Bank Interview: Wayne Mills, Lloyds Bank

Published: Jul 2016
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Amid all the recent market uncertainty, corporate focus on financial supply chain management has never been stronger. But for banks, identifying and delivering the right working capital solutions to corporates requires a strong understanding of not only their clients’ financial supply chains but their physical supply chains too. In this article, we talk to Wayne Mills, Head of Receivables, Asset Based Lending and Corporate Asset Finance at Lloyds Bank Commercial Banking. He explains how the bank’s client-first approach facilitates the development of such an understanding and helps the bank financially leverage their clients’ physical supply chains – both cross-border and in their domestic markets.

Wayne Mills

Head of Receivables, Asset Based Lending and Corporate Asset Finance

Lloyds Bank

In supply chain management, why is it so important for companies to focus on financial supply chains as well as the flows of physical goods and information?

It is absolutely crucial to consider both the financial and physical supply chains when working to optimise working capital. How a company manages working capital – the time it takes to pay creditors and, conversely, be paid by its debtors – is heavily influenced by the physical supply chain.

It is therefore incumbent upon us as a bank to understand how our clients’ physical supply chains work so we can deliver the right solutions for their financial supply chains. It is about getting to know the client, and understanding the inherent risks when financial and physical supply chains are not aligned.

There is always the danger of a ‘disconnect’ if financial solutions are implemented without consideration of the physical supply chain. For any company endeavouring to optimise working capital, the level of internal stakeholder collaboration is crucial. Although most bank relationships are treasury-led, when we talk with clients about supply chain finance (SCF) there is often a need for a wider discussion with other functions such as procurement and IT. The need for positive engagement and support from those stakeholders (some of which may be working to different Key Performance Indicators (KPIs) from treasury) is, in my experience, one of the most significant barriers to the better integration of the physical and financial supply chains.

Our ‘client first’ approach is more than a mere vision statement: it is something all of us genuinely live at Lloyds Bank.

Another major barrier to integration arises from definitional confusion. Often one of the first items on the agenda in meetings with new clients is establishing what, precisely, SCF means to them. There are a multitude of providers offering SCF solutions within the financial sector at the moment. Each tend to have their own terminology for what is essentially the same thing. When one bank speaks about SCF and another about reverse factoring it can become, quite understandably, very confusing for the client. The approach we take at Lloyds Bank is to recognise the simple truth that for every buyer there is a seller. This then allows us to speak in terms of a ‘seller-led’ Receivables Purchase programme or a ‘buyer-led’ Supplier Finance programme. This simple distinction allows us to clearly determine our client’s view on the extent to which they wish to control the programme. We have a number of clients who prefer to sell their receivables to us through their own “seller-led” programme whereas others are happy to on-board to their customer’s supplier finance programme.

Often there will be a choice for clients to make when thinking about the degree of control they wish to retain with any supply chain financing solution when compared against price advantage, for example, where a rating mismatch offers an ability to secure liquidity based on a better-rated counterparty.

This is why we need to develop a clear understanding of what SCF actually means to our clients. It is especially important for us as we continue to move away from what was, historically, a product-led model to one based on relevant and timely client-specific needs. The question we always ask ourselves is whether the solution is the right fit for the client – irrespective of the different nametags people may give it.

Bringing physical and financial supply chains together

To underscore why understanding both clients’ physical and financial supply chains is so important, we look at the role Lloyds Bank played recently in supporting a company’s efforts to improve working capital.

Lloyds Bank’s client is a UK-based industrials company with operations across EMEA and North America. As part of a wider working capital optimisation project, the company was looking for solutions to help it manage the impact of payment terms being extended by its customers. Discussions were initiated with Lloyds Bank. The bank was able to identify and deliver the ideal solution for the client – but only after it had considered the entire spectrum of who the client buys from and sells to alongside its approach to risk management.

A multi-currency seller-led receivables purchase solution was structured for the sale of outstanding trade receivables in the UK and in certain European territories. This would help mitigate the impact of payment term extensions. The solution had an immediate positive impact. Contract renewals increased and, largely thanks to the flexibility now provided by payment terms, better pricing was negotiated with some customers.

Lloyds Bank’s understanding of its client’s physical and financial supply chains also enabled it to identify certain relationships where the client could support its supplier base with its superior credit rating. A buyer-led supplier finance programme was accordingly set up for selected suppliers in the UK and Europe.

“When viewed on a combined basis, both solutions provided our client with the required mix of liquidity management, balance sheet treatment and control,” says Wayne Mills. But the bank’s commitment to understanding the client does not end at the point a solution is implemented. “We regularly keep under review the performance and relevance of the solutions as the client’s business grows and evolves,” Mills adds, “especially given the current volatility we see across markets.”

What role can banks play in facilitating the integration of financial and physical supply chains?

Bringing it all to life is all about successful execution and, for a bank, this ultimately comes down to having the right business and distribution model to support clients.

