The past few years have shone a spotlight on working capital as never before. Here Mel Yucel, Head of Factoring and Senior Working Capital Advisor, The Netherlands at BNP Paribas talks about her new role, companies’ working capital objectives and how banks can help.
What are your objectives in your new role?
My goal is to work with BNP Paribas’s global client base, especially in the Netherlands, and facilitate a dialogue about working capital management and their strategic value chain. My background is in financial supply chain management and I am excited to join BNP Paribas given the bank’s broad range of working capital solutions.
What defines BNP Paribas is a single-bank approach to fact-finding and mapping a clients’ needs across working capital in its entirety. We are not just looking at supply chain finance, but a much broader range of working capital solutions. Our capabilities span supply chain management solutions such as payables, inventory and receivables finance, but also a sophisticated factoring solution: BNP Paribas is the number one provider of factoring finance in Europe.
Combined with our broad geographical footprint, our approach and suite of solutions means we can address working capital in a much broader way than institutions that take a product-led approach.
What role can factoring play in companies’ working capital optimisation?
Factoring has historically been seen as a middle market solution while supply chain finance, which has increased in prominence over the past decade, has been targeted at large corporates. But that’s not how we look at it at BNP Paribas.
Both solutions help clients to achieve their working capital objectives, depending on a corporate’s needs or constraints. Factoring can address a more granular portfolio of debtors, enabling a corporate to improve its days sales outstanding, reduce concentration risk or facilitate additional sales to specific debtors. In contrast, supply chain finance tends to focus on a concentrated portfolio. Many companies have both a wide range of customers and suppliers: therefore, it makes sense to offer a wide range of solutions. Our state-of-the-art platform can accommodate anything from 10 to 20,000 counterparties so it is easily scalable to meet clients’ evolving needs.
One important characteristic of factoring is the use of credit enhancement, using facilities provided by agencies such as Coface, Euler Hermes and Atradius. While factoring is a fully collateralised, self-liquidating solution, the use of insurance mitigates the credit risk of debtors for BNP Paribas and the client. Factoring also offers a lot of flexibility and support the client in its growth needs.
“Working capital management is now a C-suite priority. There is a recognition that working capital is locked-up capital: the goal is to unlock it to as great an extent as possible and create a stable strategic value chain. One reason for the increased focus on working capital is that both equity and debt investors now use working capital metrics as a gauge of sound management and financial efficiency”.
Mel Yucel, Head of Factoring and Senior Working Capital Advisor at BNP Paribas CIB The Netherlands
How have corporate attitudes to working capital changed during your career?
My career in finance began outside the world of working capital but I started helping companies to address their working capital needs at in my previous role in 2010 at a time when treasurers’ interest in such solutions was starting to grow. Working capital management is now a C-suite priority. There is a recognition that working capital is locked-up capital: the goal is to unlock it to as great an extent as possible and create a stable strategic value chain.
One reason for the increased focus on working capital is that both equity and debt investors now use working capital metrics as a gauge of sound management and financial efficiency.
More recently, the experience of the pandemic, the supply chain crisis that affected many sectors as the global economy returned to growth, and increased geopolitical risk have served to remind companies not just about the financial aspects of working capital but about the need to ensure the stability and integrity of the strategic value chain: it’s essential to overall viability.
To give you one recent example, when Adele released her album 30, an order of half a million records resulted in delays at vinyl pressing plants for many other artists. Record labels without strong relationships with their vinyl suppliers were effectively out of the game, whereas Adele’s record label had worked with its suppliers to ensure it had access to pressing capacity well in advance of the release date.
Another example that demonstrates the complexity of supply chain challenges is that the semiconductor shortage has not only caused problems for automotive OEMs but resulted in production delays that have an impact on suppliers of other automotive components. Having a strong relationship with the value chain in that situation is critical for the corporate because there may be a need to amend contracts or delivery schedules. And working capital solutions can be used by all parties – both the offtaker and the supplier – to mitigate risks.
Effective management of the supply chain can also play an important role in advancing companies’ sustainability objectives, which are now a priority for many corporates. We offer solutions that incentivise suppliers to improve their environmental, social and governance (ESG) performance.
The good news is that the focus on working capital is now mainstream for almost all companies. CFOs and treasurers tend to meet frequently and discuss developments, so when one company adopts a working capital solution there is often peer pressure on others to see if there are opportunities to improve efficiency. We can also help companies in this process by analysing public information about the working capital efficiency of their competitors and finding efficiencies and solutions that will allow them to become best in class.
Ideally, every company would want an optimal cash conversion cycle where they only ship their product after a customer has paid for it and pay the suppliers of the components of that good after the customer has received it. However, most companies’ models don’t work like that. So, our mission at BNP Paribas is to help companies find solutions to fine tune their cash conversion cycle, improve their days sales outstanding and days payable outstanding and optimise their use of working capital.
What is your approach to addressing client needs?
At BNP Paribas, client needs inform everything we do. We have a number of tools at our disposal and a unique approach that allows us to take a much broader look at working capital than many of our competitors. We also have an international network so we can support clients’ working capital objectives even when they span borders, as well as help them manage cross-border payments and collections. And we have really invested in our platform and implementation to ensure a smooth experience for everyone involved in the process.
Our role is to make companies aware of the opportunities that are available, understand their day-to-day needs, ambitions and challenges, and translate that into a solution that genuinely delivers on their objectives. We accompany them through every aspect of this journey. Banking products can sometimes be challenging to understand and deploy effectively – we seek to make it easy, to ensure that clients get the most adequate solution for their needs.
Want to know more about the latest developments in the area of working capital management? Read the following article: treasury’s focus on working capital will continue to increase (bnpparibas.nl)