29 June 2016

Optimize Financing for Global Growth

Insights on cash management and accessing the value of receivables, purchase orders and inventory

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Success in business is often measured by revenue and profits. But even healthy sales and wide after-cost margins can be eroded when receivables aren't paid promptly and cash flow is moving inefficiently - challenges that are often magnified for companies that do business abroad.

That's why it's important to tap into the value of receivables and inventory, and to gain greater control over cash and payments.

Ensuring they get paid should be a top priority for businesses, says Jessica Russell, assistant vice president of global trade and receivables finance at HSBC. But many companies today deal with customers who implement payment terms that typically run anywhere from 45 to 60 days, and sometimes even longer. In some cases, there is no guarantee of payment at all - a risk that tends to be higher for companies that do business globally. Meanwhile, their suppliers want advance payment, putting even more pressure on the company's cash flow.

Another common problem, especially among global businesses, is the lack of clear insight into cash holdings. Rahul Sharma, who heads HSBC's cash management sales team in Ontario, says it's not unusual for globally-focused companies to have cash sitting in multiple accounts in multiple countries.

"So when you need to make payments, it's difficult to know which bucket of cash you should tap," he notes. "That leads to operational risk where you are inefficiently using your cash - for example, if you need to make a US payment but are tapping into your Canadian account instead of your US dollar account."

This blurry line of sight into cash holdings also exposes the business to the risk of fraud, says Mr. Sharma. This issue is particularly true for companies that have given employees or representatives in other parts of the world access to bank accounts without putting in place sufficient controls.

"These companies may, at some point, find out that money is being funnelled out the back door," says Mr. Sharma.

Companies also face potential losses resulting from manual errors. As an example, Mr. Sharma cites a client who used a Canadian bank to send money to Indonesia. Because of a data entry mistake, this client stood to lose almost USD27,000.

"Fortunately, an HSBC staff member in Indonesia was able to intervene and retrieve the money. But in most cases, getting money back from an international money transaction is difficult", says Mr. Sharma.

To protect their profit margins and drive growth, companies must find the right solutions for these challenges. Many businesses already have access to receivables financing through their banks but are likely doing so at a steep discount. Ms. Russell notes that banks typically value receivables at about 75 per cent. By comparison, HSBC can provide up to 90 per cent of the value of receivables.

Purchase orders (PO) and import financing are examples of other solutions that can give companies quicker access to cash from sales revenue. P.O. financing can be especially helpful for companies that have landed a big contract and need money now to pay for expenses associated with the order.

With import financing, companies that buy and sell abroad but do not need to bring inventory into Canada - they may buy from China, for example, and ship directly to a buyer in another country - can tap into the value of their in-transit goods without having to wait until the goods arrive at their destination.

"These types of financing allow you to buy and sell and be competitive," says Ms. Russell. "They give you access to the cash you need to take bigger contracts and grow."

The ability to manage cash flow from a central, highly visible platform is also critical in ensuring greater insight and tighter control over accounts. Mr. Sharma says this platform should, ideally, present a complete view of all accounts and investments.

It should be backed by a robust system of checks and approvals, with appropriate levels of authorized access to accounts. For example, a representative or staff member in another country might be allowed to prepare payments, but these transactions still need approval from an approver in Canada.

With greater insight and tighter control over their accounts, companies can make better money decisions. Foreign exchange is another key consideration and one that should be addressed with solutions such as currency hedging or forwards. Working with Foreign Exchange experts is a must, says Mr. Sharma.

Ken Albright, president of SEVEN CONTINENTS CORPORATION, a Toronto manufacturer of retail store mannequins, says having access to the right financing and cash management solutions has made all the difference for his business, which launched in 1977. Over the years, SEVEN CONTINENTS has turned to HSBC for solutions such as receivables and P.O. financing, and currency hedging.

The company also uses HSBC's online cash management solution, HSBCnet, which Mr. Albright calls "the most practical day-to-day" tool that SEVEN CONTINENTS uses today.

"We can monitor everything we do straight from our desktops," he says. "We don't have to go through a lot of formal approvals, signatures and all those things - it's all pre-set. So those are really big advantages that HSBC has given to us that we could not do before"

Whether they're operating globally or staying within Canada, every business needs to ensure they're optimizing cash flow from receivables, contracts and inventory and managing their cash accounts and payments in a way that is efficient and secure. Learn more about HSBC solutions that can meet these critical business needs.

The ability to manage cash flow from a central, highly visible platform is also critical in ensuring greater insight and tighter control over accounts.


The information presented is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this document without first obtaining specific professional advice. While reasonable care has been taken in preparing this document, HSBC does not make any guarantee, representation or warranty (express or implied) as to its accuracy or completeness. The information presented in this document is subject to change without notice.

Certain of the products and services offered by HSBC and its subsidiaries and affiliates are subject to credit adjudication and approval. This document does not constitute an offer to provide the services and products described and the provision of such services and products remains subject to contract.

HSBCnetservices are provided in Canada by HSBC Bank Canada. HSBCnet features and functionality vary by country. Subject to Canadian sanction regulation

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