Global Supply Chain Finance First Edition

Transcription

1 Global Supply Chain Finance First Edition Empowering CFO s and Treasurers around Emerging Global Supply Chain Finance Issues and Solutions Download Provided by: July 2007 Produced by Global Business Intelligence Vancouver, British Columbia 1

2 Global Supply Chain Finance - First 2007 Global Business Intelligence Phone: Fax: [email protected] The information, concepts and analysis contained herein are provided to you on a confidential basis and are considered proprietary to Global Business Intelligence (GBI). The facts of this Directory are believed to be correct at the time of publication but cannot be guaranteed. The information herein reflects prevailing market conditions, listing Sponsor input, and our judgment as of this date, both of which are subject to change. As such, Global Business Intelligence cannot accept any liability whatsoever for actions taken based on any information that may subsequently prove to be incorrect. This directory is intended as a basis for discussion and thought provoking ideas and does not constitute recommendations by GBI. 2

3 Abbreviations In a Guide such as this, many abbreviations are used. Below we provide the description for many of the abbreviations used throughout this report. 4PL, 3PL: A/P: A/R: AML: B/E: B/L: BRIC: BU: CM: C-TPAT: DC: D/C: DPO: DSO: EDI: EIPP: ERP: FCIB: FCR: IOR IT: KYC: 4th and 3rd-party logistics provider Accounts Payable Accounts Receivable Anti Money Laundering Bill of Exchange Bill of Lading Brazil, Russia, India, China Business unit or operating company Contract Manufacturer Customs-Trade Partnership Against Terrorism Distribution Center Documentary Collections Days Payables Outstanding Days Sales Outstanding Electronic Data Interchange Electronic Invoice presentment & Payment Enterprise Resource Planning system Finance, Credit & International Business Forwarders Cargo Receipt Importer of Record Information Technology Know Your Customer L/C: Letter of Credit M: abbreviation for millions MNC: Multi National Corporation OA: Open Account OFAC: Office of Foreign Asset Control PO: Purchase Order POD: Proof of Delivery RFQ: Request for Quote RM: Relationship Manager SBLC: Standby Letter of Credit SC: Supply Chain SCF: Supply Chain Finance SMEs: Small Medium enterprises SOX: Sarbanes-Oxley SSC: Shared Service Center STP: Straight-through Processing TSP: Trade Service Partner VMI: Vendor Managed Inventory 3

4 I. Introduction to GSCF Guide Why we produced the Global Supply Chain Finance Report, Edition : Supply Chain Finance has become an industry buzzword. CFOs and Treasurers of corporations are increasingly becoming responsible for Supply Chain finance solutions, yet there is a general confusion as to how SCF works and the role of different players. For example, today's buzz words include reverse factoring, vendor financing, payables financing, receivables purchasing and trade payables backed financing, which all tend to be variations on the theme of the umbrella term supply chain finance. These all refer to post-shipment finance programs. As the corporate business model becomes more globally distributed, we believe a Guide targeted at corporate end-users will be helpful to better understand the application of SCF in a global environment. Background This guide seeks to empower CFOs and treasurers dealing with the myriad of issues around implementing a supply chain finance program and introduce them to key solution providers in this space. Global Supply Chain Finance (GSCF) technology and bank providers are developing new models for trade finance. New technologies and financing approaches are emerging. In this report, you will find profiles of the leading global supply chain finance solution providers split in the following Buyer (Payable) and Vendor (Receivable) Platform providers Transaction risk managers Risk Carriers and Liquidity Providers Section A of this Guide provides an overview of the Global Supply Chain finance space, segments the space, and provides key trends and evaluation criteria. Section B provides a detailed, independent write-up of example solution providers. Each supplier entry includes a concise history, an overview of the business model, its current situation and vision, contact person(s), and key business functionality. There is no hidden agenda in this Guide. It is an independent source for anyone determining how their company should proceed with global supply chain finance and working capital solutions. Whether you are simply assessing what is available on the market today or just trying to understand what this space is about, this report will help keep you informed about developments in this important sector. 4

5 I. Introduction to GSCF Guide There is an evolving blurring of traditional trade finance and SCF with some banks, as they seem to be bundling all trade finance as supply chain finance. End to end financing options such as raw material or, production financing, need to be done across the supply chain. Today, the market focus is around post shipment finance done when goods have been shipped and invoices have been presented. What is Global Supply Chain Finance? We see GSCF as four things: First, the Supply Chain Finance (SCF) solution is a combination of technology solutions and services that links buyers, their suppliers, and financing providers optimizing the visibility, financing cost, availability, and delivery of cash. Because of the extension of the supply chain, the increase in purchase to pay cycle time, etc. companies are hedging their inventory with cash. Automating the Financial supply chain and employing networked financial services can reduce cost of capital and create an advantaged ecosystem. The opportunity is less about just reducing the cost of finance within the buying organization and more about reducing the cost of finance across the supply chain for all players particularly suppliers that don t have readily available sources of financing. Second SCF ties logistics and tracking of goods into finance decisions. A growing number of trade platform technology providers have emerged that enable container or cargo movements to be tracked by track and trace software. Third, risk retention in its many forms ends up being one of the most significant aspects of the SCF process. Providing secure logistic and financial information paths to third-party liquidity providers and risk carriers enables liquidity to be injected into the Global Supply Chain through the use of sophisticated credit and pricing models. Finally, Trade Receivables, unlike Commercial Paper that is due on a specific date, may be paid late or may not be paid in full for a variety of reasons. Trading in trade receivables requires the management of disputes and other discrepancies, whether the payment instrument is an invoice or a letter of credit. 5

6 I. Introduction to GSCF Guide Corporates are becoming increasingly aware of the need for, and availability of, new SCF techniques. What s driving the Growth of Global Supply Chain Finance? Globalization and the lengthening of the supply chain are the game changers shaping the new ground rules of business. Companies are outsourcing capital intensive plant, property and equipment and labor intensive activities to global partners down the value chain. In a relatively short period of time, companies have transitioned from manufacturers to managing a complex web of third parties to make, store and distribute their products and brands. No longer is the majority of capital deployed to finance property, plant and equipment but to finance working capital (inventory, receivables, etc.). While the supply chain is lengthening as a result of globalization, direct sourcing, offshore production and distribution, many companies have experienced challenges in capital availability. For example: Traditional international financing vehicles are in relative decline, like the use of the Letter of Credit for both pre shipment and post shipment finance. Most of these suppliers are Small /Medium enterprises (commonly called SMEs), growing rapidly but having limited access to capital. Capital constrained SMEs are forced to raise capital through traditional A/R factoring or indigenous local banks. Non OECD suppliers face pressure from large buyers in the form of extended payment terms. A day extension to existing terms would have a very positive impact on the P&L and balance sheet of a buyer spending over 1bn with suppliers, but it could put serious pressure on contractors, sub-suppliers, etc. throughout the overall chain, and potentially disrupt production and goods flow. It is increasingly becoming a problem for manufacturers who have established offshore manufacturing (for example, moving production of low-value brands to China from the USA or Germany) to find financing solutions. A key challenge comes from programs which require local content, such as various ECA programs. A growing and larger percentage of receivables are international (globalization, offshore, and in a separate legal jurisdiction) and those receivables themselves have longer terms-- a double hit. Many banks do not include these receivables are part of an eligible base for lending. 6

7 In financing cross border transactions, it is imperative to understand that Non Related v. Related Party (or intra company) trade has significant differences and impact on Supply Chain Finance. Related Party Non Related Party (NRP) Payment Finance Accounting Credit Admin Much of this trade is financed through intra company netting and internal funding. The market is segmented by those that are able to issue Commercial paper and those that are not. Many larger firms set up in-house banks to finance various subsidiary trading. Transfer pricing and intra-company reconciliations are major issues. Limited to minority subsidiaries The logistics process initiates the payment mechanism. For example, the two principal documents key to payment and finance are the Bill of Lading and the Bill of Exchange (B/E). The biggest financial difference with Open account and Letters of Credit and Documentary Collections is the Bill of Exchange. The B/E is a future date certain, amount certain, payment order. When passing between countries, a B/E must be a paper document. Terms can be from confirmed L/C to extended open account with just a commercial invoice. Corporates fund cross-border trade by: using their own balance sheet by extending buyer terms Invoice discounting and factoring (with and without insurance) Transactional finance using instruments such as the B/E or promissory notes to sell for cash Supply chain finance Usance L/C discounting Purchase Order / Invoice / Shipment reconciliation Dispute Management reconciliation Open account sales to dealers, distributors, resellers, etc. requires extensive credit application and analysis process to provide customer credit lines. Letter of credit sales are sales to issuing banks (not buyers) or confirming banks if confirmed. 7

8 TABLE OF CONTENTS Introduction to this Guide Section A Overview I. The Problem Defined and the Current Environment II. III. IV. Market Segmentation Import and Export solutions Data triggered Supply Chain Finance V. Key CFO Evaluation Criteria Section B: Key SCF players I. Supply Chain Finance Platform Providers II. III. Transactional Risk Managers Liquidity Providers and Risk Takers 8

9 Section A I. The Problem Defined & the Current Environment 9

10 Companies that focus solely on their own balance sheet and P&L statement look to maximize DPO and minimize DSO and CCP. Understanding the relationship between DSO, DPO, DIH, and CCP Order Placed Inventory Received Sale Cash Received DIH Time Accounts Payable DPO DSO Accounts Receivable cash paid Cash conversion period Days Inventory Held (DIH) = Inventory/(Cost of Sales/365) Days Sales Outstanding (DSO) = Receivables/(Sales/365) Days Payable Outstanding (DPO) = Payables/(Cost of Sales/365) Cash Conversion Period (CCP) = DSO + DIH - DPO CCP measures the time between inventories and cash from sales 10

11 In order to achieve better Balance Sheet and P&L ratios, companies apply traditional payment practices, often resulting in a zero sum game or worse. Traditional Payment Practices Don t Solve Problem Strategy Example Why Flawed Unilateral Term Extension With Overseas Vendors Early Payment Discount Program Seeking supplier compliance to extend payment terms from 30 to 60 days. Aggressive management of early discount programs (2% 10 net 30 - buyer takes a 2% ad valorem discount if invoice paid within 10 days of submission) Cost shifting vs. cost reduction Increased finance cost to supplier returned to buyer in form of higher prices Financially destabilizing for suppliers, potentially harming flow of goods Those most vulnerable forced to accept due to reduced bargaining power Suppliers not competing on production or quality capabilities, rather financial access Discount costed into supplier price regardless of whether discount taken may result in higher price to buyer Could involve additional back office work with cross border trade, as custom entry valuation must equal what overseas vendor was paid. Other Source: PrimeRevenue Vendor management of in-transit inventory Letter of Credit to Open Account There are several challenges in VMI programs that will limit their wide scale roll-out. Examples include C-TPAT, consignment law, accounting costs in warehouse transfers, and accounting for who owns the inventory. Cost shifting vs. cost reduction Increased finance cost to supplier returned to buyer in form of higher prices 11

12 Supply Chain Financing Overview of Problem Increasingly done in multiple countries Domestic Commodity Supplier Manufacturer Processor Distributors Retailer Consumer In the USA, the Federal Reserve data indicates there are 6 Trillion in payables outstanding (US), which correlates to 4% of finished goods cost relates to financing. Supply chains are complex groupings of different types of companies that ultimately deliver a product to a consumer. One goal of each company within the chain is to increase sales, which can be accomplished by offering their customer payment options to make the purchase easier. Raw materials are purchased from the commodity source by processors that fabricate them into parts used by component suppliers. Components are assembled by suppliers and shipped to the manufacturer for use in producing the final product. The product is sold to distributors or direct to retailers who in turn sell it to consumers. Sales within the chain can be increased by providing the customer with better payment terms and straightforward payment options (eg. No letters of credits). However, providing these options creates challenges for the seller depending on their size relative to their customer. Cost Problem: Larger companies selling to smaller entities have large costs associated with credit, billing, collection and bad debt associated with extending flexible payment options to their customers. When this is done on a cross border, non related party basis, it adds further costs in terms of customs, compliance, risk management, etc. Fortunately, large companies tend to have ready access to plenty of reasonably priced capital to fund these options. Capital Problem: Smaller companies selling to larger ones have less process cost, but generally use very expensive and limited capital to finance extended customer payment terms, creating cash and cash flow problems. 12

13 Supply Chain Financing Overview of Capital Constraint Problems Areas of Capital Constraints Top 20 Retailer Commodity 1 Processor Supplier 2 Manufacturer Distributors Retailer Consumer The cost problem is most severely felt in two areas the commodity and processor flow and the manufacturer to distributor/retailer flow Commodities: Providing processors with payment terms is still predominantly done by allowing limits. The processor is faced with credit limits that can disrupt the manufacturing process. A processor that can t get enough credit disrupts production, from their shop 1 and all the way up to the manufacturer. Manufactures attempt to solve the problem by directly purchasing commodities and deducting the cost from supplier payments. This adds inventory to the manufacturer s balance sheet and creates extra accounting cost. Processors: The capital problem in this group is the most severe. Their customers are demanding extended payment terms because of the demands of the manufacturer. The commodity companies are reticent to extend credit because of the poor financial health of most processors. Capital within this group is very high priced and difficult to get. This is becoming an even greater problem as processing moves to developing regions where banking is well behind the developed regions. Supplier: Providing manufacturers with payment options involves receivables. Suppliers that sell to larger companies up a supply chain generally have tens of customers with readily available credit information, which means that their financial cost problem is minimal. The problem is that the capital tied up in these receivables is costly and not readily available for the supplier. Depending on 2 the type of lender utilized by the Supplier, the cost of financing these receivables is generally 3% to 20% higher than the capital cost of their large customers. Early payment programs implemented by the manufacturer/retailer are a way to lower capital cost and increase liquidity for their supply chain. Some Retailers, like Wal-mart, have shifted the typical supply chain and have become manufacturers themselves, developing extensive private label product direct through overseas suppliers. These retailers create a Capital Problem for their vendors, which might be either manufactures or distributors. Some retailers attempt to solve the capital problem providing early payment options to their vendors. However, these programs rely on confirmation of payment amount and date, making them ineffective for solving the main problem: vendor managed inventory In an open account environment, many overseas suppliers only source of finance is likely to be working capital loans from local banks 13

