Global payment terms and corporate financing needs hit record highs

Global working capital requirements increased for the third consecutive year in 2023, reaching 76 days of turnover (up two days versus 2022), driven by softer economic growth and higher operating and financing costs. This is according to the latest global Days Sales Outstanding (DSO) and Working Capital Requirements (WCR) report from Allianz Trade. Despite differences in momentum, the prolonged rise in WCR remained broad-based across key economic regions.

“Overall, half of the countries in our sample posted an increase in WCR in 2023, and two out of five crossed the global average, notably France (+5 days) and Germany (+5) in Western Europe, and China (+3) and Japan (+3) in APAC,” said Maxime Lemerle, Lead Analyst for insolvency research at Allianz Trade. “WCR reached 81 days at the end of 2023 in APAC (+2 days), 69 days in Western Europe (+1 day) and 70 days in North America (+1 day). Moreover, 34% of companies recorded WCR exceeding 90 days of turnover as of Q4, compared to 32% and 36% as of Q4 2021 and Q4 2022, respectively.”

DSO emerged as the key driver of rising WCR, increasing by three days in 2023 to reach 59 days. This is the largest jump since 2008 and almost double the rise in 2022, implying that more companies are waiting longer to get paid, raising the risk of cash flow issues. Globally, 42% of companies posted payment terms above 60 days of turnover at the end of 2023.

“In Europe this share was in line with the global average, while it was above in Asia (46%) and below in North America (33%),” added Lemerle. “Nevertheless, almost all the 22 sectors we monitor saw rising DSO in 2023. An inventory glut also pushed WCR higher in transport equipment (114 days of turnover), electronics (114) and machinery equipment (113), followed by textiles, pharmaceuticals, metals and chemicals - all with WCR above 90 days.”

Allianz Trade also found that profitability is the number one driver of payment terms in Europe, more impactful than financing or the business cycle. In this context, slowing global demand in 2024 and still-high operating costs could set the stage for a further deterioration in payment terms, especially in Europe.

Addressing late payments is critical to building resilience for European corporates. The European Commission’s proposal for an EU Late Payment regulation suggests that payment terms could be reduced from the current recommended 60 days to 30 days binding. While the European Parliament has incorporated an extension to 60 days if agreed by contract or to 120 days for specific goods, it still brings significantly lesser business flexibility compared to the current terms and is likely to increase the financing gap for more than 40% of European companies paying after more than 60 days as of Q4 2023, resulting in a significant macroeconomic impact.

 

IFRS standard aims to aid investor analysis of corporate financial performance

The International Accounting Standards Board (IASB) has completed its work to improve the usefulness of information presented and disclosed in financial statements. The new standard, IFRS 18 Presentation and Disclosure in Financial Statements, should give investors more transparent and comparable information about companies’ financial performance, thereby enabling better investment decisions. This will affect all companies that use the IFRS Accounting Standards.

IFRS 18 introduces the following three sets of new requirements to improve companies’ reporting of financial performance and give investors a better basis for analysing and comparing companies:

1. Improved comparability in the statement of profit or loss (income statement). Currently, there is no specified structure for the income statement. Companies choose their own subtotals to include. Often companies report an operating profit, but the way operating profit is calculated varies from company to company, reducing comparability.

IFRS 18 introduces three defined categories for income and expenses—operating, investing and financing—to improve the structure of the income statement, and requires all companies to provide new defined subtotals, including operating profit. The improved structure and new subtotals will give investors a consistent starting point for analysing companies’ performance and make it easier to compare companies.

2. Enhanced transparency of management-defined performance measures. Many companies provide company-specific measures, often referred to as alternative performance measures. Investors find this helpful information. However, most companies don’t currently provide enough information to enable investors to understand how these measures are calculated and how they relate to the required measures in the income statement.

IFRS 18, therefore, requires companies to disclose explanations of company-specific measures related to the income statement, referred to as management-defined performance measures. The new requirements will improve the discipline and transparency of management-defined performance measures and make them subject to audit.

3. More useful grouping of information in the financial statements. Investor analysis of companies’ performance is hampered if the information companies provide is too summarised or too detailed. IFRS 18 sets out enhanced guidance on how to organise information and whether to provide it in the primary financial statements2 or in the notes. The changes are expected to provide more detailed and useful information. IFRS 18 also requires companies to provide more transparency about operating expenses, helping investors to find and understand the information they need.

IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027, but companies can apply it earlier. Changes in companies’ reporting resulting from IFRS 18 will depend on their current reporting practices and IT systems.

