Supply Chain Finance for Corporates

Transcription

1 Supply Chain Finance for Corporates Managing risk, finance and processing efficiency in a multi-bank environment Webinar, 30 June 2011

2 Our SWIFT speakers today André Casterman Head of Cash, Trade and Supply Chain David Hennah Market Manager Trade and Supply Chain Marie-Christine Díaz Market Manager Trade and Supply Chain 2

3 Agenda Challenges and trends Payment Obligation Case studies Key benefits Conclusion 3

4 Key objectives in the financial supply chain Making trade receivables and liabilities visible Physical Supply Chain Inventory turnover 1 2 How to improve my purchase-topay process, extend my payment How to reduce my order-to-cash cycle, free 3 terms or get discounts for early What is my credit risk? up cash and get credit payment? as early as needed? 5 How to allocate capital efficiently to support my production process? Supplier Accounts Receivable Working Capital Management Accounts Payable Buyer 4 Where is my cash and my liabilities? How to improve my liquidity forecasts? Treasury management Financial Supply Chain 4

5 Market trends and challenges for Corporates Win-win financing models Working Capital Management Technology evolution Globalisation Documents dematerialisation Workflows automation Emergence of closed 3-corner platforms Integrated supply chain networks Multiple trade partners Multi-bank relationships Payment guarantee Receivables factoring Centralised treasury Vendor Inventory financing Liquidity planning Payables discounting Regulatory impact Credit management (KYC) 5

6 Agenda Challenges and trends Payment Obligation Case studies Key benefits Conclusion 6

7 ICC extends to Open Account In order to enhance the status of the Payment Obligation as an accepted market practice SWIFT is actively collaborating with the International Chamber of Commerce ing Commission (ICC) The ICC has now created an ICC-BPO working group to support the development of a globally accepted standardised environment and establishment of the BPO as a neutral industry-wide practice This in turn will help banks to extend their supply chain finance business in a 4-corner model The working group is co-chaired by the ICC and SWIFT and held its first meeting in Zurich Switzerland in March 2011 Co-chairs are: Dan Taylor (JPMorgan) and André Casterman (SWIFT) Nine banks are participating ICC will appoint a new Vice-Chair to lead the Open Account activities. SWIFT in Trade and Supply Chain 7

8 SWIFT for Supply Chain Finance Working Group and adoption of BPO Working Group Other banks 8

9 Secure and optimise your trade transactions with Payment Obligation A legally binding, valid and irrevocable bank payment obligation based on a minimum set of matched transaction data and being adopted by the ICC An open messaging platform using ISO20022 standards that implements the BPO in a multibank environment Payment Obligation Supplier Open messaging platform Buyer Business-to-business practices A commercial agreement between buyer and seller 9

10 Payment Obligation flows Minimum data subset Order number, Product name & quantity Amount, currency, date Buyer & seller (name, address) BICs of the banks Business Role Supplier/Exporter Recipient bank Obligor bank Buyer/Importer BPO Trade Services Utility (TSU) Tchin Wa manufacturer BBBBCNSH PPPPUS33 Big-Mart distributor Trade processing 1. Contract and Paper documents 2. Electronic data matching Financing services Pre-/post shipment finance Payables finance Payment processing a/c + Guaranteed payment a/c - CNY 100,000 USD 15,370 Fees Risk commitment fee and service charge Risk commitment fee, payment fee and service charge 10

11 Extending your reach through an open and multibank instrument 3-corner closed model 4-corner open model Multi-bank Buyer/ Importer / Service Provider Seller/ Exporter Seller/ Exporter Trade contract / Service Provider Trade contract BPO Buyer/ Importer Buyer/ Importer High on-boarding and KYC costs Limited players driven by dominant corporates Different payment risk mitigation frameworks Limited to post-shipment finance Limited costs thanks to interoperable standards Available to any corporate through its own bank Common payment risk mitigation framework Open to pre/post-shipment finance 11

12 Agenda Challenges and trends Payment Obligation Case studies Key benefits Conclusion 12

13 Supply Chain Finance models facilitated by the Payment Obligation Supply Chain Finance Pre-Shipment Post-Shipment Collateral Confirmed purchase order Shipment documents Approved bills or receivables Buyer Purchase order commitment to pay Import finance Extended payables Supplier Pre-shipment finance (purchase order finance) Post-shipment finance Approved payables finance Receivables purchase Source: adapted from the BAFT-IFSA Product Definitions for Open Account Trade Processing and Open Account Trade Finance, 13 December

