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SCF SOLUTIONS

SCF SOLUTIONS. Segmentation and Value Proposition of SCF. 2012 年 2 月 张晓夏. Chapter 4 Segmentation of SCF Solutions. Supply Chain Finance solutions are segmented by: 1 geographic aspects 2 payment methods 3 different types of platforms 4 the market players. 4.1 Geographic Boundaries.

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SCF SOLUTIONS

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  1. SCF SOLUTIONS Segmentation and Value Proposition of SCF 2012年2月 张晓夏 SCF SOLUTIONS

  2. Chapter 4Segmentation of SCF Solutions • Supply Chain Finance solutions are segmented by: • 1 geographic aspects • 2 payment methods • 3 different types of platforms • 4 the market players

  3. 4.1 Geographic Boundaries • Cross-border transactions vs Domestic transactions: • 1 multiple currencies • 2 different languages • 3 multiple legal jurisdictions Exp: The lien of an A/R

  4. 现状： • cross-border payments: slow, inefficient and costly • The increase in global trade • SCF:Improvement in the efficiency and effectiveness of cross-border payments can be reached with adequate SCF solutions,

  5. 4.2 Payment Methods • 4.2.1 Letter of Credit（信用证L/C ） • 4.2.2 Open Account O/A

  6. 4.2.1 Letter of Credit（L/C ） • based on documents • The weakness ： 1 the cost 2 high discrepancy rates （ presented documents as well as the cost-intensive administrative processes related to manual document checking. ）

  7. 4.2.2 Open Account O/A • according to the agreed terms. • The weakness ： fully on the financial creditworthiness • risks： 1 The absence of documents and banking channels 2 The exporter might pursue collection abroad, difficult and costly. 3 receivables :harder to finance

  8. 4.3 Market Players

  9. 4.3.1 Focal Company • 特点： • 1 the primary drivers of SCF • 2 exporter (supplier) & importer (buyer) • 3 mostly large SCF solutions require a certain size ( efficient and profitable) • Eg: IBM Lenovo

  10. 4.3.2 Suppliers and Buyers

  11. 4.3.2 Suppliers and Buyers • as a supplier or buyer. • benefit from: • SCF arrangements :shorter payment terms on the supplier side • extended credit limit facilities on the buyer side. • mostly smaller than the focal company and are introduced to an SCF solution by the focal company.

  12. 4.3.3 Funders and Risk Takers • Financing institutions offer various types of financing. • Banks and risk takers ： • provide risk management services（ leverage the supply chain relationship between parties ） • offer risk mitigation风险消减 （areas: country risk, liquidity risk, commodity risk, interest risk and foreign exchange.）

  13. Eg : the main funders • 1 IBM Global Financing Target customers: Middle market, large multinationals Customers ：Nortel 北电网络有限公司----业界知名的IT产品公司, Juniper, Lenovo, Advanced Micro Devices Comments ：Finance arm of IBM • 2 GE Capital 通用电气金融服务公司 Customers ： Konica ，Minolta, Cisco Finance arm of General Electric • 3 Siemens Financial Services • 4 HSBC • 5 Wells Fargo

  14. Eg : the main risk takers and credit insurers信用保险公司 • 1 Atradius Group安卓集团 安卓账务管理有限公司是安卓集团(Atradius Group) 的旗下公司，专门从事企业对企业的商账追收，以合法及专业的方法为国际组织、金融机构和跨国公司提供收账解决方案。 • 2 裕利安宜(Euler Hermes)全球最大信用保险公司 • 3 Coface 法国科法斯信用保险集团（全球最大的贸易信用风险管理的专家之一）

  15. 4.3.4 SCF Service Providers • the enablers of SCF • 作用：1 facilitate the process of reconciliation exchanging Pos(邮政汇票), invoices, credit notes(欠款票据), payments and related information as well as helping integrate this information between the different supply chain constituents. • 2 offer services credit risk management (CRM), the setup of SCF programs and the legal infrastructure for SCF participants. • 3 bring various parties together such as funders, risk takers, buyers and vendors and understand the needs of each party

  16. Eg: the main SCF service providers • Global Supply Chain Finance • Trade Card 一B2B电子商务交易平台（http://www.tradecard.com.），提供国际贸易相关业者使用之跨国贸易网路，所有买卖交易及款项收付皆可透过该电子商务交易平台完成，系一无纸化之交易流程。目前主要承做之地区为美国、加拿大、香港、台湾、新加坡、韩国、日本等地区。

  17. 『TradeCard』特色 • 线上完成买卖交易 • 操作简单且交易透明 • 降低交易成本，有利资金管理 • 提供安全保密的交易环境 • 专利文件核实系统，审核文件快速精确 • 线上核准融资，拨款快速 • 保证付款机制

  18. 4.4 Platform Types • 4.4.1 L/C and O/A platforms • 4.4.2 Risk Management Systems • 4.4.3 Third Party Financing Platforms • 目的：facilitating and accelerating informational and financial flows • 方式： different types of financing and payment arrangements between the supply chain partners.

