Cash & Liquidity Management

Working capital management: reaching the next level

Published: Jun 2014
Blurred warehouse shelves

The way that corporates approach their working capital management is evolving. Rather than simply addressing inefficiencies for short-term gain, forward-thinking treasurers are now striving to embed sustainable, long-term working capital strategies at the heart of their business. Four experts from ING’s Working Capital Solutions group explain what is driving this shift and outline how companies can take their working capital management to the next level, while ensuring minimal disruption in their day-to-day operations.

Portrait of Robert O’Donoghue

Robert O’Donoghue

Global Head of Working Capital Solutions


In January 2012, Robert O’Donoghue (1967) assumed the role of Global Head of Working Capital Solutions within Transaction Services of ING Bank. O’Donoghue began his career with Morgan Grenfell in 1990 as a Financial Institutions credit analyst. In 1992 he moved to ING Bank London in the Corporate Banking area and later joined the Debt Capital Markets Group of ING Capital UK. In 1998 Robert, together with his family, moved to Amsterdam where he assumed the role of Head of Syndications covering the Benelux Corporates and Structured Finance. In May 2009, he moved to Global Credit Restructuring and established a new team with responsibility for ING’s restructurings in Asia, the UK and Structured Finance Amsterdam. O’Donoghue has a Masters Degree in Economics from University Collage Dublin.

Portrait of Leon Merkun

Leon Merkun

Managing Director Transaction Services Solutions Group


Leon Merkun joined ING’s Transaction Services Solutions team in 2013, focusing on working capital and liquidity improvement opportunities for multinationals. Before joining ING he worked as Finance Director EMEA at Harman’s Consumer business from 2009 – 2011. Between 1997 and 2008 he worked at Royal KPN NV, responsible for Corporate Finance and was appointed Group Treasurer in 2003. Leon has an Executive Master of Finance and Control degree from Nyenrode University in the Netherlands and studied business economics at Rotterdam’s Erasmus University.

Portrait of Amador Malnero

Amador Malnero

Managing Director, Global Head of TRPP – Head of Working Capital Solutions Belux


Amador Malnero joined ING’s Working Capital Solutions group in 2012 as Global Product head for TRPP and Regional Head for Belux. He has many years’ experience in Receivables Financing transactions, on balance sheet and in ABCP conduits, across a vast number of jurisdictions. Previously, Malnero was Global Head of ING Securitisations Group since 2006, focusing on synthetic and cash securitisations on ING assets as well as for third-party customers. Before that, Malnero spent six years at ING Corporate Finance in Belgium. Malnero holds a Bachelors and a Masters degree in Economics from the University of Louvain (Belgium).

Portrait of Oliver Petersen

Oliver Petersen

Global Head of Supply Chain Finance


Oliver Petersen is the head of ING’s Supply Chain Finance. The team seeks to optimise the working capital positions of both a buyer and its suppliers on a global basis. Established in 2010, the Supply Chain Finance team leverages ING’s international footprint with operational teams based in The Netherlands, Romania and Russia. Before this, Petersen was a Director in ING’s Structured Finance Telecom, Media and Technology department and worked for ING’s Corporate Credit Risk Management department. He holds an international MBA from the University of Nyenrode.

Over the last three years there has been a consistent improvement in working capital performance among Europe’s largest publicly traded companies. In fact, statistics from REL’s 2013 Europe Working Capital Survey show a significant six per cent increase in working capital performance year-on-year. This level of improvement suggests that companies not only understand, but actively recognise, the importance of working capital in an uncertain economic environment. Working capital is suddenly much more than just a product; it is a philosophy.

Leveraging assets

“Lessons have been learned,” says Robert O’Donoghue, Global Head of Working Capital Management, Transaction Services at ING, referring to the global financial crisis and the banking sector restructuring and regulation that resulted from it. “In the not too distant past, many companies took advantage of cheap bank funding sources, with little regard for their overall funding mix. Now there is much more focus on what constitutes near-term liquidity; what constitutes longer-term liquidity; and where companies can create cash and liquidity using their own resources.”

With REL’s research revealing that approximately €762 billion remains tied up in excess working capital across Europe, the opportunity for companies to leverage their existing resources in this context is obvious. The question is: how can these opportunities be realised in the most efficient manner?

“In early 2012, ING took the decision to package all of its working capital solutions into one department, with the aim of putting the client even more at the centre of our offering. The Working Capital Solutions team brings together the receivables side of the business and the payables side. It aims to help our client find the best way, and the optimal timing, to put the right solutions in place, with the least impact on their day-to-day business,” notes O’Donoghue.