14 Supply Chain Financing Lean manufacturing supply chains are putting pressure on suppliers (tier 1, 2, etc.) downstream. Vendor Managed Inventory Example Blanket PO Offshore / Overseas Entry Domestic Factory Finished Goods Inventory Manufacturing Buffer Inventory Mexico warehouse Customs Entry Finished Goods Inventory Buyer Inventory call Title used to transfer on FOB terms at the port Under VMI, title does not transfer until inventory called, an additional x days to finance inventory Who holds the inventory? Suppliers with lean manufacturing chains have another problem in that manufacturers want to pay for components when used, but require suppliers to have a ready supply on hand under the manufacturer s control. An example is a supplier that ships components to a manufacturer warehouse in Mexico. These components are treated as inventory of the supplier until used by the manufacturer, at which time they become a receivable. Financing for this inventory is difficult for the supplier to obtain because their bank s collateral is inventory under someone else s control in a jurisdiction where the bank has little rights to recover it. Logistics infrastructure creating additional complexities. Many companies have a major issue with port congestion, rail and truck capacity and will attempt to solve it by having their supply chain hold inventory (usually in their domestic locations close to their Distribution Centers or even in bonded warehouses in offshore. Bonded warehouse do not pay customs duty. The goods could not be removed until the supplier agrees to let the Customer have them. Goods can be delivered to the Customer in a certain amount of time depending on location and customs clearance, or if domestic, 1 to 3 days from the time the warehouse is notified. Only after the goods are removed from the warehouse does duty have to be paid. The need for inventory remains because demand forecasting is not an exact science. 14

15 Supply Chain Financing Overview of Capital Problem Sub- Suppliers Suppliers Client (Anchor) Distributors Customers Spokes A Supply Chain Finance model must be built around financing transactions and not companies. Just as the physical supply chain made big inroads in visibility, SCF players need to on financial side. Supply Chain Finance (SCF) improves the twin challenges of visibility and certainty. It improves the confidence of third-party financial institutions and banks (FI s), decreasing risk reducing cost and increasing availability of cash in supply chain. The Selection Problem - Most risk capital and liquidity providers only finance companies that have good balance sheets they deal with distributors or suppliers of anchor clients and deal with their distributors but in order to deal with them, must have recourse on the anchor client. Risk providers will only want good risks. Large Buyers are also often unable to manage smaller and/or weaker suppliers, leaving the most in need of SCF without a solution. The Collateral problem - When Bank A and Bank B go back two stages in the manufacturing process with Anchor customer A and B respectively, who gets priority? The Anchor client as the guarantor problem If an Anchor client tells their bank they have suppliers and distributors that are struggling with working capital, the bank will ask why don t you just guarantee the transaction and take the production risk. Now you are putting the Anchor client in the position in order to make financing work for their direct suppliers or sub supplier they are now in position to take production risk. If you go one-step down and it s the sub supplier that has the problem, not the integrator. Lack of adequate information problem - The challenge banks have found is that for many of the Anchor client s clients, they may not have adequate information to bank them. In essence, unless the bank gets involved in the transactional side of the anchor s business flow, it will not have enough quality information to make good credit decisions with suppliers / buyers located overseas (who are typically small and medium enterprises where good credit data is lacking). While hedge funds and insurance companies are well experienced in assuming credit risk for capital market instruments such as asset-backed commercial paper to finance receivables, these institutions struggle when business performance risk must be separate from credit risk. 15

16 With more open account trade occurring for global trade, the use of Letter of Credit to supply transactional finance has declined, hence both import and export flows could benefit by GSCF solutions. There has been a significant shift away from the use of the L/C since GBI s importer survey in Only 17% of those surveyed have L/C use of 75% or greater compared to 51% in 2004; we also found about the same use of Documentary Collections, but the average use is much higher now. Import View This is a substantial shift from our 2004 study. Given the fact that both China and India trade have grown at faster rates than world trade over this timeframe, the results are even more remarkable. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 15% 2% Percent of trade that is done on Letters of Credit: 39% 12% 0% Less than 25% 12% 27% 17% 7% 12% 29% 25 to 49% 50 to 74% 75 to 99.9% Source: GBI 2006 Import study of 100 importers 17% of companies 5% 22% 100% Buying agents may be picking up more of the financial intermediary role (i.e., helping buyers go open account but still providing financial services to suppliers). Some companies also mentioned providing financial incentives to their vendors to change terms (i.e., getting vendors paid faster for moving to open terms). Export View With L/Cs coming down, what are the replacements, how do people take a portfolio and mitigate that risk. Insurance has some capability to mitigate default risk and facilitate financing. 16

17 Section A II. Market Segmentation 17

18 In addition to Buyers whose main focus is Payables and Vendors/Suppliers whose main focus is Receivables, there are essentially three very big plays around the GSCF space SCF Platform Providers SCF Support Service Providers SCF Platform providers facilitate the process of exchanging purchase orders, invoices, payments and related documents and help integrate this information between buyers, sellers and Financial Institutions. SCF is both automation and access to trade finance / credit. The solution could be sold to banks directly or to corporates directly. There are specialized systems (sold for factoring, or for L/C administration), there are generic open account platforms as part of this space, there are solutions focused on EIPP functionality, etc. Everyone does some type of processing, but with a different focus. Today, this is either done manually (eg. Spreadsheets), via a custom developed application or part of an ERP solution. A few companies have moved to demand hosted SCF solutions. The three biggest areas of investment are: Buyer centric payable programs Factor houses (egs. Codix, William Stuckey) In reaction to the threat from banks and non bank providers with reverse factoring initiatives, factor houses have looked to develop new products, around factoring and invoice discounting. Open account platforms: Using data from the Purchase order, and provide some form of pre shipment or production financing SCF Support Service providers offer services such as SCF program design, supplier, buyer and financial institution enablement, and the legal infrastructure to companies. They are usually a subset of platform providers. Transactional Risk Manager The transactional risk manager takes physical move data, pulls together, merges the data and gives investors a better set of data to make underwriting decisions. The risk manager brings various parties together logistics, banks, buyers, sellers and understands the needs of each party. The purpose is to verify data, aggregate, analyze and present in a way that can facilitate the authorization of funding. UPS is an example. In essence, they acts as a Data Translator and provide the Risk Takers with the data they need to make solid underwriting decisions as well as help intermediate capital in the supply chain when it is needed. SCF Platform providers can play this role as well, or Transactional risk managers could also be SCF platform providers. Risk Taker / Liquidity Provider The Risk Taker and Liquidity providers - Banks, Investment banks, finance companies, insurance companies and hedge funds are major players here. They have skin in the game. Credit insurers look at global exposure to the exporter and within that, specific exposure to one transaction from an exporter which all gets back to credit lines. This is further split into Recourse/ Non Recourse financing options. Risk takers will vary wildly in their financial offerings. For example, GMAC may not lend to foreign companies, so they do through bank partners overseas. Just because Risk Takers now have platforms in place does not mean they can throw out their underwriting standards, credit polices, legal infrastructure, use of risk tools, etc. If we can provide visibility around the Purchase order or if we can match a PO from a supplier with a buyer or post a bunch of invoices and see what a bank will lend off of them, we can create an application in an afternoon, the technology is the easy part, having the ability to underwrite and mitigate risk is the tough part. Who has skin in the game. International Trade Banker 18

19 Below are examples of the Global Supply Chain Finance market segment. Platform Providers Transaction Risk Managers Risk Takers Recourse/Non Recourse SCF technology facilitators sold to banks, buyers Logistic Providers Banks Examples: GSCF, PrimeRevenue, Orbian UPS SCF technology facilitators sold to Financial Institutions Examples: Premium Technologies, Misys, William Stuckey, TradeFinance Systems, XPCapital Global Trade Management SC visibility firms Examples: EZD Global, TradeBeam Non Banks Examples: CIT Financial, GE Commercial Finance Letter of credit and Open account platforms Examples: Banks, TradeCard, SWIFT s TSU initiative Buyers and their partners Examples: Wal-Mart, Home Depot Hedge Funds / Specialized Investors Examples: Rosemount, Octagon EIPP Platforms SCF Credit Data Processors Credit Insurers Examples: Xign, ERP systems Examples: Instream, First Data for credit cards Examples: AIG, Atradius 19

20 Platform providers provide the necessary applications (payables, receivables, EIPP, etc.) to help feed key liquidity and risk providers. SCF Platform Components Presentment SCF Risk Takers and Liquidity Providers EIPP Finance Buyers Letter of Credit Processing Purchase Orders Banks Accounting Reporting Credit Risk Mgmt. Trans. Risk Mgmt. Credit Insurers Sellers Data Translation Pmt. Processing Investment Banks Products Hedge Funds Receivables Purchase Orders Inventory Technology Platform Providers SCF technology facilitators EIPP Platform Providers Open account platforms ERP Vendors 20

21 Platform Providers Key Supply Chain Finance Components SCF Components Presentment EIPP Payable Files Letter of Credit Purchase Orders Processing Accounting Credit Risk Mgmt. Reporting Trans. Risk Mgmt. Data Translation Pmt. Processing Documentation Presentment: The various parties to the relationship need a way to interact with the solution. Best of breed leverages the presentment capabilities of an EIPP platform for Buyers and Suppliers, dispute resolution, etc and the GSCF platform required for banks and risk managers. Presentment could include functionality around: EIPP (Invoice) Letter of credit data Purchase orders Payable files Processing: Invoicing, matching, reconciliation, payment processing, cash application, Letter of Credit processing, documentation platforms are all part of processing. Two of the critical sub-components are discussed below: Credit Risk Management: The risk of Buyer insolvency and the risk thereon is well managed by banks, insurance companies and specialized investors. The challenge is having a good way of pricing and tracking transactions within GSCF solutions, which is the interface between Presentment & Processing solutions. The best of breed solution would have multiple funding sources, tapping the lowest price source until capacity was filled before tapping the next higher priced source. Transaction Risk Management: GSCF solutions also need to manage transactional risk, including supplier fraud, payment errors and over-payments. This area also covers tapping into logistic information (eg. 3rd party, UPS) to perform transactional risk management and intermediate capital when necessary. 21

22 Transactional Risk Management Transactional Risk Management (TRM) can involve many components but the key one is merging logistics with finance. Risk Components Integrating logistic data Description The management and tracking of the physical movement of cargo is critical to track movement of goods. The logistic provider collects information about goods movement and provides this data to the transaction risk manager (which could be one and the same). The TRMs job is to verify, aggregate, and analyze data and provide it to the risk takers. The bill of lading is typically the critical document to secure custody. Logistics expertise becomes critical to manage problems whenever they inevitably arise (ie, rejected goods, buyer insolvency during shipment, etc.) Information Technology Information technology is an essential component in the management of the integrated finance and logistics process. The risk takers receives information from TRMs in order to authorize financial transactions. Transaction risk managers will typically have some risk management system to share data. Insurance Transaction and Credit There is some form of Risk management done through the use of trade credit insurance to mitigate trade risk through cargo, credit and transaction dispute insurance. For receivable solutions, Insurers have started to work with banks tracking the insured nature of the receivables they are lending against. What is required is a very clear picture of the state of the insurance, the buyers, and the limits that are in place. Funding One of the most exciting aspects of the merging of physical and financial supply chains is the ability to trigger liquidity off a set of milestone events. Transactional risk managers may also take a proportional share of funding risk so the Risk Takers feel they have some skin in the game as well. 22

23 Transaction Risk Management Example Situation: An emerging market seller in Turkey is selling on 90 day terms to an OECD buyer in the United Kingdom. The minimum commitment is 250 TEUs annually. Seller seeks cash flow and through funding partners and a transactional risk manager, is able to take advantage of the physical supply chain triggers of in-transit inventory and finance on a full nonrecourse basis. Transaction Risk Management example components Funding Line Transaction Insurance Bill of Lading Credit & Collections Risk Management System Logistics Expertise Credit Insurance Interbank Debt All Risk Insurance Secure Custody Risk Mitigation Fully Managed Service Example of how the Model Works: The Collecting Bank in the United Kingdom agrees to collection and credit worthiness at contract completion. The funding bank agrees to a $5million funding line. Coface issues a transactional insurance wrap. The Collecting Bank insures against bankruptcy of receiver and the transactional insurance wrap covers dispute. The key part of the process is writing the logistic plan into a risk monitoring system that gives everyone concerned visibility into container movement. Under the Service Agreement, all parties to moving inventory from A to B agree an event process for tracking from cargo pick-up, loading, inland haulage, FOB, shipping, ETA, and actual arrival. Upon the shipping date, 70% of the money is moved from to seller, and all parties have visibility of shipping details. In the event of a problem, a logistic team is alerted and can take the necessary value judgments on the inventory. Once inventory is delivered at destination, the full value of the contract terms is collected and released to the funding bank. There is now an inter-bank debt scenario, insurance wrap and funding to pay for the B/L and begin the process of risk mitigation. 23