IFRS 18 replaces IAS 1 Presentation of Financial Statements. It carries forward many requirements from IAS 1 unchanged. IFRS 18 is the culmination of the IASB’s Primary Financial Statements project.

 

US banks look to minimise impact of Basel III endgame capital charges

US banks are breathing a sigh of relief after regulators signalled plans to make major changes to a proposal to increase capital charges on large banks. Even with these revisions, however, the biggest US banks are bracing for the impact of the “Basel III endgame.”

In the wake of the 2008 global financial crisis, regulators increased capital reserve requirements for banks worldwide to take risk out of the global system. New data from Coalition Greenwich shows that banks’ responses to these higher capital charges helped usher in significant improvements in overall capital efficiency from FY2016 to FY2022. Over that period, the average ratio of sales and trading revenue to risk-weighted assets (RWA) for US global systemically important banks (GSIBs) increased by approximately 25%, boosting bank profitability.

“In FY2023, bank sales and trading revenues declined which could be an ominous sign for banks ahead of what are expected to be significant increases in capital charges when the Basel III endgame finally takes effect,” said Minal Chotai, Co-Head of Financial Resources at Coalition Greenwich and author of ‘Basel III Endgame to Drive RWA Inflation, Pose Challenges for US GSIBs’. “While repricing is an obvious action for banks, there are several levers they can use to minimise the impact of the new requirements on their returns.”

As the regulatory rules are implemented, actions that larger US banks can take include accelerating the execution of technical levers. To varying degrees, banks have already pulled a number of technology levers—some involving internal modifications to improve data modelling quality while others tap into external sources, such as outsourcing elements of collateral management programme. While a lot of work has been done, banks need to continue, and in cases accelerate, the execution of such programs to minimise the impact of upcoming regulatory changes.

Banks can also reassess and refine their business mix. While pulling technical levers serves as a plausible approach to optimising capital usage, capital savings on a larger scale necessitates permanent and strategic change. For instance, the introduction of the CVA capital charge made trading in uncollateralised long-dated derivatives more expensive relative to historical levels. Several banks - predominantly large EU banks - created units to house these assets deemed “non-core” to the banks’ ongoing business operations. Consequently, asset and wealth management benefited as resources were reallocated to the division, given relatively high-efficiency ratios and little need for capital.

Finally, banks can optimise their client-level resource allocation. Senior management should not underestimate the long-term value an optimally run client franchise brings to the fore. While past client revenue produced can inform future growth potential, senior management must consider other performance factors, such as client cost-to-serve and client risk-adjusted returns, among others, when deciding where to allocate scarce resources.

 

Kyriba and J.P. Morgan partner on blockchain cross-border payments

Kyriba has announced an innovation with Onyx, J.P. Morgan’s blockchain business unit, aimed at improving cash management, payments and liquidity performance for CFOs and treasurers. 

Together with Onyx’s Blockchain Deposit Account product, JPM Coin, Kyriba plans to use blockchain and real-time payment processing to increase end-to-end payments transparency. For the first time, customers can operate their JPM Coin Blockchain Deposit Accounts (BDAs) within Kyriba’s treasury management system (TMS), enabling treasury teams to facilitate real-time cross-border transfers on a permissioned distributed ledger.

This cross-border payment solution is complemented by real-time payments and real-time bank reporting through the J.P. Morgan’s Global Payments API, available within the Kyriba Marketplace.

“Our mutual clients can leverage blockchain technology and conduct cross-border commerce with speed, transparency, and added certainty through the JPM Coin integration,” said Abhinav Natarajan, Global Product Head of JPM Coin. “By integrating our Blockchain Deposit Accounts into their existing TMS workflows, clients can initiate and manage real-time settlements, unlocking the potential of 24/7 money movement.”

Kyriba also announced a partnership with Workday, a provider of solutions to help organisations manage their people and money. The pair will embed bank reporting and bank payment connectivity for Workday Financial Management to help customers reduce reliance on IT resources to build and manage bank integrations and proactively monitor and address bank connectivity and file format changes.

Powered by Kyriba, Workday Bank Connectivity will provide customers with pre-built connectivity and formats for over 250 global banks, including access to Kyriba’s development library of 50,000 pre-tested payment format scenarios, helping accelerate customer time to value.

“Every CFO needs connectivity to their global banks to achieve 100% cash visibility and payment certainty so they can mobilise cash and optimise liquidity,” added Gopal. “Embedding Kyriba Connectivity into Workday Financials allows customers unprecedented access to pre-built bank connectors to the world's most important financial institutions and helps them reduce complexity, risk and delays in their ERP implementations.”