This requires not just a portfolio of leading-edge working capital solutions, but genuine insight into industry trends and best practice; a deep understanding of how individual businesses function – and how they compare with their peers; as well as a holistic approach to identifying and implementing sustainable working capital strategies. ING does not disappoint.

Trend watch

While ING has a long track record in helping clients with their working capital needs, the bank does not rest on its laurels. As Leon Merkun, Managing Director Transaction Services Solutions Group at ING and former corporate treasurer puts it: “The working capital solutions that every international bank offers are usually comparable. What makes ING stand out from the crowd are the people who work here and their drive and flexibility to come up with tailored solutions, the background they have, and their understanding of what our clients’ priorities, objectives and constraints are.”

Maintaining this edge means keeping a finger on the pulse and picking up on trends that are influencing the way that corporates see working capital solutions. “For example,” says Amador Malnero, Global Head of Trade Receivable Purchase Programme at ING, “selling your receivables in a factoring solution was historically perceived quite negatively, because it was seen as the ‘lender of last resort’. Today, people look at their receivables very differently – they are as an asset class that can and should be monetised.”

Likewise, perceptions around supply chain finance solutions are changing. Oliver Petersen, Global Head of Supply Chain Finance, ING, explains: “The conversations we are having with suppliers are becoming easier as more supply chain programmes are rolled out – largely because a lot more suppliers now know about the benefits. Some suppliers still find it hard to believe that there is no catch to SCF, but that is the only major mind-set hurdle still to overcome. SCF is really gaining traction as a sustainable way to strengthen the overall value chain by allowing buyers to extend their payable terms while helping suppliers to deleverage the balance sheet.”

Another interesting trend is the movement among cutting-edge corporates to raise awareness of working capital outside of the finance function. This is fast becoming a best practice model for corporates across the globe.

Best practice: taking the next step

“One of the greatest challenges is to make sure that working capital management is not just a one-off project, but to make sure that it is embedded in the business,” says Merkun. “To achieve this, finance and the business must work together. The business must be as responsible, or perhaps even more responsible, for the management of working capital than the finance function.”

Best practice also demands an integrated approach, Merkun adds. “You can’t just look at accounts receivable, accounts payable or inventory in isolation. You need to consider the bigger picture. Looking at optimising your inventory for example, you need to make sure that you are still able to meet the level of demand from clients.” This requires regular input on how demand is developing. At the same time, the demand forecast should be transferred into the supply chain to make sure that there are sufficient resources available to cover the level of demand.

According to Merkun, “that’s often where the challenges lie: to maintain the discipline and ensure that everybody is involved. Weekly or monthly sales and operations meetings can help, together with regular follow-up actions.” Forging a stronger link between procurement and finance can also be useful here, generating opportunities to ask whether the company is extracting the best terms from its trade relationships (different business entities often buy with the same supplier at different terms); how those terms compare to competitors; and how key suppliers in the supply chain can be better supported.

As an additional means to ensure that different business functions and entities are on the same page when it comes to working capital, leading companies are also moving towards centralised control of working capital within group treasury. “It’s a question of scale and uniformity,” says O’Donoghue. “If you have subsidiaries without a common goal, there are likely to be inefficiencies. Centralisation can help you to vastly improve on efficiency, not only operationally but also through the consolidation of budget, which could potentially allow the company to invest in a more sophisticated IT infrastructure to better support the company’s working capital, for instance.”

Chart 1: Working capital opportunity assessment
Chart 1: Working capital opportunity assessment

Source: REL Consultancy, Working Capital

Looking ahead, thinking forward

Talking about best practice is all well and good when working capital management is very much front of mind still for corporates, but as the economic climate starts to pick up, will companies push working capital management onto the back burner again? O’Donoghue thinks not: “Solid working capital management is something that companies absolutely need to invest in for the future. Diversification of funding sources through working capital solutions is an excellent way for companies to demonstrate to shareholders that they are running an efficient operation. It is also a useful way to demonstrate commitment and value to relationship banks.”

So how can companies ride the current momentum around working capital to put in place a structure that will serve them well over the longer term? “If it’s not seen as a priority, it’s not going to happen,” says Merkun. “In this case, it’s a question of helping senior management and other stakeholders to see the value in working capital management.” An extremely useful tool for doing this is peer analysis, he says, which is something that ING specialises in.

