Cross-industry initiative aims to clarify supply chain finance

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A newly-launched set of definitions aims to address the global need for a common understanding of terminology, nomenclature and techniques related to supply chain finance (SCF).

Unveiled during a dedicated panel discussion at an ICC Academy hosted Supply Chain Finance Summit in Singapore, the ‘Standard Definitions for Techniques of Supply Chain Finance’ result from a joint initiative, with the International Chamber of Commerce (ICC) Banking Commission as the project facilitator.

Other participants are the Bankers Association for Finance and Trade (BAFT), the Euro Banking Association (EBA), Factors Chain International (FCI) and the International Trade and Forfaiting Association (ITFA). The International Factors Group (IFG), one of the original sponsoring associations is now integrated with FCI.

The definitions reflect the views and feedback from various industry specialists and other interested parties. They include definitions and descriptions of eight identified core techniques for SCF and the Bank Payment Obligation as an enabling framework.

Users include finance providers, corporates, commercial and small business clients, investors, regulators, legal practitioners, information technology and infrastructure providers, plus other trade finance related communities.

SCF is defined as the “use of financing and risk mitigation practices and techniques to optimise the management of the working capital and liquidity invested in supply chain processes and transactions.

“SCF is typically applied to open account trade and is triggered by supply chain events. Visibility of underlying trade flows by the finance provider(s) is a necessary component of such financing arrangements which can be enabled by a technology platform”.

“Standardised SCF terminology will ensure a much clearer communication in this rather complex ecosystem of providers, clients, accounting and legal professionals, regulatory authorities and others involved in international supply chains,” said Kah Chye Tan, immediate past chair of the ICC Banking Commission and chair of the global supply chain finance forum steering group.

Tod Burwell, BAFT president and chief executive officer (CEO) added: “SCF has grown and evolved in recent years in response to shifts in corporate supply chains and the ever-growing demand for trade finance. This publication should aid the market, regulators and other stakeholders in gaining clarity and consistency on the various terms and techniques used.”

Issued as a “living” document, the definitions will be regularly updated to remain aligned with market developments and be widely disseminated to promote the global adoption of the suggested terminology.

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