24 Risk Takers GSCF impacts Risk Takers traditional credit role in some significant ways; below we look at three major credit processes and the impact. Loan Origination / Credit Enhancement Loan Origination can involve: Underwriting standards: it s the whole relationship management model. When it comes to trade, the challenge the banking industry has is that most companies, especially manufacturers and brand companies, no longer make their products, but use a web of 3rd party relationships, many offshore. Banks have a difficult time with offshore collateral. The challenge banks have found is that for many of the supply chain partners of their customers, they may not have adequate information to bank them. In essence, unless the bank gets involved in the transactional side of the clients business flow, it will not have enough quality information to make good credit decisions with suppliers / buyers located overseas (who are typically small and medium enterprises where good credit data is lacking). Manage the conflict between transactional finance and Asset Based Lending -Banks need to take the export receivable business and find ways to work the transactional nature of trade finance and the balance sheet lending of Asset Based Lending (ABL). Back Office Administration \ Risk Management Back office Administration can involve: Managing the Paperwork: Take the Letter of Credit, you have the UCP500 soon to be UCP600, which are guidelines governing the instrument and are held up in court. With Open account, what defines it? What triggers a payment? What most people call straight wires is a convoluted process involving consolidators sending packing list details and scanned images of documents, banks overseas office (or an overseas agent or again the consolidator) doing a check to make sure documents are present and conform, etc. Integration with Credit and other risk management players - Insurers have started to explore with banks tracking the insured nature of the receivables they are lending against, so that it is actually asset based lending, or factoring or an invoice discounting operation. What is required is a very clear picture of the state of the insurance, the buyers, and the limits that are in place. Funding Funding can involve: Advance rates - Credit intermediation is the principal role of the banking sector and is its core competency. For Supply chain finance, advance rates can be a function of certain triggers or milestones that are met. In order to have this information, data around cargo movement is critical. Basel II s impact on credit pricing: In Europe banks have a focus on Basel 2, where they are trying to relate financing with the client trade cycles and establish trade-facilities which are self liquidating. Upon the completion of the trade cycle, the funding bank gets cash out of customers trade cycle. The credit facility will be separate which from risk is lower than conventional and pricing wise should be more attractive. 24

25 Risk Takers Many major trade banks are focused on developing an integrated working capital platform to meet this new world of technology melding with the needs of the physical and financial supply chain. Corporate Customers Working Capital Management / Integrated Platform 3 rd Party Services Logistics Compliance Documentation, etc. Web-enabled Banking Trade and Treasury Document / Data Services Preparation / Archiving Matching / Compliance / Connectivity Supply Chain Finance Secure, multi-party interactions event tracking better terms, cycle time and flexible finance Key Point: As large banks develop an integrated working capital platform, there will be big differences in execution capabilities. For example: Ability to work with Logistics providers and offer value added services such as in-transit inventory financing Compliance and the ability to do integrated processing of invoices, automatic compliance matching, etc. SCF technology deployed (eg. white labeled through various platform providers, built by themselves, use of ASP hosted solution, etc.) Credit risk policies eg, What can you do beyond leveraging buyer credit quality, such as financing off of PO or non recourse v. recourse SC finance. Move financial products away from paper finance structures. Securitization services how to make liquid 25

26 Risk Takers At the moment, many of the hedge funds are only involved in Supply Chain Financing as a buyer of trade paper. Today s Hedge Fund Tomorrow s - Hedge Fund - SPV Many of the Hedge Funds don t originate deals, but have a fund that buys trade paper. Non-bank money can provide a much-needed alternative source of liquidity for the trade finance market. According to one market observer there are now at least six pure-play trade finance funds such as the two new models in existence, as well as a number of fund of funds (FoFs) that invest in trade finance funds as part of their investment activity. (source: TF Review) Big banks have tried to increase the depth of their secondary distribution by selling trade finance assets to bond funds and insurance companies, but there was always a lack of familiarity with documentation as well as inherent documentation clearing obstacles that hindered marking to market activity and liquidity. A handful of funds have been established, including The LH Asian Trade Finance Fund invests in asset backed trade and structured trade finance transactions ranging from traditional warehousing and collateral-backed transactions; Rosemount Capital Management which has established a hedge fund dedicated to trade finance globally; Tricon Forfaiting Fund Limited (Bermuda); Eden Rock Capital Management capitalizes on the returns available from factoring and other asset-based forms of finance; International Investment Group s (IIG) main IIG Trade Opportunities Fund (TOF), which invests in global commodity trade finance transactions; Octave-1 Fund, which invests in inventory finance, trade finance, and asset-backed securities. Buyer Maturity Payment Invoices Approvals Working Capital SPV Investors Tier 1 Suppliers Assignment Tier 2 Suppliers Tier 3 Suppliers Key Advantage of Capital Markets in Trade Financing: When banks underwrite a program they underwrite credit risk to a particular name and have limited capacity to that name based on their credit policies. Price is based on a chunky rating, like BBB- or A. If you look at credit pricing in the capital markets, there is a huge range, you could be a AAA issuer, and there is a range of credit spreads. This is one of the chief advantages of the capital markets. Second, through the use of derivatives, when a downgrade to a buyer occurs, there is not a sudden drop in the portfolio value. 26

27 Section A III. A. Example Import solutions 27

28 Import GSCF Overview What are some solutions for financing Imports around the Global Supply Chain? Import GSCF examples Pre-Shipment finance (eg. Finance overseas suppliers) Leverage buyers credit rating for Pre Shipment finance and manage the production and shipping risk Purchase of raw materials and production financing now that the Letter of credit is being used less on a relative basis for trade. Guaranteed PO Financing In-transit inventory Vendor Managed Inventory Inventory finance Post-Shipment finance- extend payables Buyer Centric Vendor Finance Early payment to suppliers, as part of the supply chain finance program. Extend payment terms by providing finance at the normal maturity of the invoices. 28

29 In the PRE-SHIPMENT FINANCE area, there are two major risk categories to address with buyer banks doing SC financing off the Purchase Order. Risk Categories Supplier Performance Risks The key question is there a way to leverage buyers credit rating for Pre Shipment finance and manage the production and shipping risk? When the L/C existed, it made it quite simple for a local vendor to get financing. That s come out of equation. Now varying levels of purchase orders and commitments have replaced the L/C, anywhere from a Non Cancelable PO which is almost as good as an LC (but not quite because an LC the credit is the issuing bank, not the end buyer) to a forecast, and you have to trust the buyer on what they say they will buy. Banks lack information on supplier performance how will they get reliable information on credit and performance risk? Importers are unwilling to share scorecard data (and still are in the very early stages of setting up scorecard programs with overseas vendors). In prior work that we have done, we did not find strong interest in companies sharing some details from vendor scorecards for banks to provide supply chain finance. We know more importers are developing metrics for a Vendor Scorecard with things like on time deliveries, cycle time for orders, % loss / damage / short / not saleable, etc. This data is a strong indicator of vendor performance and hence risk. Suppliers may be able to double dip, using the PO financing, which is a very transactional form of financing, plus access to local bank working capital. PO Change Management Purchase Orders may be amended multiple times based on industry and good type. The changeable nature, lack of guarantee features and control elements like time for shipment make this a fluid document. Goods at this point have not been manufactured, matched to specification or quality inspected, and therefore, buyer-led facilities rely heavily on suppliers historic performance. More and more importers that we spoke to are going to shorter order cycles, which puts additional pressure on suppliers, especially if buyers do not share forecast data or use Master POs and drawdown from them. Most banks lack a complete end to end electronic document or data feed visibility to manage this process. Without an ability to see logistics, warehousing, goods movement, etc. and have access to goods inspections, the banks are at risk from the time when no invoices are presented until the time invoices are presented and paid. Scan-pack solutions tied to document preparation give rise to quality documents and provide access to data; we are just in the very early stages with these solutions. 29

30 Post Shipment Finance Model Buyer Centric Payables Backed Supplier Finance High Level Payables Backed Supplier Finance Business Model Seller 3. Immediate Finance 4. Finance before maturity Discount Receivables 2. Log onto system 5. Pay supplier Platform or Bank (FI) Hold to Value Date Buyer 1. Electronic Payable information Payable date Amount Vendor Receive Cash up until maturity Date Buyer Initiated Confirms payment obligation Provides payment data -The buyer sends to the bank a Confirmed Payables file specifying the dates on which invoice payments are to be made. Data presented to Suppliers -Suppliers are advised by the bank of the amounts and dates on which payments are to be settled on behalf of the buyer. Supplier Value Visibility Into payment details Certainty of payment (Forecasting) Ability to sell the receivable for cash At maturity of each invoice the bank either makes settlement to the supplier on behalf of the buyer (if no finance has been taken by the supplier) or is reimbursed for its financing using the buyer s funds in those cases where supplier finance has been drawn down. This structure works equally well for both domestic and international trade. 30

31 Post Shipment Finance Model Buyer Centric Example Consider the example of a Supplier (exporter) who negotiated a 30-day term with its Buyer. On Day 0, the Buyer receives the goods to its satisfaction and posts the approved receivable to the Supplier (exporter) and to the Financial Institution on Day 1. The Supplier then has the option to receive cash for that receivable at anytime up until Day 30. However, if the Supplier (exporter) chooses to hold the receivable to Day 45, it receives full payment and pays no fees. BUYER Purchase Goods & Services Goods Received \ Invoice Received Invoice approved Fund Payment Original Term Negotiate extension Day 0 Day 1 Day 1 Day 45 Discount to Cash Sell Goods & Services Ship Goods \ Invoice View Payment Notification Receive Cash if No Discount 31

32 Post Shipment Finance Model Solution Impact Buyer Centric Solution Impact No Impact Financial Impact Low Impact Medium Impact High Impact BENEFITS FOR SUPPLIERS Financial Impact Reduction in Inventory Interest Cost Savings Reduce Overhead / Admin costs Revenue Growth Terms Negotiation Credit Insurance cost reduction Faster inbound cash flow, due to early settlement of invoices. Off balance sheet, non-recourse finance, potentially enabling an improved credit rating. Where the supplier is a SME and the buyer is a large credit-worthy corporate, the cost of finance will often be lower than the SME might normally achieve on a standalone basis. No longer necessary to take credit insurance against insolvency, further lowering the cost of sales. Operational Impact Visibility into invoices Regulatory Compliance Supplier Management Cash Flow Forecasting Operational Impact Free supplier payments for the buyer. Cuts the cost of processing and reconciling supplier payments and gives the buyer improved visibility of outbound cash flow. The bank takes on the administration of distributing funds to suppliers using the most efficient and cost effective means. Easy set-up, done through a web-portal 32

33 Import GSCF in action Today and tomorrow Pre Shipment Finance GSCF in action today: Pre-shipment finance via cash advances to facilitate pre production A leading global supplier of resins asked a new customer in Italy to give cash in advance for an order but the customer offered to have their bank give them a guarantee instead. In this situation, it is very important to determine whether the guarantee is a demand guarantee or an accessory guarantee. Although they are both called bank guarantees, they are very different and are even subject to different laws. In other words, if there is a dispute, the accessory guarantor does not have to pay as they are essentially a co-signer on the contract and therefore can assert the same dispute. GSCF in action today: Leveraging Purchasing for overseas suppliers A large apparel manufacturer has many smaller suppliers that perform cut, trim and make operations. In order to leverage their size, the company purchased 10,000 yards of Gore-Tex at a favorable price compared to their suppliers and warehoused the product close to their suppliers using a logistics company. The logistics company would receive pick orders from the suppliers for certain fabric amounts and would cut and forward to the supplier. Providing this form of pre-shipment financing not only saved material costs, but saved their suppliers expensive working capital to procure themselves. GSCF in action tomorrow: Pre Shipment finance for overseas suppliers A transaction risk manager or platform provider can provide the hooks from the exporter factory floor to a banks processing center to see logistics, warehousing, and goods movement. The transaction risk manager can organize and manage the peripherals like goods inspections and most trigger events creating electronic messaging and alerts. Data can be warehoused and mined to show vendor performance data both in history and in current outstandings (egs. order fill rates, amount financed of a PO). Finance can be one global bank or pre shipment to the export bank and post shipment to the buyer bank and all data builds back to the buyer and his bank. In order to get this to work in emerging markets like India and China, local banks and or exporter must move to some type of Web interface for this data, whether that is done for them by a service provider or they do themselves. 33

34 Import GSCF in Action Today and tomorrow In-transit Inventory GSCF in action today: Company imports orthopedic shoes from Asia. It brings product into the USA and distributes around the world. Its financing dried up in Asia as much of its product is off-shore inventory, either moving on containers or being shipped to end buyers. UPS Capital provided a full supply chain approach, where the container shipping moved from the company s existing carrier to UPS SCS supply chain company. UPS Capital is financing containers in Asia and provides the cargo insurance. The only reason they can do that, is the data is in one system. They know when the container was loaded, and when it is coming across. GSCF in action tomorrow: Vendor Managed Inventory (VMI) Models in Shanghai Large importers such as manufacturers are now holding inventory in Shanghai and then moving it to Malaysia or Thailand for assembly. The number of warehouses being established in Shanghai is growing rapidly. A logistic company like DHL has working models with various financial institutions. Singapore's Government offers tax breaks to those who can assemble product in their region. The software is there, what you need are the various players, like platform providers with warehouse management systems and the large buyers and the logistic players and banks to get involved. Post Shipment Finance GSCF in action Post Shipment Finance for overseas supplier An appliance manufacturer has been shifting much of its production out of Italy. Traditionally, suppliers in Italy are paid on 120 day terms. Although sourcing in Asia may reduce costs, many Asian suppliers are unable to handle extended payment terms like that. What this company was looking for was a way to keep their existing payment terms while working with more Asian suppliers. The company has been running a reverse factoring program for two years. Initially, the program was not successful with Asian suppliers as they required invoices to be preapproved before being sent to the bank for discounting. They removed this pre-approval process. By setting up some funding banks, their Asian suppliers can obtain much more competitive rates than they could from their local Asian banks. The appliance manufacturer also saves administration costs, as they effectively make one payment to the bank and then it is the banks that pays all the suppliers. 34

