Supply chain finance (SCF) has proven effective in improving working capital efficiency and liquidity, as well as contributing to the security and preservation of supply chains. Bank-offered integrated platforms have also moved the entire supply chain – both the buyer and seller sides – online, enhancing automation and transforming the transaction process. The increased transparency throughout the supply chain is particularly valuable to corporates exploring unfamiliar trading routes, where transaction requirements are diverse and effective risk mitigation is paramount.
Certainly, a multitude of factors, such as global regulatory changes and transaction complexity, are presenting corporates with new challenges. SCF is evolving to meet these demands. And this evolution can be seen not just in SCF products, but also in the role of banks themselves – which must become increasingly consultative and educative.
As economic changes expose supply chain vulnerabilities, banks must be able to shift gears and adapt products and services as trends develop, ensuring corporates are fully equipped to keep their supply chains secure and healthy.
Undoubtedly, SCF is a valuable tool that can provide benefits to each link of the supply chain – for buyers looking to extend their own days payable outstanding (DPO) and/or wanting to help guarantee the security of their supply chain, and for suppliers seeking an injection of liquidity. For each of these objectives, solutions are available and these solutions need to be not only relevant in the current evolving financial environment, but also practical for longer-term alignment with treasurers’ strategic aims.
For example, automating supply chain processes increases transparency (improving access to information and data, as well as greater payment security) and enhances operational efficiency (driving down costs and improving cash flow). Such automation is also a means by which to restore the general pre-crisis preference for open account trading, while still effectively mitigating risk.
The advantages of SCF are evident, yet global corporates increasingly require solutions that go beyond products – however innovative – and the injection of liquidity into the supply chain. As the trade landscape evolves and supply chains become more intricate, corporates are conducting transactions in new and unfamiliar territories – with different geographies presenting different challenges, and requiring country-specific expertise and understanding.
Asia – a key supplier location for many European and North American corporates – is a prime illustration. For example, India has very specific payment and FX rules and regulatory reporting that apply to export financing. Similarly, China’s regulatory landscape is very distinct, with other sets of rules for exporters and banks – for example, regulatory reporting must be undertaken online through a portal and a customs registration form.
As a growing number of corporates work with elaborate supply chains involving suppliers across the world, it is likely to prove impractical for them to gain a thorough understanding of all the nuances and intricacies involved in transacting with (or providing financing to) suppliers in each country – especially considering the pace of change.
Therefore, for complex global requirements, a common look and feel is needed across all suppliers. For this, corporates may look for support from a global banking partner – one that can not only take on the non-payment risk, but also has the global footprint needed to address country-specific requirements such as documentation, payment and currency requisites.
Banks’ Evolving Role
As corporate demands become more sophisticated, the role of banks is also maturing – beyond the provision of financing. The banking community must now be able to step in for other critical roles, with consultation and education playing a major part.
The consultative role – in particular, specialist local market understanding of even the ‘newest’ geographic markets – has significant value in overcoming the challenges inherent to the expansion of supply chains. Having extensive experience across a spectrum of industries can also enable banks to advise clients on specific solutions’ suitability for their respective industries and individual supply chains.
Innovative technology is also crucial. Recent years have seen numerous technological developments that herald a new era in SCF – including banking platforms’ ability to hold debit and credit notes, and the offering of integrated portals – plugged into clients’ enterprise resource planning (ERP) requirements – that allow access to the full spectrum of SCF tools on both the buy and sell sides. With new technology comes greater flexibility, as well as cost and time efficiencies – for example with regard to the rapid reconciliation of purchase orders, and the use of electronic Bill of Lading documents. Such platforms also bring greater clarity; for purchase order matching, for example, information feeds into the corporate’s ERP, giving details of the order and confirming supplier shipments, in turn making it clear to the client which payments should be made and when. It is vital that banks invest in this new era, as strong banking platforms can help corporates to develop and maintain efficient and well-oiled supply chains.
Furthermore, there is growing demand for customised solutions that match products to individual client operating models. As a result, it is more important than ever that banks ensure they have a full understanding of client needs, preferences and processes, in order to find the balance between customisation and standardisation. It is only by combining technological strength with a consultative and educative role that banks will be able to help corporates to identify the right tools for their specific needs – and in turn help supply chains strengthen and flourish, irrespective of market challenges to come.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?