What banking solutions can help protect your business from uncertain conditions?

If you’re looking to expand into new global markets, you need a plan to trade safely and securely.

Could banking solutions give you more stability and greater opportunities?


In these times of geopolitical unrest, trading disruption and economic uncertainty – all compounded by the pandemic – you’re probably looking for new ways to drive revenues and futureproof your manufacturing or producer business.

One way to open yourself up to new opportunities is by trading internationally. However, this can create additional problems while you find and deal with new customers and supplier partners. Trading conditions are likely to be more volatile, with increased uncertainty following the COVID-19 crisis. And when you throw fluctuating foreign exchange (FX) rates into the mix, you’re suddenly at the mercy of shifting costs.


We asked a number of manufacturers and producers what kinds of banking solutions they use, what benefits they offer, and how they help them to protect their businesses.


Are you using the right solutions to manage currency fluctuations?

As you trade internationally, FX can be a major concern. Collecting funds from buyers and paying suppliers in a number of different countries, using different currencies, can make cash flow harder to manage. As the treasurer at a mid-size global packaging manufacturer says: “Pricing really matters to our business. We are very cost conscious. We need the best pricing on payments and FX.”

So, how can you keep on top of FX? With banking solutions, you get greater transparency into FX rates, plus enhanced visibility into payment flows and how currency is managed. So, you can get more control over the numerous FX conversions you need to deal with.

Many businesses also use forward contracts – a promise that a buyer will purchase goods at an agreed price in the future. Combined with FX hedging strategies that help the manufacturer buy goods when the prices and rates are in their favour, this gives them more certainty and flexibility.

We typically hedge case-by-case and implement risk mitigation measures when needed, with approval from HQ.

GROUP TREASURER, GLOBAL MANUFACTURING CORPORATION


Other businesses are employing the latest FX trading platforms to make sure they can give their buyers clear, accurate information on pricing in their own currencies. This removes much of the cost and complexity. And it helps traders to get the best rates. The corporate treasurer of a luxury goods manufacturer tells us: “We use a trading platform now which is great for us. We used to call up for trade, however, we could never set it up in time. Now, the FX trading platform asks the banks to join in to give us a price quickly and efficiently.”

Currencies will always fluctuate, of course. But you can reduce the negative impact it has. And with a more proactive approach to FX, you can even create a competitive advantage. By using technology that gives you better visibility of market rates, you can make more informed decisions on when to buy supplies. Combined with the right hedging strategies, you can make sure you only purchase when the FX rate is in your favour. So, you don’t get caught out by high prices that impact your bottom line or, worse still, put your supply chain at risk due to lack of materials.

With the right FX solutions from your banking partner, you can also offset some of the risk that comes with dealing in your buyer’s currency and take some of the uncertainty out of trading in competitive foreign environments. And if you trade in your own currency, they’ll help to ensure you don’t price your products out of the market.


Is your forward planning sufficient to protect you when entering new customer relationships?

If you trade internationally with new partners, you have to do so with a certain leap of faith. If you choose open account trading, where you ship goods before you receive payment, you’re essentially trusting your trading partners abilities, and also their willingness to actually pay up. So, you need to be sure. And that means doing your due diligence – assessing customers on their ability to meet their financial obligations.

In accounts receivable, I use a scorecard to assess [buyer] performance. We often have to respond to late payments and chase customers.

FINANCE MANAGER, MID-MARKET PACKAGING MANUFACTURER


Equally, if you’re entering into a new contract, your partner may require you to offer some security in case you can’t meet your obligations. This helps you both to reduce your levels of risk. To do this, many businesses use bonds and other tools, to help give the supplier an additional level of security in case their buyer is unable to meet the terms agreed. By insisting on a similar arrangement with your buyers, you can help protect yourself against loss of payments that don’t come in.

You can also use these kinds of guarantees as a substitute for paying cash deposits to your partners. This helps to free up working capital, which you can spend elsewhere within your business. And because your partner feels more protected, you’ll be able to build a stronger relationship with them – and potentially negotiate more favourable rates and payment terms. If you have highly complex contracts, you might even need a mix of bonds solutions.