35 Section A III. B. Example Export solutions 35

36 Export GSCF Overview What are some solutions for financing exports around the Global Supply Chain? Supply chain finance lending programs to a seller s overseas dealers or distributors Dealer Finance solutions - sellers are paid before or immediately after shipment and dealers pay lender directly when goods are sold. This is where a financial partner can come in and offer a dealer finance structure. Under Dealer Finance, the bank will pay the seller for goods sold to the dealer either before or immediately after the seller effects shipment. Then, once the dealer sells these goods in the market, they will pay the bank directly. This proposition ensures an increase in the purchasing capacity and profitability of a sellers dealers. This is difficult in practice because the bank can t control cash from the ultimate purchaser, making the dealer a credit risk. Channel Finance - The core objective of Channel Finance is to provide integrated commercial and financial solutions to the supply and distribution channels of a given industry. Channel Finance gives support to the commercial relationship between sellers and their suppliers and customers. The commercial aim of Channel Finance is to add value to supply and distribution channels by providing unique solutions that meet customers' demands. Post Shipment Finance Buyer confirmed payable finance structures Transactional based trade financing structures whereby the seller can proactively grant credit terms to buyers without keeping the receivable on the balance sheet using negotiable instruments sold to funding partners for cash, without recourse. Instruments include:» Bill of Exchange (B/E) Purchase facility- applicable to all industry segments» Promissory Notes Invoice discounting facilities tied to Open Account trade Factoring Non recourse Global Asset based lending lending that is based on offshore production assets or in-transit inventory Open account trading platforms lending for raw materials based on purchase orders or master production schedules 36

37 There are numerous challenges with cross border export finance. From a survey done by GBI, the top challenges for many exporters in financing cross border transactions in order of importance are: 1. Banks have limited appetites for middle market buyer risk in overseas markets (ie, resellers, wholesalers, etc. are too small and unknown) 2. Administration costs in securing insurance are too high 3. Lenders have minimum size deal requirements that are too high 4. Many times, finance deals are offered only with full recourse Companies want to offer terms to their global dealer/ buyer/customer account network, and not use their balance sheet to do so. Providing discount terms is not going to work for many foreign buyers where the order must be placed, transit time must be accounted for, and warehousing, distribution, sales, etc. must occur. Equipment exporters want to be paid, without recourse, upon shipment and presentation of compliant documents. Buyers in Latin America, Asia, Africa, Eastern Europe and other emerging markets seek loans, leasing, local currency financing, etc., with longer-term repayment periods. Crossborder export finance transactions are now in demand for sales of capital equipment, healthcare, with six or even five-figure price tags. Open Account trading is dictated by the competitive nature of supply chains. Small or Medium sized Sellers generally have to offer open terms to large overseas Buyers to compete that is how many companies are offering finance. Large Sellers / Small Buyers require tailor-made trade finance solutions. The need for this is high, as what these companies require from banks is creativity on trade finance packages. Saying that, we know financing small buyers cross-border is really risky business. The finance entity, whether captive or not, needs to charge a very large interest premium to cover bad debt cost and return acceptable profit on utilized capital. This high interest premium can be built into the buyer s contract, which can make the product hard to sell, or can come from the manufacturer in the form of a contract discount. Large sellers have put in place Captive Finance arms (egs. CNH Capital, Motorola Credit, Cisco Capital, etc.) to handle these small buyer challenges. 37

38 Transactional Based Finance Bill of Exchange Purchase Facility INTERNATIONAL SALES FINANCE PROGRAM USING BILLS OF EXCHANGE Exporter Bill of Exchange Agreement 1. Exporter executes a Bill of Exchange facility Agreement 4. If Exporter decides to liquidate Bills- Accepted Bills, invoices, shipping documents are conformed by exporter and reviewed by funding bank. Exporter endorses bills over to funding bank. Drawn Bill of Exchange 2. Exporter draws up Bill of Exchange which matches the amounts and maturity dates of the commercial invoices. Exporter ships, sends invoice, bill of lading and bill of exchange to Buyer s Bank. Buyer s Bank 3. Buyer accepts the bill of exchange. Buyer s bank sends SWIFT message to the funding bank indicating that the bills of exchange have been accepted, signatures are valid and the signatories are authorized. $$$$$ 5. Funding bank purchases the bills and funds Exporter. Funding Bank Buyer 6. At maturity, funding bank presents bills to Buyer s bank for presentation to the Buyer for payment. Buyer s bank will remit payment direct to funding bank. True off balance sheet sale Typical payment terms can be 90 days up to 1 year Funding is 100% purchase less transaction fees 38

39 Post Shipment Finance Model Vendor Centric Receivables Backed Finance High Level Payables Backed Supplier Finance Business Model Vendor Centric Seller 1. Invoice data downloaded Forwarder Platform or Bank (FI) 2. Host to host track & trace provided 3. Purchase order approval request Buyer 4. Purchase order confirmation Vendor Centric Receivables Financing The process of handling receivables from vendors rather than approved payables from buyers carries a much higher degree of complexity. Starting from the credit side, there exists not one debtor but many, with varying conditions and payment terms. The receivables based program is complex and requires a dramatically better processing intelligence than the one required for handling payables. Platform providers and or liquidity providers must interface with the systems used by large vendors to have visibility into the shipment details to the various logistics service providers. A system must be in place to use invoice information matched to this logistics data. Buyers may be asked to confirm the invoices to be funded on their behalf to the respective vendor. The invoice sale can be done both on limited and non recourse basis, depending on the vendors' buyer portfolio quality. 6. Fund Invoice Liquidity provider 5. Funding Request 7. Repayment of funded invoices Example Vendor based in Canada and sells electronic goods on a regular basis to a buyer in Mexico on 60 day terms. The Vendor wants cash earlier and the buyer wants to pay later to cost-effectively fund the working capital investment. Buyer provides purchase order approval Logistics provider provides evidence of shipment and track and trace capability Vendor provides invoice data Vendor gets paid on day 10, buyer pays the bank on day

40 Transactional Based Export Trade Finance Structures Program Differences Invoice Discounting or Receivable Finance (with Insurance) Factoring SCF Program Advance Amount 80% to 100% (less finance fee) 70-85% 100% of invoice value (less finance fee) Commercial Risk Insurers generally take a maximum of 90% Factors take 100% of the commercial risk Buyer Payment Confirmation Cross Border Risk Without insurance, Financiers can not be confident of his title to the invoice without formal and proper control over the invoice itself. Factors take no cross-border risk, and in fact, generally only cover buyers in lowrisk, developed countries where security interest laws are well-established. Info Supplied Reliant solely on information from Suppliers Reliant solely on information from Suppliers Reliant on Buyer payment confirmation Legal Structure Typically some element is recourse financing Can be structured as Recourse or Non Recourse financing (off balance sheet) Non Recourse financing (off balance sheet) Payout Insurers wait until 180 days after the due date (or it is established that the buyer is bankrupt) Factors pay out within 60 days after the due date Supplier clears receivable at purchase Services Supplier responsible for collecting own trade debt. Insurers take over once a receivable has gone 180 days past due (or the buyer is bankrupt). Factors take over the entire collection process and can offer credit assessment of the client s trade partners to assign credit limits. Automated platform facilitates both approval and funding process Finance Fee (Discount) Lower The rule of thumb is that factoring costs twice as much as insurance. This reflects the costs of collecting receivables, the cost of insurance, and the higher indemnity level. Can be lower based on counterparties, for example, if buyer investment grade. 40

41 Section A IV. Data triggered Supply Chain Finance 41

42 The traditional lending model is starting to give way to supply chain finance with the thought around using various events or triggers in the supply chain to release cash. Traditional Model Lending Facility Based Financing Supplier working capital Inventory financing? Packing Loans? Bills of Exchange facilities Promissory Note facility Factoring / Invoice Discounting P.O. or L/C Issue Pre-Shipment Phase In-Transit / Order Doc Prep / AcknowledgedProduction Customs Ship Cleared Post-Shipment Phase Order Received / Verified By Buyer Invoice negotiation / Approval Payment Partial advance on Purchase Order / Letter of Credit Payments at pre-arranged points (eg. Goods inspection) Inventory in-transit financing Event-based advances Payment against delivery docs Vendor managed inventory pulls Buyer risk-based invoice finance Transactional Data Triggered Financing Key Point: There are five main triggers that we see for SCF (1. PO issuance; 2. some verification of manufacturing status: 3. Invoice issued; 4. Invoice approval; and 5. some VMI feed. From our discussions, no bank, finance house or logistics company is active in more than a few forms of trigger point international finance. The two generating the most cross industry interest are buyer supported vendor early payments triggered off of the approved invoice and pre export financing triggered off of an established PO. 42

43 Banks are looking to build event triggers around a few key areas: the paper flows around the PO, visibility into the logistic flows, and finally, more efficient payment flows. Traditionally, the Treasurer only got involved around the reconciliation and payment issues, but that is starting to change with Supply Chain finance. 3 rd Party Advanced Ship Note Goods Exporter Bank Credit Advice Exporter Acknowledge / Accept PO details Goods Accounts Rec Created AR Reversal Importer Contract PO Issued Invoice Sent Invoice Received Goods Reconciliation Goods Receipt Note Inv approval Payment Instruct AP Reversed Importer Bank Remittance Advice Paper flow Logistics flow Payment flow In the past, the Financial Flow lacks any standards and generally has little if any Logistics integration. 43

44 Developing a more event triggered supply chain is still in the making. While a few large banks are working with logistics companies, to date there is still very little public knowledge of these programs being widely applied. Example: Major technology manufacturer mandating all suppliers come off of L/Cs and use this payment process PO Initiation PO validation Invoice Delivery Completion Compliance Finality Supplier Settlement Day 10 Trade Finance Trigger 1 - PO Day 40 Trade Finance Trigger 2 - Goods shipped evidenced by bill of lading Bill of Lading Issued Day 50 Trade Finance Trigger 3 - Invoice Buyer approves invoice Day 85 Previous payment terms -Delivered Duty Paid plus 45 days FI finances 25% of the PO value through the platform FI finances 50% of the invoice value shipped Payment Obligation Issued final release of cash Maximum Advance 50% 75% 80% 85% 90% 100% Risk On Supplier Key Points: Acceptance Risk on buyer Platform reconciles invoices to original Purchase order (allows for partial shipments) Amount released for financing will depend on Financial institution Supplier managed inventory held by Supplier until drawn by Buyer could be another trigger point Different events could invoke financing triggers (eg. Customs release, goods inspected, etc.) 44

45 Section A V. Key CF0 Evaluation Criteria 45

46 In any GSCF solution, there are key issues for the CFO to address: We believe there are several factors that must be considered when corporate finance organizations are looking to execute strategies with trading and sourcing partners. CFOs and Treasurers are getting interested in the supply chain and its from the perspective of Working Capital Optimization. Precisely because most companies have a buyer and supplier base that extends to multiple countries. This puts tremendous pressure on hedging with the use of cash. The key to effective SCF programs is to arrive at an understanding with the company s trading partners on how to mutually reduce the overall cost and risk in the supply chain. Key factors to consider include: Legal jurisdiction issues - How do you perfect your interest in difficult jurisdictions like China? Accounting issues The crux of the issue is whether a buyers payables under some SCF program is bank or trade debt for balance sheet purposes. A Buyers payable, even if confirmed by the Buyer that they will pay regardless of disputes, will remain a payable on the balance sheet until paid. If the Buyer is confirming to the financial institution that it will pay at maturity of the invoice regardless of trade disputes or other rights of offset it may have against the supplier, then it is giving a higher commitment to pay to the financial institution than it owes to the supplier and this may be construed as a bank financing and not a trade payable on its books. How do buyers handle chargebacks (subsequent shipments) and how do buyers treat payment confirmations as part of their accounting are key issues to address. How are production and inventory assets financed offshore? There are four challenges here: 1. What to do with an increasing foreign receivable base -A larger percentage of receivables are now based on exports. In addition to being harder to finance, foreign receivables carry longer terms than domestic receivables and therefore have been causing companies' balance sheets to balloon and placing a drag on working capital, DSO, etc. 2. How to address that most asset-based lenders exclude foreign receivables and "over concentrations" from the eligible base of bank credit limits. Insurance can remedy this issue. 3. The third challenge is that it is increasingly becoming a problem for manufacturers of machinery who have established Joint Ventures manufacturing outside of their home market (for example, now making low-value brands in China versus USA or Germany) to find solutions for non-domestically produced equipment sales. The challenge comes from lending programs which require local content, such as EXIM financing. 4. Finally, inventory in-transit, particularly coming via ocean container, can be quite problematic as many importers buy on FOB terms, thus taking accounting possession on their balance sheets, yet banks are unwilling to lend against that inventory. Is the solution buyer centric or vendor / supplier centric? The market should be able to differentiate between Payable Solutions v. Receivable Solutions. 46

47 In any GSCF solution, there are key issues for the CFO to address: The amount of recourse in the GSCF solution How much skin in the game is the corporate willing to take? Financial institution margins are nowhere near great enough to absorb any real amount of risk. However, manufacturer profit margins are big enough to absorb credit risk. A loss ratio of 1%-2% can easily eat into bank principal, while a loss ratio of five to ten times that amount can be absorbed by a manufacturer s profit margin without causing a true loss. Being non-recourse finance, this funding is off balance sheet for the supplier and therefore does not eat into their existing credit limits. This structure may enable the supplier to access more funding than would be possible on a standalone basis. Payment Instruments used it really comes down to open account versus other instruments, ie, Letters of Credit, promissory notes, etc.. The interplay of all parties varies depending on whether it is open account or instrument driven. The presentment, processing, fraud, risk management, etc. are very different under the two flows. It's not just the laws, but the standards set up. Take the L/C, you have the UCP600 which are guidelines governing the instrument and are held up in court. With Open account, what defines it? What triggers a payment? What most people call straight wires is a convoluted process involving consolidators sending packing list details and scanned images of documents, banks overseas office (or an overseas agent or again the consolidator) doing a check to make sure documents are present and conform, etc. The other issues is that L/Cs require credit lines. As a seller, I am selling to the issuing bank (or confirming bank). As a buyer, I need a line established for my bank to open an L/C. The OA process requires internal credit lines from the seller to the buyer. Existing Bank relationships Many programs involve using funding partners that are not part of the corporates traditional lending group. What impact does this have? In addition, some GSCF are more agnostic that others, which may only working with specific funding institutions. IT integration requirements with 3 rd parties in order for these programs to be effective, financial institutions require a high degree of automation. The integration work may be as simple as sending an approved payable file to a third party, or may involve more Other important issues to consider include: Impact of overseas receivables on credit rating How will GSCF programs impact borrowing costs for the supply chain? Receivable securitization options Is GSCF thought of as specific to one or two vendors or put in as a systematic program available to all relationships? 47

