News April 6, 2020

COVID-19: why Treasury and Procurement must work together

Why Treasury and Procurement must work together to weather the COVID-19 storm

With the COVID-19 pandemic disrupting global supply chains, are Treasury and Procurement departments working as closely together as they need to be? No, says ex-corporate treasury risk manager, and now Director for Corporate Cash Management Structuring APAC, Villasis-Wallraff. On the back of a successful client webinar covering this topic, she explains what’s at stake and some of the ways Deutsche Bank can help clients navigate these turbulent times.

Why is this dual-partnership so critical now?

When COVID-19 was mainly a problem in China, supply chain disruption was very localised and had not become a global issue. Of course, now the situation looks very different. Recently, red flags started to appear in some countries and industries. The Philippines closed its FX markets for a couple of days disrupting FX markets across the region. Suppliers started to beg for early payments from stronger companies. Procurement as a function is suddenly in the spotlight and now needs to learn quickly how to work with the custodian of cash: Treasury.

OK, can you give us an example?

Treasurers are responsible for having the right amount of cash at the right time, in the right place and in the right currency. They know what needs to be paid and in which currency only when the invoice hits the system. In some companies this is one day before the payment, which is sometimes too late as the risk has already crystalized.

It is Procurement who negotiate which currency a supplier will be paid in. But if Treasury presents the options to Procurement, it can reduce risks in commercial negotiations and improve conditions, e.g. pricing without premium for FX risks. Working together, they can strategically manage risk.

What about supply chain risk, how can closer partnership help there?

Counterparty risk in the financial supply chain is increasing every day. In APAC we have seen an uptick in suppliers joining supply chain programs, as they are increasingly asking to get paid earlier. Treasury doesn't need to sit at the commercial negotiations table with suppliers, but they can strategically evaluate risks taken by the Procurement teams, who play a role in pricing, and present options that can support commercial negotiations. Treasury can re-distribute the risks.

How can Deutsche Bank help?

Weaker suppliers might not have access to hard currencies right now. If they are carrying the FX risk in their contracts, they might need support as adverse FX risk positions can lead to financial distress. We can facilitate cross-border payments in various currencies without clients needing to have an account in that particular currency.

Once the FX risk is transferred to our clients, they need advice on how to transfer the risk forward. And if clients need help to put all of these programmes in place to start with, our Cash Structuring and FX sales teams can set them up.

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