Insights
The quiet crisis in working capital: low utilisation
Finverity Team
Key takeaways:
Utilisation rates give banks insight into their clients and the quality of their proposition
Onboarding smaller names – not just top-tier suppliers – can increase utilisation
A digital platform simplifies the selling of invoices & reduces manual work
Of your existing facilities, how many are more than 90% utilised? How many are 80% or even 60% utilised for that matter? And crucially, what does that percentage tell you?
It’s a little known fact that utilisation is one of the most valuable data points in SCF for its correlation with credit quality on the one side and your value proposition on another. Confused? Here’s what certain percentages suggest:
Under 50% says that clients are struggling with your user experience or your pricing. Either way, they’re likely to turn elsewhere.
70-90% is the gold standard. Assume that your price and user experience are optimal and your client is likely to stay with you.
Over 95% is a quasi-red flag. If it persists, such a high percentage could show that your client is over reliant on credit or their credit quality is deteriorating.
In a recent survey we conducted with 120 banks active in open account trade finance, the average utilisation measured in at 50-75%. That’s some way short of our “gold standard”.
If, like most banks, your utilisation rates are lower than you’d like, you’re missing valuable revenue and valuable insights.
Why is utilisation low?
The process of selling invoices under Supply Chain Finance (SCF) programmes, both buyer-led and seller-led, can be operationally complex and time-consuming for the following reasons:
The client is required to upload invoices, together with any supporting documents
The counterparty must confirm information submitted by the client
Bank staff must complete various approvals at various stages
Regular compliance and AML checks are required on an ongoing basis
The fact is, the above steps are painful when carried out person-to-person and without tools to smooth the exchange of information. But the right technology can play a pivotal role in simplifying the process.
By automating steps like invoice upload, data verification, and approvals, technology reduces the burden on corporates and makes engaging with SCF programmes more attractive.
As far as what you should do next, making changes to each of those steps will make a dent. If you want to make a big impact with relatively little effort and at relatively short notice, there is no replacement for the system solution.
By using an SCF system, selling an invoice can be as simple as clicking a button. In some instances, a system can do the selling on a supplier’s behalf according to the parameters set by the bank.
The onboarding challenge
Not all corporates are onboarded onto SCF programmes, which can significantly limit the reach and effectiveness of a programme.
Smaller corporates or those with relatively low transaction volumes, often aren’t invited to join due to the perceived cost and complexity of onboarding.
These same suppliers simultaneously have the most appetite to sell invoices and, as a singular entity, have higher on average utilisation. Onboarding more suppliers that fit this profile will therefore increase the overall utilisation of any SCF programme.
To address this, SCF providers should streamline and automate the onboarding process and create more inclusive strategies to lower the barriers for smaller suppliers. This could include simplifying the application process by making the provision of KYC information digital.
Conclusion
Increasing utilisation in open account financing programmes is a transformative goal that significantly impacts the bottom line of any bank and strengthens supply chains generally.
Having that clear view of utilisation also brings many benefits, among them better risk management, better client engagement and client management for the bank.
The question is, do you have the technology to pursue this transformative goal?
How can FinverityOS help?
FinverityOS is your all-in-one system for open account trade finance & SCF.
But it doesn’t just make it easier for suppliers to sell invoices, it lets you…
Enhance and expand your offering with a single system to support all products and more clients.
Save time and minimise human error by digitising and automating manual, repetitive tasks.
Offer truly unique solutions. Build custom products, workflows and processes for you & your clients.
Introduce digital checks & balances to view, verify & validate every transaction.