48 Section B Introduction We would like to thank our Listing Sponsors on helping produce the first Global Supply Chain Finance Corporate Guide and encourage you to contact them regarding specifics around their solution capabilities. Platform examples Bolero CGI-AMS PrimeRevenue Transaction Risk Managers Instream UPS Capital Funding / Risk Providers ABN AMRO Bank of Montreal Capital Markets GE Commercial Finance JPMorgan Chase HSBC Morgan Stanley National City Bank Royal Bank of Scotland (RBS) Santander Group Wachovia 48

49 Section B I. Platform Providers 49

50 Bolero Web site: Key Contact: Arthur Vonchek, CEO Tel: Solution s Technology Functionality: EIPP Letter of Credit /Documentation* Transaction Risk Mgnt. Purchase Orders /Open Account Platforms Credit Risk Management Payment /Settlement Support Comprehensive Specific Function None * Note: Not examined here as part of a GSCF solution Solution Overview Background Key Strengths Key GSCF Strengths Bolero is a neutral secure platform enabling paperless trading between buyers, sellers, and their logistics service and bank partners. The Open Account Trading Platform providing paperless support of the Open Account trading process from PO distribution, Supplier creation of invoice and related shipping documents, electronic presentation of Supplier documents to the Importer and rules-based fully automated compliance checking. The application does not include the financing application(s). Launched at the end of September 1999 by the logistics and banking communities, Bolero is a global initiative to move trade onto the Internet. The Bolero System provides secure electronic transmission of business data and documents along the entire trade chain from front-end order processing and management to back-end trade document exchange. In December 2000, Bolero successfully completed a $50 million first round of funding. Bolero is active in US, Asia and Europe with marquee customers in all three regions. The solution is centrally hosted and operated by SWIFT, so regional offices are sales, marketing, consulting and support. The Bolero application serves as the infrastructure to support decisioning and risk management and access to multiple independent sources of financing. Deployed as a neutral trusted third party platform, enables secure access to/from multiple sources of financing Sophisticated rules-based matching and compliance provides opportunity for multiple trigger points in the supply chain process. Dematerializes the whole supply chain enabling automation of payments undertaking. Enables extension to supply chain service providers (e.g. logistics) Multiple deployment options (by corporate anchor, outsource service provider, white labeled by bank, etc.) 50

51 Bolero Scope and Functionality of Global Supply Chain Finance Solution SOLUTION The Bolero rules based compliance makes it possible to provide validated trigger points at defined stages of the supply chain and/or on certain matching criteria being met. Delivered as an authenticated and secure message to the source of finance allows risk decisions related to finance. What areas of the GSCF universe does your solution address? Working Capital Financing Payables Discounting The Bolero Open Account solution is targeted primarily on Retail, although also applicable to consumer high tech and other high volume Importers sourcing primarily from Asia. This is aimed at a Fortune 1000 anchor client to incorporate their suppliers into a dematerialized open account settlement process and in support of primarily Vendor Financing programs. The solution is intended to be applicable for all suppliers to the anchor being delivered as a hosted web-based solution with light Supplier footprint (Browser only) and configurable supplier workstation (supports doc prep as well as different levels of upload download and inter-operability). The solution is offered as a service to three targets; a) to the anchor corporate b) to a bank to offer as a service provision incorporating the bank s and others SC Financing solutions, and c) to a non-bank service provider as the basis for the provision of providerneutral financing. High Level Bolero Open Account Trading Platform Business Model Open Account Settlement process outsourced to Bank partner Automates firm payment undertaking Bank provides authority and through participation in the process can extend lower cost financing across the supply chain using authority and health of Buyer to manage risk The Importer gets visibility, and cash flexibility without passing the buck to Suppliers Suppliers get visibility and access to cheaper and more flexible financing Bank gets outsource and financing business Overall Supply Chain costs and cash both reduced Importer Service Provider Suppliers Sources of Finance 51

52 Bolero Unique elements to solution Explain any unique and differentiating element to your solution? POINTS OF DIFFERENTIATION Bolero provides a platform to accommodate open account paperless trading and finance among buyers and their vendors. Credit Risk Management The secure messaging platform incorporates a legal rule-book which together provides guaranteed delivery, non-repudiation, guaranteed delivered-as-sent and multi-party acceptance of the electronic document(s). It is therefore possible to utilize the Bolero platform to send auditable, secure, non-repudiable confirmation from third parties related to both events and approvals including generation of a firm payment undertaking. Geography Hosted solution available globally. By being neutral to the financing provision, the platform can support local and globally applicable financing instruments and services in accordance with local market conditions, custom and regulatory requirements. Data Translation The Bolero Platform dematerializes the whole PO Invoice matching process, using structured xml formats and messaging capability internally between all users of the Bolero application. This provides for multiple interoperability options from simple data entry and printing of the physical document(s), upload and download capabilities, translation and mapping to other structured formats (both standards like SWIFT, the German DTA standards, EDI formats and proprietary in-house solutions), and mapping to input output formats for integration with back-office systems. Accommodate Small Suppliers The Supplier workstation component of the Bolero Open Account platform is designed for ease of use by less sophisticated (small) suppliers including complete document preparation tools from the PO to required Invoice, Packing list etc. documents required to support the settlement process. Delivery as a hosted solution through standard internet browser requires no investment in technology or infrastructure which would limit adoption by small suppliers. Messaging Platform Bolero is unique as a neutral provider of secure, multiconstituent messaging services to any and all parties involved in global trade. The messaging paradigm guarantees authenticity, delivery, security, auditability, compliance and replay between parties. With these characteristics, and operated for Bolero by SWIFT, the solution provides services which meet the stringent requirements of banks and other financial institutions with regards compliance regulatory needs and security. This also guarantees flexibility in support of a number of modes of deployment, incorporating desired members of the extended supply chain community, operation by an independent service provider, or bank, and the ability to use multiple sources of financing and financing product. By reintroducing some of the structure and standards associated with the Letter of Credit without the need to re-adopt this instrument and by automating and dematerializing the entire process. 52

53 Bolero Vision What is your management vision for the GSCF space? VISION The nature of the Bolero platform and the ability to link to multiple counterparties together with the ability of the compliance engine to automate complex multiparty document matching decisions provides a robust platform for extension with logistics service providers. Bolero is focused on corporate centric solutions in the GSCF space but designed to re-intermediate banks and provide a platform for a corporate to recognize value delivery from a corporate s chosen banks as subordinated partners to the corporate supply chain rather than through bank-centric proprietary solutions and services. Bolero believe that both Open Account and Documentary Credit based supply chain will continue to co-exist in the future, rather than one being a replacement for the other. Bolero challenges the traditional LC process and its association with cost, complexity, uncertainty time etc. by providing an alternative which eliminates most of these issues, preserves the benefits of the LC and Guarantee and implements the process in a radically different manner. Key Technology Components aiding SCF Data Management and Service: Document Management and Workflow Document Preparation for Supplier Configurable Settlement rules engine Automated compliance and matching driving firm payment undertaking. Transactional Risk Management Secure auditing, compliance, nonrepudiation, guaranteed transaction replay, guaranteed document originality. We believe that by the very nature of Open Account anarchy, there will continue to be a large bunch of solutions aimed at this space both within and on the fringes of GSCF. Rather we will occupy an increasingly important corner of this space characterized by complete dematerialization of the process and the provision of flexible and competitive sources of finance through a neutral hosted platform. In the Open Account space we will always partner with the provider(s) of Finance and will also partner in the sense of solution delivery where we will typically be deployed as part of a broader service provision. Track Physical Movement of Goods Only indirectly by incorporation of extended members of the supply chain community onto the platform and the use of message triggers to confirm events, approvals, authorization, confirmations etc. Corporate Integration Issues As a messaging based platform using internal standardized and structured messages, this allows the Importer, its suppliers and any providers of finance to be loosely coupled (each party does not have to be aware of the technology or process of any of the other parties). This significantly reduces much of the implementation pain, adoption pain and integration pain. Bolero provides a range of options to interact with the platform from entirely manual through upload/download, through full seamless automation using the Bolero gateway. 53

54 CGI Proponix Web site: Key Contacts: Steve Starace, Kitt Carswell, GSCF Technology Solution Functionality: EIPP Letter of Credit / Documentation Transaction Risk Mgnt. Purchase Orders /Open Account Platforms Credit Risk Management Payment/ Settlement Support Comprehensive Specific Function None Solution Overview Background Key GSCF Strengths CGI s Proponix platform is a fully integrated global trade finance platform provided as a multi-tenant solution. It includes back-office, front-office and customer portal for letters of credits, collections, open account and finance products. CGI s SCF solution is fully integrated into all aspects of the Proponix platform, providing a full range financing across the order-to-pay cycle for the seller and buyer. It includes pre/at/post shipment financing, receivables financing, and buyer backed financing for the seller; and financing to fund trade obligations for the buyer. These have been seamlessly woven into the traditional trade finance and open account transaction processing. Proponix was established in 2000 as a joint venture of American Management Systems (AMS), Bank of Montreal (BMO, Barclays Bank and Australia New Zealand Bank (ANZ) to provide trade processing BPO services for global banks. In 2003 AMS bought Proponix to provide world class trade technology to banks want to retain their staff and run their own operations. The Proponix clients have proven that a regardless of size Proponix technology has given them a clear competitive advantage. In 2004, AMS was acquired by CGI, a leading IT and business process services provider. Proponix was specifically developed to support global trade processing 24/7 allowing each bank to organize and process according to its needs, regardless of location. Proponix s strong trade finance functionality, letters of credit, documentary collections and open account, are designed to increase quality, efficiency, and customer service. Proponix s embedded workflow and imaging allows the banks to control the flow of work between the front office, back office and Trade Portal, giving the bank the tools to manage global workload, and customer SLA compliance. Proponix supports insourcing out of the box. Proponix s provides a wide range of financing options for both traditional trade finance instruments and open account products, including, pre/at/post shipment financing, receivables financing, buyer-back finance, and buyer side finance. Proponix provides full integration with the bank s customers to receive PO and invoice data, repayment instruments, and send PO utilization (to customer s ERP). 54

55 CGI Proponix Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION Buyer Centric SCF Proponix SCF supports buyerbacked seller financing from the approval to pay and open account payment products. Seller Centric SCF Proponix SCF support a range of export financing for LCs, collections, and receivables. Platform Supports following SCF: Approval to Pay (ATP) A new bank-assisted open account product that eliminates the bank exposure fees that a customer would pay under an LC, while providing some LC-like benefits. An ATP is typically based on POs and issued like an LC, with the buyer s conditional payment terms specified, and no bank guarantee. It provides a structured framework from which open account trading services like document checking, PO/Invoice matching and tracking, PO or invoice finance, seller payment, and buyer side finance can be offered. Open Account Payment (OAP) An Open Account Payment is similar to a straight trade payment, except it is initiated when the bank receives invoices from the buyer with instructions to pay when due, which could be in 20, 30, etc. days. The invoices can be eligible for export financing from initiation of the Open Account Payment until the due date of the underlying invoices. The buyer s bank can directly finance the seller, or establish a buyer-backed seller finance program to support the sellers financing. In either case, the financing would be retired on the invoice due date when the payment is executed. Export Finance for Export Trade Finance The export bank of either an export letter of credit or outgoing collection can provide pre-shipment, shipment, or post shipment financing, to provide financing at various points in the order-to pay lifecycle. Direct Seller Export Finance for Open Account / Import Trade Finance The buyer s bank can directly finance the seller with pre-shipment, shipment, or post-shipment export financing. For banks that offer direct seller financing it can be based on the POs or invoices that have been downloaded and linked to approval to pay instruments, open account payments, and import letters of credit. For straight accounts receivable financing the invoice data can be linked directly to the finance instrument. 55

56 CGI Proponix Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION CGI Proponix supports SCF through both their traditional trade finance instruments and through Authority to Pay and Open account Platforms Platform Supports following SCF: Buyer-Backed Seller Export Finance for Open Account Often the seller s size and geographical location means that local financing is very expensive and unreliable. Buyers on the other hand wish to extend payment terms for as long as possible to enhance their cash flow. Furthermore, the expensive seller financing makes extending longer terms to the buyer prohibitive, and places upward pressure on the seller s pricing. The solution therefore is often buyer-backed seller finance that creates a win-win situation for the buyer, seller, and even the bank. This supply chain optimization technique gives the buyer longer payment terms and lower prices, while the seller gets reliable and cheaper finance, and the bank gets new revenues for lending and activity fees. Proponix SCF supports buyer-backed seller financing from the approval to pay and open account payment products. Receivables Finance With this capability a any number of the seller s invoices can be discounted in full or part. Sellers can instruct the bank to make repayment through a repayment interface that identifies the invoices to be repaid. Buyer Side Finance Whenever the buyer has an obligation to pay under an open account, import trade finance instrument, or another import finance instrument, the buyer s bank can extend buyer side financing to the buyer. Transactional Risk management In addition to the denied party checking that is applied to all Proponix instrument data, all linked purchase orders and invoices are also checked. Embedded credit management, or interfaces to central credit management are integral to the solution. Also, numerous methods are used to ensure that correct payments are made, including embedding the liquidation of invoice financing into the payment process to enforce that the finance is paid off prior to paying the seller the balance. 56

