that can trip up the inexperienced. For clients who are looking to expand their export business ING provides its Trade Receivables Purchase Programme. An alternative solution to finance trade growth for exporting companies by purchasing large and diversified portfolios of their trade receivables. Customers generally have a focus on Europe, but are also active in the America’s, Asia and the rest of the world, where they are supported by ING’s local capabilities in 40 countries.

Cash and payments: SEPA is coming, ready or not

Another major cash management challenge for treasurers in Europe is the looming Single Euro Payments Area (SEPA) deadline. Jacobs believes that the whole industry still has reason to be concerned about its implementation. However, what he observes across ING’s client base is a growing desire to move on, particularly as the 1st February 2014 deadline is almost here. Many large multinational corporations have made significant progress, “certainly in their SEPA Credit Transfer migration plans”. On the SEPA Direct Debit side, he is less sure: “There still is a lot of work to do”.

“We see regional differences. Some countries are more advanced in their implementation preparations than others and domestically I see smaller businesses still having many of their SEPA migration projects ahead of them,” notes Jacobs. “There is no time to waste because the risk is that everyone waits until the last moment and then migration capacity is going to be under tremendous pressure.”

Despite all the press coverage, alarm bells and the fact that governments are now helping to create more awareness across Europe on the importance of being SEPA-ready, the banking industry feeling is that “things could speed up a bit” on the corporate side. However, ING is “working day and night” to accomplish the migration. ING has many core corporate customers that need to migrate and Jacobs points to the various ways in which the bank is helping them to do that, including offering its expertise and guidance on formats, testing and customer on-boarding. “We have an army of SEPA migration project managers working with our clients, helping them to get ready for implementation,” he says. ING also has a comprehensive website covering all aspects of SEPA preparation and migration at

Despite the pressure, ING believes that it is still feasible to have its client base ready for SEPA. Of course, payments are a network business and it is one thing to be ready yourself, but you are also dependent on all other entities with which you do business being ready too. Smaller banks and SMEs may not realise the implications of not being ready and, says Jacobs, it will be tough for them to comply. “This is the common theme in our payments industry and everyone is putting their maximum resources on this. Time will tell if all parties will be ready in time.”

The inexorable move towards SEPA should be viewed as an opportunity for corporates to start considering the benefits it should bring. “At the moment that’s not happening; people are just scrambling to make sure they are ready,” notes Jacobs. Beyond February 2014, he suggests there will be a period “where we all catch our breath” and then the real opportunities will become more apparent. “Centralisation of liquidity is already possible, but I think centralisation of payments is the next step. We’ve always seen a delay in that for different reasons – too expensive, benefits outweigh the cost, and so on – but corporates are now going to look at these as real opportunities in SEPA phase 2.

Payments solutions: the Payments Factory

ING offers clients a centralised Payment Factory (PAF) which operates as an overlay service, providing a single-point-of-entry interface between the client’s ERP system and the bank’s infrastructure. PAF provides end-to-end connectivity with clearing systems and helps clients achieve uniformity in distribution channels, file formats and processes. Harmonising processes reduces or removes treasury duplication, increases oversight of local offices and can deliver savings through economies of scale and can be combined with a collection factory to optimise working capital management.

Developing trade finance

The likely impact of Basel III on some banking industry products is well publicised, including the possibility of increased costs for banks. In the trade finance space, there have also been some more positive effects of regulation, notes Jacobs. In certain markets, he says, some of the more stringent local regulations have eased slightly, as the regulators increasingly realise that the trade finance product set is fundamentally a safer product than some other forms of lending. Allied to this has also been a desire not to hamper trade by increasing the cost of a financial product that is a crucial “lubricant” in international trade. Jacobs is hopeful that this stance will continue.

Usually when costs rise due to increased regulation, the application of smarter product processing is often the solution. This can typically be implemented by either reducing processing costs by redesigning operations; or through more automation of business processes. “You would think that all that has been done, but there are still plenty of opportunities to centralise certain operations and create further economies of scale,” he explains. “Most financial institutions are looking into their processes to make sure that their cost of doing business remains competitive.”

In trade finance, this effort is nowhere better illustrated than by the advent of the Bank Payment Obligation (BPO). Although it has been around for a while, it gained a major boost in April this year when the International Chamber of Commerce (ICC) approved the uniform rules around the BPO (creating the URBPO). This, says Jacobs, goes a long way towards removing the process inefficiencies that are associated with paper-based letters of credit (LCs), whilst still retaining the desired level of risk mitigation to keep costs down.

