Saturday, June 13, 2009


What is Global Supply Chain Finance?

We see GSCF as four things:

– First, the Supply Chain Finance (SCF) solution is a combination of technology solutions and services that links buyers, their suppliers, and financing providers optimizing the visibility, financing cost, availability, and delivery of cash. Because of the extension of the supply chain, the increase in purchase to pay cycle time, etc. companies are hedging their inventory with cash. Automating the Financial supply chain and employing networked financial services can reduce cost of capital and create an advantaged ecosystem. The opportunity is less about just reducing the cost of finance within the buying organization and more about reducing the cost of finance across the supply chain for all players – particularly suppliers that don’t have readily available sources of financing.

– Second SCF ties logistics and tracking of goods into finance decisions. A growing number of trade platform technology providers have emerged that enable container or cargo movements to be tracked by track and trace software.

– Third, risk retention in its many forms ends up being one of the most significant aspects of the SCF process. Providing secure logistic and financial information paths to third-party liquidity providers and risk carriers enables liquidity to be injected into the Global Supply Chain through the use of sophisticated credit and pricing models.

– Finally, Trade Receivables, unlike Commercial Paper that is due on a specific date, may be paid late or may not be paid in full for a variety of reasons. Trading in trade receivables requires the management of disputes and other discrepancies, whether the payment instrument is an invoice or a letter of credit.

Why we produced the Global Supply Chain Finance Report?

• Supply Chain Finance has become an industry buzzword. CFOs and Treasurers of corporations are increasingly becoming responsible for Supply Chain finance solutions, yet there is a general confusion as to how SCF works and the role of different players. For example, today's buzz words include reverse factoring, vendor financing, payables financing, receivables purchasing and trade payables backed financing, which all tend to be variations on the theme of the umbrella term supply chain finance. These all refer to post-shipment finance programs.

• As the corporate business model becomes more globally distributed, we believe a Guide targeted at corporate end-users will be helpful to better understand the application of SCF in a global environment.

• Global Supply Chain Finance (GSCF) technology and bank providers are developing new models for trade finance. New technologies and financing approaches are emerging. In this report, you will find profiles of the leading global supply chain finance solution providers split in the following:
– Buyer (Payable) and Vendor (Receivable)
– Platform providers
– Transaction risk managers
– Risk Carriers and Liquidity Providers

• Section A of this Guide provides an overview of the Global Supply Chain finance space, segments the space, and provides key trends and evaluation criteria. Section B provides a detailed, independent write-up of example solution providers. Each supplier entry includes a concise history, an overview of the business model, its’ current situation and vision, contact person(s), and key business functionality.

• There is no hidden agenda in this Guide. It is an independent source for anyone determining how their company should proceed with global supply chain finance and working capital solutions. Whether you are simply assessing what is available on the market today or just trying to understand what this space is about, this report will help keep you informed about developments in this important sector.

What’s driving the Growth of Global Supply Chain Finance?

• Globalization and the lengthening of the supply chain are the game changers shaping the new ground rules of business. Companies are outsourcing capital intensive plant, property and equipment and labor intensive activities to global partners down the value chain. In a relatively short period of time, companies have transitioned from manufacturers to managing a complex web of third parties to make, store and distribute their products and brands. No longer is the majority of capital deployed to finance property, plant and equipment but to finance working capital (inventory, receivables, etc.).

• While the supply chain is lengthening as a result of globalization, direct sourcing, offshore production and distribution, many companies have experienced challenges in capital availability. For example:

– Traditional international financing vehicles are in relative decline, like the use of the Letter of Credit for both pre shipment and post shipment finance. Most of these suppliers are Small /Medium enterprises (commonly called SMEs), growing rapidly but having limited access to capital. Capital constrained SMEs are forced to raise capital through traditional A/R factoring or indigenous local banks.

– Non OECD suppliers face pressure from large buyers in the form of extended payment terms. A 15-30 day extension to existing terms would have a very positive impact on the P&L and balance sheet of a buyer spending over €1bn with suppliers, but it could put serious pressure on contractors, sub-suppliers, etc. throughout the overall chain, and potentially disrupt production and goods flow.

– It is increasingly becoming a problem for manufacturers who have established offshore manufacturing (for example, moving production of low-value brands to China from the USA or Germany) to find financing solutions. A key challenge comes from programs which require local content, such as various ECA programs.

– A growing and larger percentage of receivables are international (globalization, offshore, and in a separate legal jurisdiction) and those receivables themselves have longer terms-- a double hit. Many banks do not include these receivables are part of an ‘eligible base’ for lending.

This guide contains following two sections with detailed description:

Section A: Overview

  • The Problem Defined and the Current Environment
  • Market Segmentation
  • Import and Export solutions
  • Data triggered Supply Chain Finance
  • Key CFO Evaluation Criteria

Section B: Key SCF players
  • Supply Chain Finance Platform Providers
  • Transactional Risk Managers
  • Liquidity Providers and Risk Takers