Introduction
During the three years following the
publication of the first edition of this book,
the global economic outlook has remained
uncertain. Some countries, notably those
in North America and Europe, have been in
and out of recession. Other countries have
been more fortunate, and have enjoyed
some growth. Even so, all continue to be
affected by the fragile nature of the global
economy. There remains no clear consensus
on when, or whether, a period of sustained
growth will return. In this context, external
opportunities for company growth may be
limited. Consequently, companies are being
forced to focus on achieving efficiencies, both
internally and along their supply chains, to
generate growth for their shareholders.
Companies are looking to enhance
liquidity within their businesses and to
mitigate risk as far as appropriate. Despite a
trend in trade towards open account trading
and away from the use of letters of credit and
documentary collections, traditional trade
finance techniques are increasingly being
viewed by finance directors and treasurers as
tools which support these objectives. This is
the background in which this book has been
researched and written.
The main objective of the book is to
position the role of trade finance in the
context of improving efficiency in the financial
supply chain, in order to manage working
capital more effectively. The core text has
been written with the corporate treasurer and
finance director in mind, although it will be
of equal benefit to those in companies of all
sizes with day-to-day responsibility for trade.
Although most references are to companies
trading goods, the analysis is equally
applicable to companies trading services.
The book is divided into two core sections.
The first consists of five main chapters.
Chapter 1 is a general introduction to the
concepts involved in the book. It explains
how treasurers are now increasingly involved
in supporting trade activity and managing the
wider working capital of the company.
Chapter 2 explains the core elements of
the working capital cycle, breaking this down
into three distinct processes: a company’s
procurement process (purchase-to-pay),
its sales process (order-to-cash), and its
production process (order-to-delivery, or
forecast-to-fulfil). The chapter explains how
these physical activities link to the financial
supply chain, and shows how treasurers can
become involved in managing working capital
across the company’s activities.
Chapter 3 highlights the different payment
terms used in international trade, and
explains how these terms expose buyers/
importers and sellers/exporters to different
levels of risk, depending on the terms used.
Chapter 4 looks at how companies are
beginning to integrate their trade and cash
management activities to focus on more
efficient use of working capital. It identifies
three core objectives for companies when
managing working capital: to improve
liquidity, to mitigate risk, and to enhance
sales. It shows how a more integrated
approach to both cash and trade can result
in improved working capital management
and help companies meet some or all of
these objectives.
Although it is impossible to predict with
any accuracy how the trade market might
develop in future years, Chapter 5 highlights
a number of the trends which are evident
at the time of writing and which seem likely
to develop over the next couple of years.
It concludes with a discussion of how
e-invoicing and P-cards can be used to make
supply chain finance more efficient.