Bespoke Supply Chain Finance - Global Supply Chain Finance

Buyers can leverage considerable advantage from supply chain finance with improved liquidity and lower costs of credit. Kendall Stevens tells Jim Banks how Global Supply Chain Finance is offering receivables-based finance programs to help buyers realise these benefits.

Although banks are devoting more resources to supply chain finance (SCF) and developing their in-house expertise, this is far from a mature market, and there remains a gap in the market for independent service providers to fill.

So far, SCF programs based on accounts payable have yielded significant advantages, leading many to see this as the only worthwhile avenue to explore.

Kendall Stevens, CEO of Global Supply Chain Finance (GSCF), explains: ‘The market is a bit confused about what SCF is. Most refer only to payables programs, which are only properly implemented by a few large buyers. Very few have looked at SCF from the receivables side because people see this as being only about providing liquidity to the vendor.’

‘While SCF is great for vendors, reducing their day sales outstanding, it is also possible to get more credit through the right platform, providing more off-balance sheet liquidity for buyers.’

TAILORED SCF SOLUTIONS

GSCF specialises in bespoke SCF solutions, developing high-volume, cross-border programs to help corporations improve liquidity in their distribution channels. Its solution is built on enhanced balance sheet management and high data transparency through a dedicated online portal, which services payables and receivables for large vendors and buyers in collaboration with banks and credit institutions.

GSCF started with payables programs in 1991, moving into receivables-based programs in 2002. In 2006, it processed $12 billion in receivables and expects this to grow rapidly. Its work on the receivables is one of few forays into this relatively unexplored side of SCF.

Stevens says: ‘On the receivables side, there is no one there. Companies are processing accounts receivable for third parties, but this is a very different exercise. You need to manage not only payments and invoices, but also credit. No one has previously been able to put a platform in place to do this. We are trying to open the eyes of funders and credit institutions to help them visualise the opportunities.’

‘While SCF is great for vendors, it is also possible to get more credit through the right platform, providing more off-balance sheet liquidity for buyers.’

RECEIVABLES VS. PAYABLES

To implement a receivables-based finance program, Stevens believes it is better to look to a neutral, third-party provider, such as GSCF. While banks have expertise in lending and hedging, he feels that the complex management of receivables portfolios requires something extra.

He says: ‘We provide data on credit utilisation and payment behaviour. Insurance and credit companies are used to providing credit lines on buyers’ non-payment risks, which are based on beliefs and financial data that are generated once a year, not on the basis of data transparency.’

Changing the basis on which supply chain financing is arranged – moving to a more transparent and current data stream – can have significant results. Stevens notes one project for a global IT manufacturer that saw existing €200–300 million credit lines treble, while payment terms increased from 15 to 45 days.

SIMPLICITY RULES

The level of complexity of receivables based programs will vary with a company’s business model and size. A large supermarket retailer, for instance, may have many supplier relationships to manage while a large IT vendor might be handling numerous credit lines from buyers. With a platform such as GSCF’s there is only one credit line to manage.

Stevens notes: ‘Many concentrate on payables, as this is easier to manage, but the real value comes when you can easily handle many credit lines. Receivables-based programs are more complex to administer, as there are many buyers to maintain and risk control is a major task, so it is easier to buy receivables from one supplier.’

Comprehensive reporting tools embedded in the platform may also make funders more relaxed on credit lines, reducing the cost of funding. It seems, therefore, that the market will have to expand its definition of supply chain financing.

Click here for printable version