14 Case 1: Seller mitigates the risk of non-payment or payment delay Buyer commits to pay the seller (no financing) 2 I need to offer payment assurance to my supplier and confirm the purchase order 1 I want to be certain that I will be paid on time BPO TSU Buyer BPO Obligor BPO Recipient Seller I will substitute for the creditworthiness of my customer and guarantee the payment to the seller s bank (BPO) for a fee 3 4 I can offer the guarantee of payment to my customer based on the BPO issued by the buyer s bank 14

15 Case 2: Buyer mitigates the supplier default risk Buyer supports pre-shipment finance for the supplier 2 I want my businesscritical supplier to increase its financial resilience and will confirm the purchase order BPO 1 I want to access costeffective financing to cover my working capital expenditure TSU Buyer BPO Obligor BPO Recipient Seller 3 I will guarantee the payment (BPO) to the seller s bank upon the confirmed purchase order 4 I will offer preshipment finance to my customer based on the BPO Financing services 15

16 Case 3: Supplier mitigates liquidity risk Supplier gets post-shipment finance 2 I want my businesscritical supplier to increase its financial resilience and will confirm the transport or commercial data BPO TSU 1 I want to be paid as early as possible after the shipment to the buyer Buyer BPO Obligor BPO Recipient Seller I will guarantee the payment (BPO) to the seller s bank based on the submission of compliant transport or commercial data 3 4 I will offer earlier payment to my customer based on the BPO issued by the buyer s bank Financing services 16

17 Case 4: Buyer and optionally seller mitigate their liquidity risks Buyer gets import finance and optionally seller gets post-shipment finance 2 I accept the goods delivered by my seller but would like to pay at a later date BPO 1 I shipped the goods to the buyer and I want to be paid on time, or optionally in advance TSU Buyer BPO Obligor BPO Recipient Seller 3 I will guarantee the payment (BPO) to the seller s bank and will offer the extension of payment terms to my customer for a fee 4 I can offer the guarantee of payment to my customer based on the BPO issued by the buyer s bank, and optionally, I can provide the payment in advance if required Financing services 17

18 Agenda Challenges and trends Payment Obligation Case studies Key benefits Conclusion 18

19 A new payment risk mitigation and financing instrument Contract Contract Contract Buyer Seller Buyer Documents Seller Buyer Documents Seller Documents Application Letter of Credit Advice Documents Data Payment Obligation Data Open Account LC Issuing Documents Issuance LC Advising BPO Obligor Data BPO Recipient Buyer s Seller s Payment services based on paper document processing Payment services based on electronic trade data exchange Payment services limited to payment processing Array of risk, financing and processing services to address both cash management and trade finance needs 19

20 BPO offers the best of both worlds Better than Letter of Credit Electronic presentation of data instead of physical documents Improve quality and objectivity of compliance verification Quicker process as it focuses only on data relevant for financing Can be added at any time, for any amount value Easier access to financing services Better than Open Account Better payment risk mitigation than Standby L/C Facilitate win-win trade relationships Reduced on-boarding and operational costs Enhanced trade transaction processing and reconciliation Can be used as collateral for financing 20

21 BPO offers the best cost vs. risk performance Transaction processing costs (service fees) Low High High Open Account Payment guarantee on Open Account Payment Obligation Payment risk (payment delay or default risk) Letter of Credit Low 21

22 Key benefits of BPO Trade and payment efficiency Trade Finance instrument Letter of credit (L/C) Payment Obligation (BPO) Open account with payment guarantee Market practice UPC 600 (ICC) BPO (ICC) URDG758 Type Cost Manual verification of original paper documents Electronic data submission and matching (TSU) New Manual issuance of documents Speed Supply Chain Finance Payment risk Collateral for financing Finance access and cost Finance risk mitigation Buyer s bank s guarantee to pay Buyer s bank s guarantee to pay Buyer s bank s guarantee to pay, only if default Letter of credit BPO None 22

23 Agenda Challenges and trends Payment Obligation Case studies Key benefits Conclusion 23

24 Illustration Key considerations for your business case Working capital optimisation (CCC) Get paid quicker (from 10 to 5 days), Extended payment terms Better cash allocation to inventory and transportation Reduction of loans and interests, Better financing terms Quality and compliance Improved business relationships Better credit rating and credit risk management Lower rate of litigations Adjacent benefits Financial benefits Business case Costs Operational benefits Trade transaction processing Lower on-boarding costs Improved cash management Lower auditing, collection, accounting effort Lower rate of investigation (~50 EUR/ txn) 24

25 Addressing your challenges today Win-win financing models Working Capital Management Technology evolution Payment Obligation (BPO) Trade Services Utility (TSU) ISO20022 Standards Globalisation SWIFT for Corporates Treasury Cash Management Trade Finance 25

26 Thank you To contact the SWIFT's Trade and Supply Chain team, send us an at 26