Supply chain finance

In a tough economic environment it is not easy to access funds through traditional channels. Supply chain finance (SCF) is a series of practices and technologies that support the financial processes of an end-to-end supply chain. One of the functions of SCF is to align the execution of trade finance instruments with the actual movement of goods and payments along the supply chain. The expectation is that this area will continue to grow rapidly. SCF not only aligns itself well with the growth of open account trading, but also maximizes the efficiency gains made possible by the introduction of improved information technology (IT)- driven supply chain management monitoring. For instance, managing the supply chain more efficiently - most obviously through the use of online data management platforms - has reduced corporate inventories and brought industries closer to just-in-time production. This has meant smaller, more frequent, shipments replacing single large orders.

Benefits

While buyers and suppliers can fund their own supply chains, the SCF services reduce both the cost of capital and the risk of these operations - allowing clients to decrease their working capital requirements and improve their ability to raise capital. The advantage for clients is accompanied by considerable benefits for banks, as they can increase revenues by financing the supply chain working capital for their clients, specialize by expanding into their entire supply chain, cross-sell other products and services (such as foreign exchange services) to other operators in the supply chain, and thus increase their client base.

Implementation guidance

Three financial solutions stand out quite clearly from the ecosystem of supply chain finance Instruments:

  • Reverse factoring allows sellers to sell their receivables and/or drafts relating to a particular buyer to a bank at a discount as soon as they are approved by the buyer.
  • Inventory finance allows goods to be held in a warehouse for the buyer, usually by the seller, until needed.
  • Purchase order based finance is made available to a seller based on a purchase order received from a buyer.