A Win–Win Program
Cash optimized for our clients and their suppliers. Costs and risks lowered in the supply chain
How do our clients (the buyers) benefit from a collaborative Supply Chain Finance program?
A collaborative SCF program extends DPO, releases capital for the business, generates extra income &/or lower cost of goods sold, strengthens relationship with trading partners, and lower supply chain risks. It creates a more collaborative, stable and financially robust supply chain.
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Improves working capital – basically to release capital for the business
► Longer DPO (Days Purchase Outstanding): A collaborative SCF program creates the potential for extended payment terms without burdening suppliers.
► A collaborative SCF program creates a reduced working capital requirement resulting from extended payment terms.
An off balance sheet transaction
► Importantly, where properly structured and documented, arms-length finance for suppliers can be delivered in such a way that trade payables on the buyer’s balance sheet continue to be classified as commercial outstanding due to trade creditors, instead of being converted into bank debt which would otherwise impact negatively on the buyer’s debt gearing ratios.
Builds competitive advantage & strengthens relationship with trading partners
► A collaborative SCF program enables buyer to leverage his financial strength and use it as competitive advantage. It offers buyer an additional key argument when negotiating with suppliers.
► By providing his suppliers with working capital financing, buyer improves his image, reputation and relationship with Suppliers.
► The program helps develop more loyal and reliable suppliers.
► Enables suppliers to keep pace with buyer growth.
Lower Supply Chain risks. Creates a more collaborative, stable and financially robust supply chain which functions more efficiently for the benefit of the buyer and his suppliers
► Buyers’ financial processes are putting their supply chains at risk. Strapped for cash and lacking adequate access to affordable capital, suppliers may be forced to delay raw material ordering, squeeze work-in-process inventories, or skimp on plant maintenance or quality processes. This can trigger downstream delays and quality issues for the buyer, including expensive manufacturing line shutdowns, derailed store promotions, or late orders for critical customers.
Generates extra income &/or lower cost of goods sold
► A collaborative SCF program generates additional revenue and improves operating margin without deteriorating working capital.
Reduces ‘chaser’ queries from suppliers
► A collaborative SCF program reduces ‘chaser’ queries from suppliers regarding the current status of invoices i.e. have invoices been received, processed and approved? Suppliers can obtain the status of invoices and discounted early settlement offers on the client’s portal.
Suppliers calls to the buyer’s accounts payable department can drop by up to 90% when a buyer implements an SCF program and automated trade platform.
Cuts the cost of processing supplier payments by outsourcing the supplier payments process
► Buyer cuts his administrative and processing costs by effectively outsourcing its own payables management and payment administration e.g. Buyer makes one transfer to the bank rather than to hundreds of suppliers.
Overall, A collaborative SCF program reduces Buyer’s cash management costs.
Limits the intervention of (undesirable) external third parties
► A collaborative SCF program allows buyer to control the use of factoring by his suppliers and prevents the intervention/interference of third-party banks, etc..
What motivates their suppliers to join a collaborative Supply Chain Finance program?
A collaborative SCF program allows our clients’ suppliers to receive more financing at lower cost, faster.
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Suppliers’ motivations vary a lot between different types of suppliers.
Relatively small suppliers have found that financing is fairly expensive for them and often difficult to obtain. The advantage of a Supply Chain Finance (asset based lending) programme for these small suppliers is greater than for larger companies because it gives them access to less expensive supplier finance / vendor finance than they could get on their own.
For the larger suppliers, it isn’t a question of cheaper finance. Larger suppliers see Supply Chain Finance (and asset based lending) more as a means to improving their financial flexibility, improving their balance sheet, and improving financial ratios, where needed.
Instant liquidity / Immediate access to cash. Reduced DSO & working capital requirement
> Supply chain financing creates the opportunity to receive early payment of invoices > SCF / factoring provides instant liquidity, which allows businesses to grow with funds that were previously tied up in receivables.
> supply chain financing (improves DSO and) creates a reduced working capital requirement resulting from reduced payables (receivables???) outstanding
Instant liquidity at favorable / competitive rates
> SCF / factoring provides instant liquidity, which allows businesses to grow with funds that were previously tied up in receivables.
> Where the supplier is a small or medium enterprise (SME) and the buyer is a large credit-worthy corporate, the discount cost will often be lower than the SME might achieve through conventional borrowing.
> SCF offers SMEs working capital financing at “favorable / competitive rates”.
Non recourse financing – No debt on balance sheet (déconsolidant)
> The funds raised through supply chain finance will usually be non-recourse for the suppliers since the discounted payment is structured as a receivables assignment.
> Being non-recourse early settlement, this funding is off balance sheet for the suppliers and therefore does not eat into their existing credit limits. This structure may enable the suppliers to access more funding than would be possible on a standalone basis.
> Since reverse factoring transfers the credit risk of the loan to the Suppliers’ high-quality Buyers, Bank can offer factoring without recourse to SMEs, even those without credit histories or strong financials.
This allows SMEs to increase their cash stock – and improve their balance sheets – without taking on additional debt.
Up to 100% receivables face value upfront financing
> The value of funds obtained is (usually / can be up to) the full face value of the invoices settled minus a discount charge for the period until maturity.
> Thus supplier receives a higher percentage of invoice face value than under a factoring or invoice discounting / financing arrangement, where typically only a pre-agreed percentage (e.g. 60-80%) of the invoice face value will be advanced.
Early and easy financing
> Easy, simple and straightforward process / financing of receivables. (Les fournisseurs concernés bénéficient d’un accès simple et rapide au financement de leur poste Clients.)
> The simple documentation signed between the funder and the supplier is usually a short form contract by way of a sale/purchase of receivables, whereby funder becomes the holder of the trade debt.
> Early, quick and convenient (pratique) financing (permet un financement très en amont des factures du fournisseur).
Enhances and secures relationship and business with buyer
> SCF payables financing creates an enhanced buyer relationship
> Donne la possibilité aux fournisseurs de suivre le rythme de la croissance de l’acheteur / future growth with the buyer will require less capital
Reduces transaction costs & Improves cash flow visibility
> Reduces ‘chaser’ queries regarding the current status of invoices, i.e. have invoices been received, processed and approved?
> Previously SMEs needed to collect payments, follow up and dun payment, etc. By factoring its receivables, the Supplier eliminates its collection costs by effectively outsourcing its receivable management.
> supplier finance / vendor finance (payables financing) gives the ability to better (accurately) predict payment flows (cash flows)