57 CGI Proponix Supply Chain Technology Components Key Technology Components aiding SCF Technology The Proponix Technology Building Blocks for a SCF solution: Buyer Side Finance Export Finance CGI Proponix critical component to their technology is the ability to manage Purchase orders and Invoices linking, matching and tracking for all trade instruments supported. Cornerstone of the SCF solution Appr. to Pay (ATP) Imp LC Incoming Coll. Imp. BAs, DP s & TAC s Purchase Orders Link, Match and Track Invoices Exp LC Out. Coll. Exp. BAs, DP s & TAC s ATP (Invoice Only) Open Acct Payment Buyer Bank Direct Seller Finance Buyer Backed Seller Finance Buyer Side Finance PO and Invoice Data Management Integrates PO and Invoice data download via TSU plus XML messages; Links PO and Invoices to an ATP, Import LC, OAP, or export finance instruments; Matches and tracks POs and Invoices, and provides PO balance and tracking data upload via XML message to the customers ERP.. Trade Finance Open account Traditional Trade Finance 57

58 PrimeRevenue Web site: Key GSCF Contact: Dan Juliano, Business Development SCF Segment: Solution Overview PrimeRevenue s SCF Platform connects trading partners and financial institutions around a common view of future-dated financial settlement, linking supply chain events, the flow of funds and the flow of goods and services. PrimeRevenue s SCF Support Services complete its SCF Solution though Supplier sales & marketing, SCF analytics, program design, and global legal infrastructure services. The result is total working capital optimization lower costs, working capital and financial risk throughout the globally distributed supply chain driving improved profitability, and higher Return on Invested Capital (ROIC) for all supply chain participants. Pre- Shipment Finance Vendor Managed Inventory / In-Transit Inventory Background PrimeRevenue Inc. is the leading global provider of Supply Chain Finance (SCF) solutions with clients in North America, Europe, Asia and Australia. The company provides its SCF solution, which includes PrimeRevenue s SCF Platform and PrimeRevenue s SCF Support Services, to the distributed supply chains of Global 2000 organizations and a network of financial institutions who support them. Export SCF Programs Factoring / Invoice Discounting Key Key Strengths GSCF Strengths The PrimeRevenue SCF Platform operates as a single, global, closed loop system for all participants buyers, supplies and financial institutions. It is currently operational in 13 countries, processing transactions in 10 currencies. Buyer Centric SCF Vendor Centric SCF An open financial institution network which provides for greater scalability and sustainability of SCF programs. PrimeRevenue s SCF platform supports multiple liquidity options including buyer self funding, bank balance sheet lending, bank syndication and securitization through direct access to the capital markets. Comprehensive Specific Function None Market leading support services including supplier sales and marketing, SCF analytics and program design as well as a full range of tools/training for treasury and sourcing/merchandising. Buyers can manage credit memos (ie, off-sets) through the system PrimeRevenue can support non-investment grade companies that would not normally be able to roll out a supply chain finance structure to their suppliers 58

59 PrimeRevenue Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION High Level PrimeRevenue Supply Chain Finance Process Flow 59

60 PrimeRevenue Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION The Results Corporate Increased ROIC by 92 basis points. Procurement Negotiated better pricing for key raw materials and gained supplier acceptance of new packaging specifications Treasury Achieved $217M in incremental cash flow through term extensions targeted to specific supplier situations, based on the SCF segmentation. Trade Payable Program Case Study The Situation The Treasury and Sourcing organizations of a Fortune 100 manufacturing firm had established seemingly conflicting objectives reduce working capital by $200M, improve relationships and pricing with select strategic suppliers, and negotiate better non-pricing terms with non-strategic suppliers such as packaging, logistics, etc. The Buyer s CEO and CFO struggled to reconcile these objectives. Initial suggestions for achieving the working capital reduction looked to shift either costs or working capital requirements to Suppliers, which they would understandably greet with strong resistance. More importantly, any solution which sought to shift costs to Suppliers would frustrate Sourcing s objectives which required tighter and more collaborative Supplier relationships. While Sourcing s initiative targeted only the top 100 suppliers, they made up 52% of spend and no working capital initiative could be successful without their involvement. Key Considerations It was agreed that both Treasury and Sourcing would drive the selection of the SCF solution. Within the solution, Treasury was tasked with focusing on various critical aspects of SCF liquidity while Sourcing focused on the SCF platform (both technology and support services The Solution The Buyer chose PrimeRevenue. The Buyer felt PrimeRevenue met the diverse needs of their Treasury, Sourcing and Accounts Payable organizations. More specifically, the Buyer felt the following aspects of the PrimeRevenue solution stood out: Technology. PrimeRevenue was the only provider which offered a single, global, closed-loop system. Suppliers, financial institutions and their multiple divisions would be able to access the same application with a common view of events globally. Services. The Buyer felt PrimeRevenue s supplier sales and marketing service would not only effectively drive supplier participation but also would maximize supplier value, enhancing Buyer s ability to achieve its objectives. Additional services to support Sourcing and optimize SCF program design were seen as particularly valuable to the Buyer s efforts. Legal framework. The Buyer s analysis concluded that no changes would be required of their finance and accounting teams. 60

61 PrimeRevenue Unique SCF features POINTS OF DIFFERENTIATION Explain any unique and differentiating element to your solution? PrimeRevenue s vision is to be the standard global platform for processing Supply Chain Finance transactions. We believe that as the global economy continues to be driven by outsourcing, low-cost country-sourcing and asset efficiency, PrimeRevenue will be poised to meet the demand for global SCF solutions for both pre and post export financing transactions. A Global, Closed Loop Platform The PrimeRevenue SCF Platform TM operates globally and is currently processing transactions in 15 countries and 8 currencies. Further, all supply chain participants interact securely with a single platform globally. PrimeRevenue is a hosted, on demand solution, requiring minimal integration with buyers ERP and legacy systems. An Open Financial Institution Platform The solution is not proprietary to any single bank or group of banks. This supports the scalability, sustainability, and efficient pricing for supplier financing. We have already partnered with 14 Financial institutions, including Multiple Financing Structures for Suppliers Including Bank balance sheet lending, syndication among a group of banks and securitization directly to the capital markets Multiple Financing Options for Suppliers Includes automatic financing, ad-hoc financing and parameter based financing. Robust SCF Support Services Including Supplier Sales & Marketing, SCF analytics, SCF program design and technical support Minimal Business Process Change The PrimeRevenue SCF Platform TM is designed to support client s current business processes, including credit/debit memo and adjustment processing. Supplier Credit Risk Management The PrimeRevenue SCF Platform dramatically reduces the need for supplier risk management. Our solution provides a sum-certain, date-certain, bankruptcy-remote asset for Financial Institutions and the Global Capital Markets to purchase. Legal Framework The PrimeRevenue SCF Platform has successfully processed receivables finance transactions in many jurisdictions, including the United States, Canada, UK, Germany, France, Sweden, South Africa, Australia and China, with perfection of interest in the receivable. PrimeRevenue s legal framework and its financial institution partners enable the solution to achieve this result. 61

62 Other Platform Provider Examples Demica Demica is a provider of specialized securitization and invoice factoring services, providing consulting, advisory and technology services to a diverse range of multi-national clients.citadel is their main software product. Originally the company was focused on software development (Citadel system) but they are now moving away from being just a software provider to reporting services for trade receivable securitization. GT Nexus GT Nexus is in the process of launching GT Nexus Trade which includes PO Distribution (importers to vendors), Vendors 'flipping' the PO into Commercial Invoice, Packing List, Shipping Order, Cert of Origin etc, presentment of documents to banks to meet terms of LC or Open Account; Facilitation for banks of data / document matching; capture of invoice status / payment date from banks for visibility by vendors (are my invoices approved / when will I get paid); and by importers (when do I need to fund accounts for payment). Because we do have all of the physical supply chain connectivity and data, our solution will allow banking partners to offer their customers (either the importer or vendors) a number of Supply Chain Finance solutions including (a) pre-shipment, (b) inventory, and (c) post shipment financing. OB10. OB10 is a successful e-invoicing international network that operates a global business-to-business e- Invoicing network. The capability enables members to send or receive invoices effortlessly between themselves without having to agree on formats, file specifications or communication methods, thereby increasing the efficiency and effectiveness of the invoice-to-pay process. Orbian Orbianis a post shipment finance and receivables finance model. Orbian provides suppliers with an on line payment option in which they can use 'approved' buyer invoices to receive payment or can be discounted immediately into cash, in whole or in part, as required. TradeCard- Suppliers can request pre-export financing on an approved purchase order to get the working capital they need to produce the order. A purchase order is signed by both buyer and supplier in the TradeCard system 62

63 Section B II. Transactional Risk Managers 63

64 InStream Services Web site: Key Contact: Tom Cross (248) Solution Overview InStream Services (ISS) provides a unique, web enabled service that enables a vendor to easily and cost-effectively accelerate customer payments when needed. Due to unique risk management capabilities, InStream services can be safely applied at all levels of a supply chain working with many types of buyers and suppliers. ISS facilitates the delivery of unique working capital and risk management solutions that can scale to the needs of any supply chain. GSCF Segment: Pre- Shipment Finance Export SCF Programs Buyer Centric SCF Vendor Managed Inventory / In-Transit Inventory Factoring / Invoice Discounting Vendor Centric SCF Comprehensive Specific Function None Background Key GSCF Strengths Instream was formed by Frank Hennessey (former CEO of Masco Tech and Emco) and Tom Cross (founder and President of Cresmark Bank and Triad Financial). Instream is 100% owned by Hennessey Capital Solutions, Inc. Today, ISS services are being applied in the automotive, heavy manufacturing, electronics, services and retail sectors. No one buyer or financial institution can absorb the credit risk or requirements of supply chains that span not only multiple tiers but many different countries. Legacy SCF approaches lean heavily on the buyer to take the supply chain risk, and are therefore, very limited in scope and scalability. ISS does not take the same approach. ISS services are unique in that they can be offered with or without the buyer committing its own credit to support the funding positions of financial institution partners. In addition to its unique technology and risk management process, ISS also provides expertise to help suppliers and buyers evaluate the benefits of its services and eventually execute a program as required to meet their unique needs. 64

65 InStream Services Scope and Functionality of Global Supply Chain Finance Solution SOLUTION supplier shipment associated supplier invoices suppliers buyer receives shipment What areas of the GSCF universe does your solution address? High Level InStream Supplier Finance Business Model PRIMEREVENUE PROCESS STEPS early pay instructions like remit detail % less fee for early pay advances and/or 100% for pass through payments 2-5 days supplier invoices validated 820 like remit detail 4 3 payment instructions for advances & pass throughs cash management bank program purchase period buyer info available invoice line item detail payable & payment info 1 ISS servicing & transactional risk management funding request reimbursement for advances 4 3 funds for advances buyer payment at term 3 buyer ACH at normal term ISS funding partner SPEs Step One: Validated invoice, credit/debit and remit information required to support receivable purchase transactions with suppliers is sent to ISS on a daily basis. This can also be provided through the buyer website. Step Two: ISS aggregates supplier receivable sale requests based on web selection or pre-set supplier control parameters. Step Three: ISS creates the payment file entries and establishes funds to cover purchases. In parallel, ISS creates payment file entries for any normal term buyer payments distributing dollars as appropriate to cover lending partner positions and/or to earmark dollars as pass through payments to suppliers if they are unassociated with early pay transactions Step Four: ISS issues the payment file to the cash management bank with electronic payments being processed that evening. Suppliers also receive access to required remittance information for cash application. 65

66 InStream Services Unique features Explain any unique and differentiating element to your solution? POINTS OF DIFFERENTIATION Instream implemented a program with a major tier-1 automotive supplier to manage the tier-2 and tier-3 financial risk associated with a tool build program. This solution took in feeds from the tier-1 itself and its tier-2 supplier providing working capital as needed to the tier-2 and a tier-3 tool builder being utilized in China. No Buyer Confirmation Required Traditional supply chain finance approaches leverage a buyer waiver of its setoff rights against future vendor payments to manage risk associated with funding vendor transactions. This is an issue for two reasons: 1. Many contend that this waiver changes the nature of the buyer obligation as relates to its payables transaction leading to negative buyer accounting changes. 2. Given their reliance on the buyer, these programs can only be applied with buyers of strong creditworthiness limiting their scope to certain areas of a supply chain. Given its unique approach, ISS can deliver supply chain finance solutions without this waiver. This adds value in the following ways: Increased Buyer adoption Increased Buyer and Vendor access (scalability) Quicker and Less Expensive Deployment No need for ERP integration InStream Services (ISS) can take in electronic information sent from Buyers and/or Suppliers or leverage their websites for information as required to effectively apply its services to areas of supply chain finance. Note: There is no requirement to integrate the ISS technology platform with Buyer or Supplier ERP systems. Credit Risk Management Algorithms Most buyers leverage ERP systems to accomplish a 3- way match prior to validating an invoice. Some use a valuated receipted method (2-way match). However, buyer ERP systems do not apply artificial intelligence to predict performance outcomes and they cannot be applied at any more than one level (the direct vendors) of a supply chain. ISS has the intelligent software algorithms and the scalability to effectively predict transactional risk throughout a supply chain. ISS can effectively garner and process transactions between thousands of suppliers and hundreds of buyers at all levels of a supply chain. The ISS platform and processes support participation by multiple funding sources to ensure adequate funds for supply chain finance programs and for specific needs therein Continual Fraud Monitoring Instream continues to track a given supplier transaction during its life cycle, noting and adjusting for any associated buyer debits or credits. Continual and automated fraud detection and reconciliation algorithms ensure that any credits or discrepancies are immediately resolved. 66