To that end, having the right sector and solutions focus is obviously important. Lloyds Bank has experts focused on particular industries collaborating closely with colleagues focused on particular solutions such as trade or SCF. Having the right coverage model helps us ensure we are talking to the right clients at the right time and in the right way.

Our ‘client first’ approach is more than a mere vision statement: it is something all of us genuinely live at Lloyds Bank. That’s why we have focussed on building really strong internal collaboration across our teams so that we can work together to provide clients with end-to-end solutions. If a colleague from within our trade business, for example, identifies a suitable solution residing in a different area of the bank, our business model positively supports and encourages that colleague in collaborating across the business to deliver that solution to the client.

Overall this has to be a good thing for the market. Fintech is keeping the banking sector on its toes, and its rise is creating a more competitive landscape for clients. For Lloyds Bank it is a tremendous opportunity.

As a recent case in point, we successfully supported a client with a funding solution involving multiple asset classes alongside more traditional trade solutions including Letters of Credit. The key to successfully delivering this for our client was a truly collaborative approach across internal teams, harnessing the common understanding of the client’s objectives.

Such collaboration is of critical importance when it comes to supporting our clients in the integration of physical and financial supply chains. The opportunities it presents for colleagues to interact with different areas of the business has an additional benefit to the bank. It helps our teams to broaden their knowledge and skill base, which in turn helps us in finding and delivering the appropriate solutions.

With supply chains becoming ever more globalised, the support a bank can offer corporate clients cross-border is increasingly important. How is a UK-focused retail and commercial bank such as Lloyds Bank able to accomplish this and cover its clients’ end-to-end supply chain?

Our aim at Lloyds Bank is always to support our clients’ trading activities, whether those activities are of a cross-border nature or limited to the domestic market.

Our ability to do that rests on two key elements. Firstly, we have local teams based in-country across our existing franchise which spans a number of markets in Europe. We have hubs in key locations – France, Germany and the Netherlands, as well as our franchise in North America. In addition to our presence in those markets, we recently opened new offices in Singapore which is our hub for supporting our clients’ business needs across Asia. Our clients informed us that much of their trade flows were passing through the Asia Pacific region, so we decided to invest and strengthen our capabilities there. Secondly, we look to utilise the other relationships we have through a partner bank model. In certain circumstances, it may not be economic to invest directly in a certain territory, but that does not prevent us from supporting our clients by, for example, utilising the local capability of another carefully selected financial institution.

Overarching all of this, of course, is the fact that Lloyds Bank has a sincere commitment to the UK economy. We recognise that our clients are trading far more widely than ever before and, indeed, often across borders. Helping them to do that is all part of meeting that core principle of supporting the growth of the UK economy and our clients.

In a developed market where clients typically have good credit ratings and access to liquidity, how does the bank deliver relevant, capital efficient solutions to large corporates?

Again it comes back to having a strong understanding of our clients and their operations. There are a growing number of providers of financial services and a considerable amount of excess liquidity in the market. Our response to that is to focus on our core strengths and capabilities. Honesty and transparency are important here. If as a bank you lack a particular solution in a particular market, you will only build a long lasting relationship by having an open, honest discussion with the client.

Clients understand and appreciate that. Treasurers do not expect banks to be able to service all their needs comprehensively in every jurisdiction across the globe – but they do expect, quite rightly, their relationship banks to be straightforward with them.

Fostering those longer-term relationships is the top priority for Lloyds Bank. That means striving to work very closely with clients and maintaining good quality two-way dialogue so that we can better understand what they need and when. It is a source of pride when I see the length of time we have had supply chain solutions in place where most have endured for longer than five years and some more than ten years. That tells me we have successfully identified an appropriate solution in each case and continue to adapt as markets and client needs evolve.

What influence do you expect fintechs to have on this market?

We have seen a deluge of new entrants in the SCF space in recent years, so naturally there has been a huge amount of industry discussion on the topic. From a personal point of view, I am absolutely convinced that rather than being a threat or a disrupter in relation to banks such as Lloyds Bank, fintech can be an enabler and a facilitator. Working together with fintechs can benefit our strategy in terms of supporting clients and delivering the right working capital solutions to help them optimise their financial supply chain.

Our client-first approach also puts us in a strong position to collaborate with the fintech sector. Through regular dialogue, we have a deep understanding of our clients’ physical and financial supply chains. This helps us understand, when we look at the new fintech entrants, which providers can offer solutions that would be beneficial to our clients. We can therefore evaluate whether they would be suitable prospects for partnerships. Some of the new entrants have developed solutions that we think are very credible.

Overall this has to be positive for the market. Fintech is keeping the banking sector on its toes, and its rise is creating a more competitive landscape for clients. For Lloyds Bank it is a tremendous opportunity. If we harness it in the right way, we can achieve our goal of better supporting our clients and delivering solutions that are relevant to them now and in the future.

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