 

BBVA launches family of FX indices as a benchmark index manager

In November 2020, BBVA created its Quantitative Investment Strategies (QIS) business, which focuses on designing, producing and distributing investment strategies that materialise in self-created indices aimed at all types of investors. Over the last three years, the bank has consolidated a portfolio of 30 indices and 160 mathematical and currency variations that represent thematic, smart beta and alternative risk premia strategies, as well as others tailored to clients' needs.

Now BBVA has announced it is expanding its offering to institutional investors, including large Spanish and European asset managers, with a complete family of foreign exchange (FX) indices.

The new indices cover a universe of 22 developed and emerging market currencies that are included in trend, carry and relative value strategies. This represents an increase in the catalogue of more than 60 indices, including the different variations, which are managed by BBVA after it became the first Spanish bank with permission to be an index administrator.

BBVA has assigned resources to activities related to index administration, with a team of six professionals specialised in the technical and governance functions. The indices are managed under the European Benchmark Regulation, which seeks the best protection of investors by ensuring the soundness of the benchmarks and their proper use.

 

Pan-European verification of payee to be ready by December

EBA Clearing has announced that it will provide its service users with Verification of Payee at a pan-European level as of December 2024. The roll-out of the solution is one element in the preparation programme that the company is engaging in with its user community with the goal of taking instant payments to the next level.

With the delivery of Verification of Payee, the company will support payment service providers (PSPs) in offering IBAN/name matching services to their customers for their SEPA transactions. EBA Clearing’s Verification of Payee will be aligned with the respective scheme of the European Payments Council. PSPs across the Single Euro Payments Area will have to offer such services to payers from 9 October 2025 on, as mandated by the Instant Payments Regulation, which just came into effect. 

Aside from further strengthening the safety of instant payments, EBA Clearing also says it is ready for the additional participation and volume growth that RT1 may see as a result of the Instant Payments Regulation. In cooperation with its users, the company has started the necessary preparations to ensure that the collective effort required for this ramp-up will be seamlessly completed.

“Building on the experience of the successful SEPA migration in 2014, PSPs across Europe will only succeed in smoothly scaling up their instant payment capabilities if we prepare as a community, together with all stakeholders,” said Eva Herskovicova, Head of Operations at EBA Clearing.

 

BMO updates sustainable bond framework with new categories

BMO has announced changes to its Sustainable Bond Framework to enhance existing green and social use of proceeds criteria. Additions to the Framework include financing activities related to nuclear energy, low-carbon fuels, the electrification of key industrial activities, climate change adaptation, new categories reflecting the BMO EMpower initiative, and more.

Under the updated Sustainable Bond Framework, BMO may issue four types of sustainable bonds: Sustainability Bonds, Green Bonds, Transition Bonds and Social Bonds. The Framework contains eighteen use of proceeds categories across the four types of bonds. Each type of bond's proceeds will be applied to finance or refinance, in part or in full, new or existing assets that are aligned with the four core components of the International Capital Market Association’s (ICMA) Green Bond Principles (2021), Social Bond Principles (2023) and Sustainability Bond Guidelines (2021).The Sustainable Bond Framework is also informed by the guidance from ICMA’s Climate Transition Finance Handbook (2023) as it relates to practices, actions and disclosures for issuances of transition use of proceeds bonds.

Recognising nuclear power's role in energy transition, BMO has included nuclear energy as an eligible green financing activity. The criteria for nuclear energy activities include the deployment and operation of technologies that produce energy from nuclear processes; construction and operation of new nuclear power plants; and life extension and refurbishment of existing nuclear energy facilities.

 

Swan integrates Wise Platform to boost international payments to European clients

Wise Platform and Swan have announced a partnership to enable the latter’s clients to send and receive money from over 190 countries quickly, transparently and at a lower cost.

Swan’s clients can now offer international payments, which enables their customers to send and receive funds in over 20 currencies at the mid-market rate in seconds. Today, over 60% of all transfers sent globally via Wise settle instantly (meaning in less than 20 seconds).

Through this partnership, Wise Platform is fully integrated into Swan's technology stack - allowing Swan’s clients to enable international payments seamlessly, which should reduce implementation timelines and costs. This should enable clients to focus their efforts on their core business and provide a more convenient user experience for their customers.

“Wise Platform and Swan share a philosophy of building products and solutions that make life easier for customers, so that they can focus on their core business,” said Steve Naudé, Managing Director of Wise Platform. “That's why we're so excited to launch this partnership, which gives their European clients an intuitive, affordable and more efficient way to send and receive money when doing business internationally.”