WHITE PAPER: WORKING CAPITAL FINANCE
capital offerings – receivables purchasing and supplier financing,” he continues.
Theme 2: ESG financing is gaining traction The global megatrend towards a more sustainable world economy is also having an impact on supply chains. The EU, for example, plans to hold companies accountable for ensuring that human rights are respected and environmental impacts are reduced throughout their value chains. This is known as the EU Supply Chain Law, and is expected to be enforced in 2025. In the future, companies
will therefore be required to track, document and verify their supply chains more closely than ever. For this to be possible, they should initiate a comprehensive evaluation of their existing compliance and due diligence programmes, the white paper states. While database providers
or external consultants can help companies with this monitoring, banks can also assist companies to improve sustainability performance in their supply chains. Deutsche Bank has, for example, recently linked the existing supply chain finance programme of German consumer goods company Henkel to the suppliers’ ESG ratings. By improving their ESG rating, suppliers can reduce financing costs in the supply chain. And this is of interest for other companies as well: in a 2021 survey of corporate treasurers, about half of the 125 respondents said they could envision using such programmes to incentivise their suppliers to be more sustainable.
Theme 3: Asset-as-a-Service schemes increase in popularity Another major megatrend that will shape future working capital financing is the Internet of Things (IoT). “There will soon come a time when customers will no longer have to buy machines or equipment outright, but will also have the option to pay based
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Figure 2: Strategies for more procurement and price security alongside suitable working capital financing solutions
Strategy
Supplier loyalty and diversification of suppliers
Insourcing and local procurement
Raising stockpiling
Financing requirements
Total assets
Profitability
Financing requirements
Supplier finance Dynamix discounting Reverse factoring
Investment loans Inventory finance Source: Deutsche Bank
on actual capacity and asset utilisation,” says Jochen Siegert, Head of Asset Platforms at Deutsche Bank Corporate Bank. This approach is also described as ‘Capex-to-opex’. Customers can thus make their cost base more flexible and adapt it to the sales of their end products. In turn, machine and plant manufacturers can offer their customers additional services and complementary services such as maintenance (‘servitisation’). In this environment, Asset-as-a- Service (AaaS) models will gain importance, explains the white paper. “The central concept here is that neither the balance sheet of the plant manufacturer nor that of the plant user becomes the limiting factor,” says Siegert. This is made possible through a range of financing and risk management solutions presented on or off the balance sheet. Yet, as the paper points out, AaaS is currently in its infancy – and all parties involved still have further work to do before they can successfully implement this business and financing model.
Theme 4: Ecosystems and fintechs permanently alter the structure of working capital financing Finally, the topic of working capital financing has, in recent
39
years, increasingly become the focus of fintechs and technology groups. These new market players want to create added value for companies through creative solutions and user-friendly platforms, the white paper outlines. The US tech giant Amazon is, for example, partnering with fintech Lendistry to offer short- term financing for Amazon sellers and, in conjunction with ING Germany, financing with terms of up to 12 months. According to the white paper,
the key for banks will therefore be to open their platforms up to the right fintechs. As one example of collaboration with fintechs, the report names Deutsche Bank‘s investment in Traxpay. Companies can use this platform to combine
different working capital solutions – like reverse factoring, dynamic discounting and digital forfaiting. Another example that demonstrates how ecosystems can help improve working capital financing is the Trade Information Network, which was established in 2018 by six banks, including Deutsche Bank, to improve companies’ access to trade finance solutions. The white paper ends with
the conclusion that finance managers should “start looking today at how to equip their working capital financing for this multidimensional transformation”. As the world is changing, so are the requirements for corporate treasurers when it comes to working capital.
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