67 InStream Services Vision VISION What is your management vision for the GSCF space? The advent of Visa drastically accelerated cash to support B2C transactions to the point of driving worldwide business growth that is enjoyed as a major engine of prosperity today. Conversely, in the B2B sector, the inefficient flow of working capital within and across supply chains (B2B) is a real risk and barrier to expansion of commerce both domestically and internationally. Buyers are pushing to pay on consumption terms while more WIP and inventory is caught in the product cycle due to supply chains that span continents. International manufacturers deliver cost efficiencies, but raise problems of logistics, performance and credit risk. Suppliers caught in the middle are seriously challenged to successfully manage international relationships while meeting Buyer expectations. The acceleration of global commerce is raising supply chain finance risk to unprecedented levels. Fundamentally, the flow of working capital is not keeping up with the growth of sales activity. In order to accelerate working capital flow, B2B transaction information must be accessed, shared and evaluated in a very efficient manner. B2C credit card transactions are evaluated and funded in micro-seconds with robust tracking and auditing mechanisms in place to follow the life of the transaction from initial funding to receipt of buyer payment. B2B must adopt some of these characteristics of the B2C world. However, a B2B transaction can be more complex as it may go through several or more transformations spanning multiple countries, buyers and suppliers during a product life cycle. In B2B, the technical and process challenges to deliver just-in-time working capital is more sophisticated. The InStream mission is to accelerate B2B global economic expansion by providing unique automation and processes to gather and evaluate transactional information to support just-in-time delivery of working capital to supply chains. We believe that our major, strategic partners will be large, global financial institutions to provide the breadth of global experience and funding required to truly address an international need. Our solution will also be viewed as a unique value to hubs of electronically transacted buyer-supplier B2B activity enabling ISS to leverage the automation already developed and accelerate our strategic vision. 67

68 UPS Capital Web site: Key Contact: Scott Mower, Managing Director Global Supply Chain Finance Tel: GSCF Segment: Pre- Shipment Finance Export SCF Programs Buyer Centric SCF Vendor Managed Inventory / In-Transit Inventory Factoring / Invoice Discounting Vendor Centric SCF Comprehensive Specific Function None Solution Overview Background Key Strengths UPS merges transportation and logistics with funds through its financing arm, UPS Capital. The integrated solutions allow corporations to manage their global orders, control global shipments and optimize global finance. UPS is building solutions to synchronize transportation with key supply chain processes like financing to help their customers achieve untapped financial benefits from having assets and inventory overseas. UPS s import and export targets coincide with the transportation lanes that are strategic to UPS Supply Chain Solutions. These include lanes to and from: Asia, Canada, Latin America, Eastern Europe and Western Europe They are currently focusing on North America, Asia, Europe and U.K. UPS and UPS Supply Chain Solutions which will provide the physical movement of the goods have locations and distribution centers worldwide. One of the unique products offered by UPS Capital is Global Asset Based Lending. When a U.S. based customer has internationally located inventory, UPS Capital is able to lend against that inventory, if the inventory is positioned in a UPS distribution center, or is in transit using UPS transportation capabilities. UPS s control of the goods and visibility enables the facilitation of funds when other lenders cannot. Enables middle market companies who generally have problems with their bank to monetize non-usa domiciled inventory to increase liquidity. If a company ships with UPS, can track the goods from point of factory loading until point of destination, a critical competitive advantage in lending based on inventory. Can play a unique role as a transactional risk manager between logistics and finance Willing to put proportionate share of capital in supply chain finance transactions Offers the ability to tie cargo, credit and transaction dispute insurance through their own captive insurance The products offered by UPS Capital are appropriate for SMEs as well as Fortune

69 UPS Capital Global Supply Chain Finance Product Suite What areas of the GSCF universe does your solution address? SOLUTION By selecting UPS transportation, a whole range of financing opportunities open up with UPS Capital s Global Supply Chain Finance solutions. UPS Capital focuses on the same segments as their logistics company. Their key markets include: Retail Healthcare Industrial Manufacturing High Technology Government WORKING CAPITAL FINANCING Payables Discounting A payables discounting solution enables firms to outsource their payables process. Receivables Financing By allowing UPS Capital to turn invoices into ready cash and assume the responsibilities and risks of collections, a receivables management service may allow firms quick access to funds. Inventory Financing An inventory finance solution may allow companies to invest money back into their business sooner by enabling funds to be advanced earlier during a sale of goods. Global Asset Based Lending Companies may be able to monetize their inventory of goods warehoused or in transit outside of the U.S. and gain additional working capital at favorable rates. 69

70 UPS Capital Global Asset Based Lending Solution SOLUTION Global Asset Based Lending Inventory sitting in company s international distribution centers or other offshore DCs has no borrowing power because it is invisible to lenders or resides in legal jurisdictions outside the credit policies of Asset based lenders. By using UPS s supply chain capabilities- warehousing, transportation, and logistics to manage the flow of goods, UPS Capital, UPS s financing arm, can convert offshore inventory into cash. DAYS Offshore / Overseas What areas of the GSCF universe does your solution address? 3a. Using UPS - added financing Availability on in-country inventory Where traditional in-transit inventory begins within the supply chain UPS Warehouse Transit/ Overseas factory Transportation/ Distribution Or CFS* NVOCC* Customs Rail* Point* 1. Purchase Order to Supplier 2. UPS picks up at Supplier 3. Buyer is invoiced and takes title to goods 4. UPS consolidates and ships goods Port of Entrance 5. Goods arrive at Port of entry Domestic 6. UPS arranges or provides transort And provides goods received information 7. Delivers to: UPS Warehouse Buyers DC Buyers Stores Buyers Factory End Customer 8. Buyer pays UPS Capital *Note: Transportation assets are owned, operated or managed by UPS 70

71 UPS Capital Vision VISION What is your management vision for the GSCF space? UPS Capital plans to partner with banks and technology companies to serve as the translator between the transportation/logistics industry and the financial industry. This will be done by using UPS existing technologies showing shipments details, i.e., location, verification of content, movement, interruptions, etc. UPS Capital will selectively participate in lending activities. The differentiator for UPS is that is also a logistics company and transportation company. The control, and information provided by UPS provides financial institutions the comforted needed to lend against invisible in-transit and overseas inventory Supply Chain Technology Components TECHNOLOGY What Data Management and Service do you offer with your GSFC solution? UPS has operating systems for each of our product lines; and we have integration tools that match the movement of funds with the movement of goods. Does your platform provide transactional risk management? The platform does provide risk management in that we are able to see detail of the shipment early in the supply chain cycle, which enables UPS to fund earlier. How does your platform track the physical movement of goods, if at all? The system complete tracks the movement of goods whether air, ocean, rail, ground, etc. What can a corporation expect to pay to implement your supply chain finance solution? Pricing will vary depending upon financial needs of the client, and the products required. 71

72 Section B III. Risk / Liquidity Providers Global Banks / Finance Companies 72

73 JPMorgan Chase Web site: Key Executives: Michael Quinn, Senior Vice President, Global Trade Product Head; Jonathan Heuser, Vice President, Supply Chain Management Sales Executive Pre- Shipment Finance Export SCF Programs Buyer Centric SCF Vendor Managed Inventory / In-Transit Inventory Factoring / Invoice Discounting Vendor Centric SCF Comprehensive Specific Function None Solution Overview Background Key Strengths JPMorgan Chase leads the industry as the sole provider of an innovative and comprehensive suite of integrated supply chain management solutions that gives buyers and sellers the ability to link the financial flows of their trade transactions with the physical movement of goods. JPMorgan Chase has been building capabilities around integrating cash, trade and logistics solutions to address the physical and financial supply chain. In 2006, it acquired Vastera and renamed the company JPMorgan Chase Vastera. Vastera was combined with the Logistics and Trade Services businesses of JPMorgan Chase's Treasury Services unit. More recently, JPMorgan Chase acquired Xign, a leading provder of invoice presentment and payment solutions. JPMorgan Chase brings a vast array of global treasury and international cash management capabilities and is applying its experience integrating cash, trade, and logistics across the physical and financial supply chains in a way that maximizes benefits to its clients With a banking presence in over 55 countries serving 75,000 customers, and a global trade management staff of more than 1,200, JPMorgan Chase applies expertise and technological sophistication to all aspects of our clients supply chain needs. JPMorgan Chase is uniquely positioned to offer clients a creative combination of financial and logistics capabilities whereby clients are offered a true end-to-end solution. JPMorgan Chase has gained specific industry knowledge as well as an understanding of trade lanes outside of North America (eg. Asia to Latam) Successful players in today s international trade environment need to understand their entire supply chain process and have strong knowledge on the data model that takes into account the breadth and depth of information exchanged between the multiplicity of interrelated entities. JPMorgan Chase has financial and logistics solutions closing the gap that currently separates the management of financial flows from the management of inventory. JPMorgan Chase Global Trade Services is uniquely positioned to offer our clients a creative combination of financial and logistics capabilities whereby clients are offered a true end-to-end solution. 73

74 JPMorgan Chase Merging the Financial and Physical Supply Chains SOLUTION JPMorgan Chase is the only bank that directly links treasury functions with logistics and global trade management services. Since both the financial and logistics flows begin with an underlying purchase order, our clients can leverage their existing systems for management of logistics and payment mechanisms. Through our holistic approach to supply chain solutions, our clients realize business process improvement, optimize working capital, and mitigate risk. Our solutions have the ability to link buyers, sellers and third parties seamlessly. Our Integrated Supply Chain Management Solutions deliver process improvement, risk management tools and working capital optimization generating positive results for our clients. 74

75 JPMorgan Chase Supply Chain Management Solutions Our solutions combine trade and logistics management services with industry-specific expertise and state-of-the-art technology. State-of-the-Art Trade Management Global Trade Managed Trade Finance Technology Consulting Services PO management Trade document fulfillment Duty calculation & minimization Customs clearance Regulatory screening and automated license decisioning Government reporting and agency/bureau interfaces Event Management Multi bank capabilities Robust reporting tools Imaging and archiving capabilities Expert advice on trade, customs and supply chain management Process design and optimization Value chain management Trade compliance assessment Return on investment and landed cost Outsourced import and export trade operations Product classification Trade compliance resolution Special trade program management Brokerage and broker management Inventory management Order management Automation of trade flows for L/C and Open Account Supply Chain financing Inventory financing Risk mitigation Order-to-Pay Visibility into the entire trade flow Exception/Discrepancy resolution Documentary compliance review Settlement Real Time Global Trade Information Management 75

76 The Benefits of JPMorgan Chase s Integrated Supply Chain Management Solutions Linking the Financial & Physical Trade Flows Product Decision Order Order Fulfillment Ship Goods Document Review Compliance Discrepancy Resolution Payment Approval Payment Pre Export Finance Inventory Finance Post Export Finance Import Trade Services Trade Finance Services Export Trade Services Pre Entry and Post Entry Services Logistics Management Services Improved buy decision Unified supply chain collaboration Cost effective payment alternatives Workflow efficiencies Improved supply chain management Enhanced visibility into the supply chain flow Improved supplier relationships Accountable 3rd party relationships Duty minimization Improved inventory management Credit Enhancement Liquidity Supply Chain stability Risk mitigation Improved trading partner management Access to distribution channels Satisfactory compliance & brand protection Improved DSO s Cost savings Accurate document preparation Workflow efficiencies Landed cost optimization Audit and internal reviews Risk management Enhanced visibility Reduction in business risk Minimized risk of penalties for non compliance Improved data management for customs entry Maximize duty savings by screening against programs Accurate product cost calculation Improved visibility Improved license management Better cost and performance management Logistics Management Services Faster cycle times for delivery Improved management reporting tools Improved inventory controls Improved vendor management Simplified & improved broker management Streamlined regulatory filing Improved performance & process flows Risk mitigation Better management reporting tools Improved DPO 76

77 JPMorgan Chase Integrated Supply Chain Management Solutions Deliver Results Solution Capability Global Supply Chain Management at JPMorgan Chase spans the Western Hemisphere, Europe, the Middle East and Asia. Our ability to add value through integrating physical and financial supply chains has helped our clients: Improve days payables outstanding (DPO) Improve visibility into trade flows Reduce days sales outstanding (DSO) Gain processing efficiencies Better manage working capital Some further examples of positive results experienced by JPMorgan Chase Supply Chain Management solution clients: Achieved a 17% cost reduction in logistics spending for a diversified manufacturer with 19 business units Realized approximately $3.5 million in duty optimization for engine manufacturer Reduced by 50% the ship-to-pay cycle time for a leading global parts manufacturer and distributor Expedited export license process from 120 to 60 days for aircraft manufacturer Achieved 50% reduction in credit facility usage through implementing alternative trade payment solutions for large import client Optimized working capital through extension of terms for larger retailer Shortened days sales outstanding from 40 to 9 days for a Fortune 500 company through our document fulfillment solutions 77

78 JPMorgan Chase Integrated Supply Chain Management Contacts For more information regarding JPMorgan Chase Global Trade Finance & Supply Chain Management solutions, contact: Michael Quinn Senior Vice President, Global Trade Product Head Jonathan Heuser Vice President, Supply Chain Management Sales Executive J.P. Morgan Chase & Co. All rights reserved. 78

79 Santander Group Web site: Alberto Amo Madrid Tel: Marcus Hughes London Tel: Solution Overview Santander is extending the geographical reach of its proven supply chain finance solutions which have been developed over many years in Spain, Portugal and Latin America. With the bank s expansion into Northern European markets such as the UK, through Abbey s new UK Corporate Banking Division, Santander is now offering its proven web-based reverse factoring solution to large corporates and public sector entities throughout Europe as well as Latin America. This solution solves the underlying tension in many international supply chains whereby suppliers want to get paid as soon as possible while buyers want to delay paying and / or reduce their cost of goods. GSCF Segment: Pre- Shipment Finance Export SCF Programs Buyer Centric SCF Vendor Managed Inventory / In-Transit Inventory Factoring / Invoice Discounting Vendor Centric SCF Comprehensive Specific Function None Background Key Key GSCF Strengths Strengths Banco Santander s expertise in Supply Chain Finance dates back 20 years. Trade payables backed supplier financing has been widely used by Santander in Spain, Portugal and Latin America for two decades, under the name of Confirming (copyrighted in 1991). During this time Santander have gained a deep expertise in this specialized field, for the benefit of their corporate customers domestic and international supply chains. Key to this success has been an early recognition that in providing invoice finance it greatly helps the bank to minimize a supplier s financing costs and make a supply chain more competitive if the invoice has already been approved by the buyer.. Santander has deep expertise in supply chain finance in a wide range of international and emerging markets. Santander Group continues to build on this core competence in financing its customers supply chains and global trade through its network of nearly 11,000 branches, the largest branch network of any international bank, with operations in over 40 countries. Outside of Spain, Portugal and UK, the principal concentration of the group is in Latin America where Santander is the largest financial institution in the region. An extensive customer base of hundreds of thousands of buyers and suppliers already use Santander s reverse factoring supply chain finance solutions. An industrial scale web-based platform in multiple languages that can be accessed globally by buyers and suppliers. An established multi-jurisdictional legal and accounting framework, which means that trade payables which the bank has discounted to suppliers can still be treated as trade creditors on the buyer s balance sheet, rather than being classified as bank debt. 79

