Optimizing working capital
Treasurers and CFOs alike are focused on optimizing working capital and extracting additional value from their company's supply chain. In this video David El Hadj discusses how importers and exporters can improve their international working capital. David discusses how buyers can extend days payable outstanding and conversely, how sellers can reduce days sales outstanding.
Lori Crever: Hi. I'm Lori Crever and today, I'm joined by David El Hadj, relationship manager with Wells Fargo International Trade Services. We're going to talk about optimizing international working capital.
It's great to have you here, David.
David El Hadj: Thanks. It's great to be here.
Lori Crever: Tell us about your role in the Wells Fargo International Group.
David El Hadj: Well, I'm part of Wells Fargo's International Trade Services team. We focus predominantly on corporates, both large and small, facilitating cross-border business and expanding their international sales through working capital solutions as well as risk mitigation options. So this is certainly a prudent and pragmatic approach to expanding a company's sales.
Lori Crever: We know we have many companies out there who are looking to further expand their international trade. Now where does optimization of working capital fit in?
David El Hadj: Well, there are numerous areas in which working capital fits into a company's supply chain, for instance. First and foremost, corporate treasurers and CFOs alike are very focused on working capital and extracting cost savings from a company's supply chain and in some cases, it can even be a competitive advantage. There are two main areas in which working capital can be enhanced. Firstly through an extension of days payable outstanding on the import side and conversely on the export side, a reduction in days sales outstanding.
Lori Crever: Let's look further at from the perspective of a buyer. How is this of benefit?
David El Hadj: Well, from a buyer's perspective, it creates certainly additional leverage and goodwill for the suppliers in terms of leveraging off of a buyer's low credit rating and cost of capital, both domestically and internationally. It's also a competitive way to monetize accounts receivables and lastly it frees up borrowing capacity that could be used for dividends or reinvestment back into the company and in some cases acquisitions.
Lori Crever: What if I come to you, I'm the customer, and in the transaction, I'm the seller.
David El Hadj: Again, on a seller side, numerous advantages, too. From the seller's side, the key here is to reduce days sales outstanding. So a seller might have original terms at around 90 days and now through a supply chain finance type program, it would reduce it to, in some cases, just a few days. So therefore, it would have, you know, additional working capital to use as it may please for dividend buyback or reinvestment back into the company. It all depends on what their actual motive might be and in addition to the fact that sellers tend to utilize such programs to benefit their overall, you know, metrics and essentially provide a, you know, holistic working capital solution to their supply base.
Lori Crever: And David, what would you say our specific benefits that working with your team and Wells Fargo bring to this optimization of working capital?
David El Hadj: Wells Fargo certainly has a rich history in the international trade business. Having been in the business for over 163 years, tremendous infrastructure in place. Facilitating global trade on behalf of our corporate customers. Ways in which they benefit are numerous and working capital is certainly an area of expertise. We link together various areas of the bank. For instance, our ITS, our International Trade Services team, our foreign exchange group, as well as liquidity and cash management to offer holistic solutions to our corporate customers, both large and small. In doing so facilitating international trade and creating U.S. jobs through exports.
Lori Crever: Fantastic. David, thank you so much.
David El Hadj: Thank you.
Lori Crever: If you'd like to learn more about how to position your company in the global marketplace, talk to your Wells Fargo International Trade Services relationship manager.