Trade finance solutions

ING’s trade finance products include letters of credit, documentary collections and bank guarantees. These can be combined and shaped into a custom-built solution, according to client need. With a letter of credit (also known as a documentary credit), the buyer’s bank guarantees payment to the seller if certain criteria are met. Documentary collections, just as letters of credit, reduce the payment risks on international trade transactions, and with a bank guarantee obligations to third parties are ensured. All these products offer security and protection against risks if an international trade transaction does not go as planned.

Importers and exporters can also use a letter of credit to obtain financing. An exporter, for example, can obtain funding from its local bank to manufacture the goods as this bank is assured that payment will follow when the documents are presented under the credit.

The cash and trade alliance

Cash management and trade within the corporate space have always enjoyed something of a synergistic relationship, says Jacobs, noting too that “some of the products are substitutes for each other”. However, in the current economic environment, corporates are increasingly sensitive to the positions of their core suppliers and the other key participants in their value chains. Therefore they are ensuring they use the appropriate products to cover their risks and to ensure that their entire value chain continues to work efficiently. “I think there’s an even more proactive approach to make sure that there is access to sufficient liquidity throughout the entire supply chain” he states. “There is and always has been a close relationship between cash management and trade – and this will always be there.”

An holistic approach

The corporates across the ING client base are, generally now much more interested in looking at an overall banking proposition, rather than taking a product-by-product view. “What I see is a more holistic approach, with corporates looking at their total value chain,” Jacobs confirms. This holistic approach is driven by the need to make their working capital position as strong as possible, including reducing funding requirements and to become better at self-financing. It means that more functions are involved in the financial processes of the business, including IT and procurement, but this is a welcome broadening of the discussion. “In the past we talked mainly to the treasurer or assistant treasurer and the conversation was often about a specific product. Now we tend to meet with a larger group of client staff, looking at the company’s overall financial position, how it all fits together and ultimately finding ways to improve working capital and liquidity.”

Considering the increasing importance of the treasury department across ING’s client base and the need for businesses to be on top of working capital more than ever, the bank has made some “quite dramatic changes” to its business model, says Jacobs.

It started by reviewing its core products; those seen as a key part of the working capital proposition for its corporate clients. It defined four overarching product domains: payments and cash management; working capital solutions; trade finance solutions; and a fourth product domain which is operated via ING subsidiary, Bank Mendes Gans, providing specialised overlay propositions (including cash pooling on a global basis handling close to 40 currencies). “I guess it’s a sign of the times and also proof that companies are becoming better in managing their working capital, as we see that these products are in demand, with many customers having a growing interest in them,” states Jacobs.

ING also created a client solutions group specialising in looking at the working capital of customers, coming up with “total solutions” (rather than focusing on a single product) to address the whole physical and financial supply chain of its customers. “We continue to develop our technology, investing in our portals, our centralised services for treasury and centralised data management,” Jacobs states. “We are also looking at harmonising processes and our client service model. We are a large international bank with extensive market presence internationally but we want to make sure that our customers feel that we are a harmonised organisation, with all the efficiencies that a seamless consistent service can bring.”

Keep delivering

Treasury presents a dynamic environment in which both corporates and banks must respond to and increasingly anticipate events. Right now, SEPA is top of mind and will stay there until at least 31st January next year. ING is mindful that it must give its clients time to implement and comply, but will also continue to work closely with clients to provide innovative solutions to improve their liquidity management. “Having gone through the SEPA implementation, in the second half of 2014 I expect many corporates will be seeking advice on what will happen in the post SEPA era – ‘SEPA 2’ – and how SEPA can improve their payments and cash management processes “ Jacobs says.

The continual stream of regulatory change will absorb a lot of industry time and effort. The European Commission’s proposal for a revised Payment Services Directive (PSDII), for example, was published in July 2013 and if approved by the European Parliament, will have to be transposed into law in each Member-state before being implemented. Such changes will continue to demand “a lot of the bank’s attention” but, Jacobs adds: “We will continue to look outwards, servicing our customers and making sure that we continually make things easier for them and deliver the best solutions that fully meet their requirements – in the end this is what really matters to both us and to our clients.”

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