“We get invited to tender for projects – some have pre-qualifiers, others open,” says the Group Treasurer for a global manufacturing corporation. “So, we need a bid bond and other tender documents. It depends on the nature of the project. We need the bank’s guarantee to bid for projects and to obtain performance bonds.”

By using banking solutions to build these stronger supplier relationships, you’ll find yourself in a better position to expand your product range – and also your global reach.


Do you have the right banking solutions to help you operate in new regions?

When you expand your business into new markets, you have to acclimatise to new ways of working. And you could face a number of political and cultural risks, along with strict measures that will be put in place in the wake of COVID-19. With the right banking partner, you can call upon the expertise of professionals who have strong experience of different global working cultures. They can also advise on the best ways to deal with different political risks, and help set up a solid financial infrastructure that supports you internationally. If they have local knowledge and personnel in a number of countries, they may also be able to guide you on ensuring you meet any compliance regulations necessary. And they can help you avoid inadvertently becoming involved in money laundering or sanction breaches.

You can also access a number of trade risk management solutions that help minimise credit default from new overseas customers. Equally, your business might be perceived as a credit risk to potential customers. But with guarantees and trade credit solutions, you can help manage these risks.

Your bank will also be able to provide solutions that help you streamline your accounts payable processes. This is an absolute necessity when you have money coming in from different markets at different times, and need to manage it wisely to ensure you have good working capital. By investing financial technology solutions, you can optimise your accounts receivable process, while also streamlining payables. So, you can keep money flowing steadily through the business. You also get near real-time data, giving vital insights into your cash position. And with automation, you can reduce the risk of delays and errors in processing.


Are your current solutions able to protect you from supplier non-performance?

One of the main factors that sees many suppliers and distributors underperform is a lack of sufficient working capital. This is particularly true in some of the most commercially attractive emerging markets.

Without working capital, your suppliers could struggle to purchase the materials or components they need to fulfil their orders for you. This could leave you short on supplies and your production chain could falter. Thankfully, there are supplier management solutions available to help you protect yourself against these eventualities. For newer or smaller suppliers with whom you have less of an established relationship, letters of credit could be the best solution. For more established suppliers, you could use supply chain finance solutions to help them maintain working capital.

We have recently implemented a supply chain finance programme. With the programme we can get longer terms for supplier payment. Our supplier gets the cash after 15 days – they pay the interest costs and get cash earlier, ensuring they have what they need to fund their performance.

GROUP TREASURER, GLOBAL MANUFACTURING CORPORATION


Supply chain finance programmes enable you to pay your suppliers early for their goods – at a better rate than they would usually have to pay for funding. So, they have cash in their business when they need it. With this increased liquidity they will be better positioned to not only meet their contractual obligations to supply you, but can invest in their business and innovations that could benefit you both.


Is it time to consider new banking solutions?

The right banking solutions can be invaluable for helping you protect your business from a number of financial and productivity risks. Not only that – they can also help you foster better relationships with partners, negotiate better deals with suppliers, uncover new opportunities, and drive your business to new levels of global success. But there are a few things you need to consider. How can you use banking to help manage fluctuations on FX? Could better future planning protect you when entering new relationships and global markets? And what banking solutions can best protect you from suppliers that let you down?

Sign up for insights

Need more answers and insights? Learn how other businesses like yours are using banking solutions to protect themselves during uncertainty. Talk to one of our advisors.


Award-winning banking


Euromoney Awards for Excellence 2020 Logo

Middle East's Best Bank for Transaction Services

We are industry innovators, at the forefront of technological changes in transaction banking

GTR Leaders in Trade 2020 Logo

Best Global Trade Finance Bank

We never stop working to understand the needs of every small business

Euromoney Market Leader Cash Management 2019 Logo

Best Regional Cash Manager - Middle East

We've made significant investments into digital products and channels to deliver transformational cash management services

You are leaving the HSBC Commercial Banking website.

Please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.

You are leaving the HSBC Commercial Banking website.

Please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.