Gwynne Master, Managing Director, Head of Working Capital; Merisa Lee Gimpel, Managing Director, Head of Working Capital Innovation & Trade Transformation; and Rebecca Trotter, Director, Working Capital Innovation & Trade Transformation at Lloyds Bank, share details of the bank’s new and innovative set of financing solutions, designed to help companies optimise working capital and prepare for the future.
Working capital is the life blood of any business. The flow of cash through supply chains both creates and consumes working capital, meaning that effective supply chain management and resilience is fundamental to the operation of all the businesses within it.
The events of the pandemic have created an unprecedented economic shock and impacted supply chains across the globe. Whilst some sectors have experienced growth through the pandemic, measures to control it have, across many sectors, acted to choke off both supply – as the means of production have been curtailed – and demand – as economies and the consumers within have been impacted by the global recession.
The impact on the global economy has created a massive focus on the nature and management of supply chains and their resilience, creating lively debate on the merits and pitfalls of just-in-time delivery, re-shoring and near-shoring, as well as the need for genuine diversification within supply chains.
The need for resilience in supply chains is by no means new. Back in 2013, the UK government’s Foresight report on ‘The Future of Manufacturing: A new era of opportunity and challenge for the UK’ predicted increasingly frequent and large-scale disruptions to supply chains. The types of supply chain shocks experienced since have been broad; from natural disasters to the Boohoo scandal that removed nearly US$2bn of equity value in two days, the Suez Canal closure which resulted in around US$9bn of trade losses per day, and of course Covid-19. With growing populations, geopolitical tensions, and the mounting threat of climate change, we have to assume that more shocks are coming, and businesses must be prepared.
As the recovery phase gathers pace, challenges still remain – as evidenced by the shortage of semiconductors, creating significant delays across many industries with automotive experiencing significant supply shortages.
As the flow of goods is suppressed, the flow of cash is impacted as well. This has the greatest impact on the smaller suppliers, those lower down the supply chain tiers, and the companies that tend to have more limited financial reserves.
This cascade effect further adds to the SME funding gap, estimated to be £22bn in the UK alone. Supply chain disruption increases pressure and, as economic activity recovers, impacts the smallest businesses first.
Supporting supply chains
The deployment of supply chain finance can help to manage the funding shortfall and provide ready access to additional liquidity when businesses need it. Quicker access to cost-effective funding throughout the supply chain adds to supply chain resilience and benefits all participants.
Supply chain disruption can be caused by a lack of access to sufficient liquidity. This is not a new phenomenon. The case for supply chain finance has been well made for many years but its adoption has not been as rapid and as widespread as logic suggests it should. In fact, a 2020 McKinsey ‘Global Payment Report’ stated: “Significant value in the global supply chain finance (SCF) market remains untapped. Nearly 80% of eligible assets do not benefit from better working capital financing, and the remaining one-fifth of assets are often inefficiently financed. Despite improvements made in recent years, advances have been largely incremental.”
According to the report, buyer-led supply chain finance solutions are the fastest-growing part of the US$7tn trade and supply chain finance landscape at 15%-20%.
Lloyds Bank has itself been a provider of supplier finance and receivables purchase for more than 13 years, supporting clients both domestically and internationally. In recent times, as part of a focused and sustained period of investment, a client-centric review was undertaken to understand how the client experience could be improved and the use and adoption of the solutions enhanced.
A cornerstone of this programme of strategic investment has been human-centred design, placing the client at the centre of the innovation process, to ensure that a clear and detailed understanding of the client pain points is used to drive the solution design.
Listening to our clients, their needs and pain points, Lloyds Bank has invested in a new platform that delivers in a simple, quick and transparent way.
A client-centric innovation process
Responding to these client insights at pace, and to the best result, has required a step change in approach, one that breaks free from the siloed approach often undertaken by banks, and an embrace of the capabilities of external technology partners to deliver new solutions.
The relationship between large and established financial institutions and new and emerging fintechs was billed, in its infancy, as a battle. Today, it is widely evidenced that it has now developed into an effective, mutually beneficial collaboration: the skills and speed of the fintechs and the scale and market reach of the established institutions combine to deliver client benefits at pace.
Equipped with the insights provided by in-depth client research and collaboration, Lloyds Bank has now launched a new set of funding solutions, bringing together both supplier finance and receivables purchase on the same platform for the first time.
The build-out and deployment processes were made far shorter than the traditional approach taken by banks, with a new solution delivered for use by customers in less than six months from the deal being signed.
The new solution
Branded as Lloyds Bank Open Account Platform, this client solution will offer supplier finance and receivables purchase to Lloyds Bank customers through a single online portal for the first time, helping UK businesses and their suppliers to optimise working capital.
- Open to all. Banks have often been criticised for their inability to finance the long tail of suppliers in buyer-led supplier finance programmes. With our new technology, we are open to all suppliers regardless of their spend or size. We now offer a fully digital onboarding process, making it simple to join a programme. Thanks to the technology in place, large numbers of suppliers can be onboarded quickly and efficiently. Visibility is key! Our simple intuitive dashboards help manage day-to-day operations, track what has been paid and forecast cashflow. We have worked closely with buyers and suppliers to ensure forecasting and reconciliation can be completed with ease. We give our clients full visibility throughout the onboarding process, with buyers able to monitor their supplier onboarding via a live and interactive dashboard.
- Get paid quicker. A wealth of self-service functionality allows Lloyds Bank clients to choose the funding option that suits them best. Straight-through processing provides cost-effective and sustainable finance to supply chains, empowering businesses to optimise working capital. Suppliers can finance all invoices automatically, select specific invoices for sale or choose an amount and let the platform do the rest.
- Keep up with innovation. Lloyds Bank’s partnership with innovators, as opposed to a traditional vendor relationship, also ensures a continually improving offering to clients. In terms of new and exciting technology associated with supply chain finance, we are due to launch dynamic discounting later in the year.
Planning for the future
Whilst recent events have brought supply chain issues into sharp focus, the challenges of effective supply chain management are longstanding and will not be overcome easily. The growth in the importance of the ESG agenda brings additional impetus to the design and management of supply chains. Full end-to-end visibility of supply chains and their participants is fast becoming a prerequisite for many buyers as their customers demand higher standards across the ESG framework.
As businesses plan their futures and refine their supply chains, funding of that supply chain can be an opportunity to support a more sustainable future, as ESG considerations become ever more important. Some programmes offer discounted rates to suppliers based on their sustainability score, providing financial incentives for suppliers to become more sustainable. In another model, green or ESG-linked eligibility criteria are set at the programme level and participating suppliers must meet these requirements in order to participate in the programme.
Companies are focused on greater levels of supply chain resilience to lower the financial and reputational impact of disruption. One way of mitigating risk is through providing enhanced access to cash throughout the supply chain – to suppliers in deeper tiers – ensuring more cost-effective funding and continued operations, even in times of economic stress.
Leveraging technology requires further and deeper collaboration between all actors in the market, benefitting businesses across the supply chain with additional visibility and reporting as well as ready access to funding.