A peer comparison can alert you, and your management team, to potential areas of improvement in working capital performance. “It also allows ING, as working capital specialists, to challenge the client around their current working capital performance, and allows the client to challenge us in return,” notes O’Donoghue. A typical conversation might proceed along the lines of: ‘are your competitors more working capital efficient than you are? If so, why are they doing it? No doubt because there is a benefit in doing so.’

“At that point, we can start to look at the solutions which would work best for the client, bringing efficiencies with the least disruption to their day-to-day operations,” he explains. “Can we use securitisation techniques in order to monetise receivables portfolios? Or on the payables side, how can they use their credit rating to better support their suppliers while improving their own DPO?”

O’Donoghue makes it very clear however, that this is just the tip of the iceberg. There is very much a ‘no one size fits all’ mentality at ING. Client challenges are often unique in circumstance, therefore solutions are often tailor-made.

“We like to really know our clients, understand their working capital and get under the skin of their supply chain – both from a financial and physical perspective. If there is something in the business of concern, we will always strive to find a solution for the client. ING is an extremely loyal supporter of its clients, and we always aim to work as a constructive partner with our clients,” he comments.

This partnership approach means working alongside clients not just in the choice of solution, but in the implementation of it too. “We are integrated in the client’s project,” says Petersen. “What makes us so well positioned to do this are the diverse backgrounds and experience of our Working Capital Solutions team. We have experts from all walks of banking and corporate life. This means that we have a good understanding of working capital from the corporate’s point of view, and that we understand the need for balance between short- and the long-term liquidity. Leveraging this knowledge base, we can package and implement solutions that really fit the bill for our clients.”

The Working Capital Solutions team is also extremely well placed to pinpoint what makes a working capital strategy truly successful. O’Donoghue says: “overhauling your company’s working capital strategy will take some resourcing and it won’t happen overnight, but to give you the best shot at making it work, a commonality of thinking will be required. If, for example, your procurement department is driven by getting the cheapest price and the treasury department that is driven by cash preservation, you’ve got a conflict. You need common KPIs and goals to make the project run more smoothly.” In addition to alignment of KPIs, senior level support is also critical, says Malnero. “This means securing buy-in from upper level management, right the way through from the CEO to the CFO.”

Only once these fundamentals are in place will companies be able to cast off the notion that working capital is something to be taken for granted. Working capital will instead be seen as an area that deserves critical attention from all stakeholders, and a potential source of value to be monetised.

Solutions suite

Supply chain finance (SCF)

A working capital optimisation tool, SCF unlocks cash, trapped both within a company and in the value chain with key suppliers. ING purchases the approved trade receivables that suppliers have on a given buyer, essentially stepping into the shoes of the supplier. Subsequently ING will receive payment from the buyer when the invoice becomes due.

Benefits for the buyer include a reduction of working capital and increase of free cash flow through extended payment terms as well as the potential to improve relationships with suppliers, creating opportunities to negotiate better terms and conditions. Meanwhile, suppliers benefit from instant liquidity through early payment of invoices and lower financing costs.

ING offers a fully automated web-based SCF solution, which complies with the highest possible security standards and is designed to have a limited impact on existing operations.

Oliver Petersen, Global Head of Supply Chain Finance, ING

Trade receivables purchase programme

Providing an alternative funding solution, ING’s trade receivables purchase programme (TRRP) is based on securitisation techniques, by purchasing large and diversified portfolios of trade receivables. The transfer of receivables is typically executed via a true sale of the receivables to ING or to a special purpose vehicle (SPV).

The TRRP is an attractive source of committed funding, which offers competitive pricing up to an AA equivalent rating as well as anonymous access to financial markets. It is also a strong balance sheet management tool to improve financial ratios and overall pricing. ING has a successful track record with over 250 TRPP programmes completed. An experienced team of professionals is available to cover all aspects of a TRPP transaction, from feasibility assessment to documentation.

The fact that the receivables securitisation programme can sit comfortably next to other forms of financing is just one of the features that makes it attractive.

Michel Jansen, CFO of Clondalkin – ING client

International corporate receivables financing

Facilitating clients in raising liquidity through the financing of trade receivables, inventory and purchase orders, ING is able to take over debtor risk. The solution can be tailored to the needs of clients as a one-off trade receivable purchase or as a facility for multiple receivables from the same debtor or group of debtors. Receivables financing can be done with recourse or on a non-recourse basis (the latter can potentially achieve off-balance sheet treatment).

The benefits include diversification of funding sources, scalability to help finance trading growth at attractive pricing; and the flexibility to capture everything from single debtor receivables to multi-jurisdiction pools in a single transaction structure.

Amador Malnero, Global Head of Trade Receivable Purchase Programme, ING

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