  19. 4.4.1 L/C and O/A Platforms • L/C Letter of credit platforms • aim at facilitating and ccelerating the L/C process. • costs are driven down

  20. O/A Open account platform • supports a company’s trade performed in an O/A environment • offering transparency • automation • decision support (usually being operated via banks or applied by companies directly)

  21. 4.4.2 Risk Management Systems • Provided by service providers • Credit risk management （CRM信贷风险管理） systems risk monitoring, collection of financials, risk assessment, rating and reporting. • Transaction risk management (TRM) systems • collects information • increase information transparency

  22. 4.4.3 Third Party Financing Platforms • This solution’s approaches mainly focus on working capital optimization through C2C cycle reduction and risk mitigation • Offer the important prerequisites of transparency (=risk mitigation) and automation (=accelerated data processing) • Facilitates collaboration and enables triggers for third party financing at lower risk premiums (because of transparency) and at the right point in time (because of automation).

  23. 4.4.3.1 Export Financing Platforms In export financing solutions, the relevant focus is on A/R.

  24. 4.4.3.2 Import Financing Platforms • the focus is on the A/P of the focal company, the importer

  25. 4.4.3.3 Inventory Financing Platforms • 作用：enables the exploitation of growth opportunities • 适合：small and medium capitalized entities • 限制因素： • 1 amount of capital made available through inventory financing is limited • 2 the costs of this financing method are high

  26. Chapter 5Value Proposition of SCF

  27. The quantitative benefits include: • Funding, liquidity and working capital savings; • Risk cost savings; and • Administrative cost savings. • The qualitative benefits of SCF solutions include: • Reporting benefits; • Enhanced supply chain relationships; and • Enhanced compliance worthiness.

  28. 5.1 Funding, Liquidity and Working Capital Savings • The cost of Inventory and A/R funding can be measured via the WACC(加权平均资金成本). • payment will be received from the funder. • Through innovative SCF solutions assets can be isolated and funded at a cost significantly below either the company’s WACC or the marginal cost of debt. • Save assets costs,并利用节约资金再投资，从而减少整体WACC加权平均资金成本。

  29. 利益： • 对供应商，通过 a funder提早得到付款， • 对buyer, 推迟付款，并保证交易迅速和付款质量. • 提高现金流周转速度，最小化浮存金和对冲风险的费用。 • 通过SCF也表明因快速支付和及时争端解决使超额运营资本得到减少。

  30. For buyers • receive any required working capital through increased credit limits within a SCF program. • provides a flexible pipeline of working capital with which to fund the cash cycle on a given product. • These credit limits are generally accounted for as trade credits in comparison to short-term debts. • Therefore, their leverage can be kept low and the company’s credit rating can be protected.

  31. 5.2 Risk Cost Savings • 现状：由L/C 转向O/A • SCF provides ：the assurance of payment • 结果：a lower cost of credit risk than typical credit insurance premiums • 来源于Transparency: provide the risk taker—which could be a bank or a credit insurer—with highly transparent views of financial and operational risks.

  32. 5.3 Administrative Cost Savings • SCF solutions provide cost improvements on several administrative tasks within supply chain transactions such as reconciliation and credit limit management: • With an automated system, reconciliation can be accomplished earlier, faster and at much lower cost.

  33. 5.3 Administrative Cost Savings • A two-step matching process (Electronic): • Firstly , on the payment from the funder to the vendor where all remittance(汇款)details are provided to the vendor by the SCF system • Secondly , upon receipt of the payment from the buyer, the cashis matched with the original invoice details and then notified to the funder accordingly.

  34. Monitoring credit limits and in real-time is difficult for vendors. • SCF service providers have specialized staff to assess credit risk and provide financial analysis as well as standardized credit limit management procedures. Because of economies of scale and dedicated systems, SCF service providers are able to provide this function in a more cost-effective manner.

  35. 5.4 Reporting Benefits • Reporting platforms commonly used in SCF solutions allow all participants accessto real-time SCF information. • Such reporting solutions contain sufficient detail to allow line item inquiries and provide enhanced transparency to all parties, thereby avoiding the need for constant manual intervention and dispute resolution.

  36. SCF solutions not only benefit those directly involved in financial functions, but also provide in-depth analytical data for vendor sales and supplies, logistics and other process areas.

  37. 5.5 Enhancing Supply Chain Relationships • SCF solutions create a new customer relationship channel since they provide the tools and workflow necessary to identify and quickly resolve financial transaction discrepancies and disputes in a mutually agreeable, fact-based manner. • The ‘‘free’’ financing that results for suppliers is a powerful competitive tool: to obtain the financing a supplier must simply supply products. • a compelling effect on interaction behavior and supply chain relationships

  38. 5.6 Enhanced Compliance Worthiness • With regulations such as the SOX Act.,management needs to understand the effectiveness of internal controls on the sales ledger. • Managing compliance with such regulations becomes easier if a company has more standardized and well-managed processes through SCF solutions.

  39. 5.7 Summary of Benefits for Supply Chain Constituents • Benefits for the focal company: • Working capital improvement for reducing required debt and improving cash flow. • Possibility of off-balance sheet funding. • Mitigation of credit risks. • Increased sales growth through liquidity injection into the supply chain. • Lower operational costs because of automatic data processing, collection and reconciliation. • Improved transparency for all related parties enables more accurate cash flow forecasting, finally enabling lower working capital holdings. • Improved collaboration with suppliers and buyers through better communication between trading partners, which might reduce disputes over discrepancies.

  40. Benefits for the suppliers or buyers of the focal company: • • Extended DPO or reduced DSO enabling off-balance sheet funding, which increases overall business opportunities, saves debt and improves credit rating. • • Automated invoice presentment solution allows viewing real-time information, monitoring invoice and payment status, enabling a more predictable cash flow. • • Increased transparency reduces any other costs associated with disputes or collection and payment processes.

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