80 Santander Group Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION Payables Discounting Open Model Santander s webbased supply chain financing Santander offers two forms of payer centric supply chain finance, based on reverse factoring: An Open Model and a Closed Model. Open Model Step One: The buyer sends to Santander an approved payables file (a whole range of formats being acceptable), specifying the future dates on which payments are to be made to suppliers. All these payments are free of charge for the buyer. Open Model Supplier decides if it wants financing Drawing on its long experience of this market, Santander has developed its supply chain finance solutions to a highly flexible and easy to use product, for which buyers and suppliers can access a multi-language webbased bank portal from anywhere in the world. This structure works equally well for both domestic and international trade. Step Two: Suppliers are given secure access to Santander s web-based platform where they can view details of the dates on which invoices are to be settled on behalf of the buyer. Sellers can see full reference information, as well as the interest rate proposed by the bank for early settlement. Step Three: Santander takes into account the credit quality of the buyer in determining the discount rate applied to suppliers. Once documentation has been completed, the supplier can select on which invoices it wishes to receive early settlement. Step Four: Discounted supplier payments can be received at any bank account globally, as designated by the supplier. At maturity of each invoice, the bank either makes settlement to the supplier on behalf of the buyer or is reimbursed for its financing from the buyer s funds for suppliers invoices which have already been settled early. 2. Approved Payable file Buyer 4. Payment at invoice maturity 1. Original invoices 3. Discounted payment against individual invoices Seller Seller 5. Payment at maturity if invoice not settled early Seller Closed model Suppliers joining programme receive early payment on all confirmed invoices at a competitive discount, providing maximum cash flow to suppliers 80

81 Santander Group Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? CASE STUDY The Bottom Line Retailers / supermarkets are able to source goods at more competitive price from their suppliers and / or extend their trade credit terms through negotiation with their suppliers who benefit from early settlement from the bank. Furthermore, in a wide range of countries, using Santander s supplier chain finance solution, buyers and suppliers are able to avoid paying stamp duty on bills of exchange, an alternative source of finance. The targeted deployment of this supply chain finance solution can enable a buyer to ensure a stable and robust supply chain which is competitively advantaged, for the mutual benefit of buyers and suppliers, with improved visibility and working capital along the supply chain. Trade Payable Program Case Study The Situation Large international retailers with supermarket chains and suppliers in various countries who want to optimise their own working capital management at the same time as supporting their suppliers cashflow. The Background In a highly competitive market like retailing, large supermarket chains are constantly looking for creative ways to make their supply chain more competitive. The Solution By deploying its multicurrency supply chain finance solution, Santander Group has enabled large retailers to make their supply more financially stable and achieve goals of helping suppliers to get paid more quickly at a low discount rate, while the retailers themselves pay later. This creates a win-win situation for all participants in the supply chain. Optimized balance sheet treatment for buyers and suppliers Finance is structured so that trade payables on the retailers balance sheets continue to be classified as trade creditors, instead of being converted into bank debt which would have a negative impact on the retailers debt gearing ratios. Similarly, by structuring the facility as receivables purchase from the supplier, which is without recourse, means that this finance is off balance sheet for the supplier as well. This form of structured finance therefore has a very positive effect for the retailers and their suppliers: No impact on the buyers balance sheet or cashflow; at the same time, not only is this lower cost funding than normally achievable by the suppliers, but it also results in a reduction in the supplier s debt gearing when replacing more conventional forms of bank lending. 81

82 Santander Group Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION Vendor Centric Finance Santander provides an extensive range of web-based factoring services of which finance is just one aspect. Trade finance solutions In addition to the open account finance solutions described in this document, Santander is deeply experienced in conventional trade finance solutions, such as letters of credit, forfaiting, bill discounting etc, as one would expect from a bank supporting trade flows between emerging markets and more advanced economies Factoring: suppliers send files of copy international multi-currency invoices to Santander s web-based portal. The bank is typically prepared to make pre-payments of up to 100% of invoices covered by approved debtor credit limits. Finance can be on a with recourse or non-recourse basis, depending on the circumstances of the supplier and the buyer. All factored invoices will specify that invoices have been assigned to the factor and that the buyer / trade debtor must make payment direct to the factor. Other factoring services include: Outsourced management of the client s entire sales ledger (ie the company assigning its invoices to the factor). Credit assessment of the client s trade customers which results in the factor establishing approved credit limits against individual trade debtors. Bad debt cover of approved trade debtor limits. Collection of debts The size of Santander Groups extensive branch network and their deep knowledge of businesses of all sizes operating in their geographical footprint gives the bank a significant advantage in assessing the credit risk of debtors in such transactions.. Invoice discounting (known as receivables financing in the USA) is similar, in that trade debts are also sold to the bank which advances a percentage (normally up to 80% or 95%) of the invoice. However, unlike factoring, the supplier / client of the invoice discounter is responsible for managing its own sales ledger and collecting the trade debt which is then used to reimburse the financing. Invoice discounting is generally with recourse and sometimes supported by a third party credit insurance policy. Santander offers a full range of Vendor centric receivables finance solutions One fundamental difference is that, whilst payer centric supply chain finance benefits from buyer data (ie knowledge that invoices to be financed have been approved), factors and invoice discounting providers are generally reliant on information solely from the supplier at the point when funds are advanced. 4. Payment at invoice maturity Buyer 1. Original invoices 2.. Copy Invoice data uploaded 3.. Advances against invoices Seller 82

83 Santander Group Points of Differentiation Explain any unique and differentiating element to your solution? POINTS OF DIFFERENTIATION Ease of set-up No need to disturb other banking arrangements, since discounted funds can be sent to any bank account nominated by the buyer / supplier, without the need to open a Santander bank account. Global access to Santander s multi-language webbased portal facilitates ease of use and reconciliation Depth of experience in offering trade payable discounting With multi-country experience of trade payables backed supply chain finance, Santander understands the legal, accounting and tax issues faced by buyers and suppliers: The buyer wants to ensure his trade payables are not classified as bank debt which would impact negatively on his debt gearing. The supplier wants to ensure no increase in tax and that receivables assignment is off balance sheet and non-recourse. Multi-jurisdiction expertise Santander is mindful that legal and accounting views vary from country to country and local expertise is required to achieve a multi-jurisdictional solution. They are committed to expanding this multi-jurisdictional expertise in order to support customers wherever they operate and source their goods. Globalizing a core competence With the increasing globalization of corporate supply chains, Santander has been continually enhancing its supply chain finance solutions to meet the changing needs of its customers. Our solution, originally developed in Spain and already deployed in Portugal and Latin America, is now being delivered in Northern European markets, such as through the UK Corporate Banking Division of Abbey and Santander s Global Transaction Banking units operating in the bank s European branches.. Scale Today Santander Group has over 200,000 corporate customers - buyers and suppliers - using its payer centric supply chain finance solution, with over EUR 50 billion invoices settled through this solution each year and an average of 55,000 invoice payments processed by Santander Group every day Rapid on boarding of suppliers The multiplier effect of working with large buyers enables rapid on-boarding of many suppliers to make a supply chain more competitive. As the bank looks to the payer to settle invoices at their maturity, suppliers benefit from simpler access to credit, since suppliers are not required to present to the bank detailed financial accounts and balance sheet to support their credit application, apart from signing a receivables assignment contract with the bank. This is a significant benefit for suppliers in this non-recourse discounted early payment structure. Pricing transparency Under Santander s solution, buyers usually have a role to play in determining the discount pricing applied to their suppliers. They receive management information on volumes and values of early payments taken by suppliers. This information is useful to buyers in their negotiations with suppliers regarding cost of goods and trade credit terms 83

84 Santander Group Vision VISION Santander is developing a suite of financial supply chain solutions in order to continue adding value to its customers international trade and domestic businesses. These will complement the bank s expertise in supply chain finance and will help customers to drive down processing costs and optimise working capital management both on the payables and receivables sides of their operations. What is your management vision for the GSCF space? When originally developed, Confirming was particularly well suited to industries with trade cycles with long credit terms, eg 90 to 180 days. However, in many markets trade terms are quite short (eg only days). This presents a problem in many corporates, since unless invoices are processed quickly and efficiently it can take so long to approve an invoice (typically days and in some cases considerably longer) that the window of opportunity to provide early payment is lost, which in turn has a negative impact on the supplier s cash flow. The logical way to enhance a supply chain finance solution is for a bank to deliver value-added solutions which assist buyers in the invoice approval process. These Accounts Payable solutions and e-invoicing initiatives help the buyer to streamline his processes and approve his invoices more quickly and accurately. The added value of logistics data With the convergence of the physical and financial supply chains, we can also see the significant value of partnering with logistics companies to enhance overall visibility of the manufacturing and movement of goods internationally. This alliance enables all parties to reduce risks and costs, linking more closely the flow of funds and the cost of finance with the physical state, ownership and location of goods. In this way, data feeds from logistic solutions provided by freight forwarders, shippers, independent inspectors can be used to enhance transactional control and mitigate risk. This in turn enables the bank to offer finance to suppliers earlier in the trade cycle. Santander is therefore developing value added services to facilitate the efficient receipt and processing of invoices and matching against purchase orders. The accelerated creation of greater volumes of approved payables will permit suppliers to get early settlement on more invoices, hence releasing increased working capital from the financial supply chain. Securitization Conduit Suitable for large buyers, this structure will create capacity to manage high volumes and values of supplier payments, ensuring the buyer remains undisclosed in a trade payables backed securitization program. This program can be done with no impact on buyer s balance sheet, cash flow or bank borrowing capacity. In addition to post shipment finance, pre-shipment finance can also be made available to deliver up-front financing and staged payments. In some cases, a percentage of the contract value can be advanced on completion of the various stages of the trade cycle, so that part of the funds are advanced at each step: for example, when the purchase order is issued, once raw materials have been manufactured, when goods are actually in transit and finally on receipt and approval of invoice. This valuable financial structuring allows the supplier to fund the sourcing and manufacturing of the goods. This approach benefits from the combination of logistics information and innovative financing, facilitated by web-based technologies. 84

85 Santander Group Supply Chain Technology Components Key Technology Components aiding SCF Technology Technology Functionality: EIPP Letter of Credit / Documentation Transaction Risk Mgnt. Purchase Orders /Open Account Platforms Credit Risk Management Payment / Settlement Support Comprehensive Specific Function None Combination of Supply Chain Finance with e-invoicing: The combination of an experienced provider of supply chain finance and e-invoicing creates a powerful and holistic financial supply chain solution to meet growing demand for cost savings and improved working capital management. This is especially valuable where the e-invoicing network can handle multiple formats, using data translation to reformat files from one party to meet the requirements of the receiving party. This approach minimizes the time and cost of integration for participants in the e- invoicing network. VAT compliance in multiple jurisdictions is a hugely valuable capability for any genuinely international solution. Experience shows that probably the greatest barrier to expanding an e-invoicing network is encouraging suppliers to join. It is therefore important to have a proven sales model of fast supplier onboarding to accelerate adoption of e-invoicing and supply chain finance. Industrial scale web-based platform Santander already has a proven scaled webbased platform in multiple languages that can be accessed globally for supply chain financing and factoring. e-invoicing Functionality Successful e-invoicing solutions should include a many-to-many network, paper invoice conversion into electronic invoices, multiformat data translation, multi-jurisdictional VAT compliance, PO distribution, PO flip, matching with invoices, ERP reconciliation, deep integration into buyers' / suppliers' ERP or simple web portal upload / keying. Payment Hub Santander is developing a Payment Hub to enhance the Group's ability to ensure improved efficiency in the capture and processing of bulk payment and collection files from major customers.. 85

86 HSBC Web site: Key GSCF Contact: Paul Robinson, Supply Chain Management Tel: GSCF Segment: Solution Overview HSBC uses the term Supply Chain Finance (SCF) to describe the broad range of services they can provide to help their customers make financial supply chain management processes more efficient and cost-effective. They define customer in this context as the supply chain community that includes the buying organization (or importer) the supplier base and key supply chain partners i.e. logistics providers, consolidators etc. The HSBC SCF service suite encompasses financing (short and medium term) working capital optimization, risk mitigation, payments and cash management and transactions management (document, data & information) in an increasingly electronic and internet-based environment. Pre- Shipment Finance Vendor Managed Inventory / In-Transit Inventory Background HSBC is one of the worlds largest global Trade banks with operations in over 75 countries and territories across all the major trade routes across Asia Pacific, North, Central and South America, Europe and the Middle East. HSBC has a unique geographical footprint that enables the bank to support large buyer organizations and their increasingly international supplier base across the globe. Export SCF Programs Buyer Centric SCF Factoring / Invoice Discounting Vendor Centric SCF Comprehensive Specific Function None Key GSCF Strengths HSBC is the second largest trade bank in the world. Its unique footprint across all five major trade routes provides the Group with unparalleled opportunities to support buyers, suppliers and supply chain partners along the supply chain. HSBC can provide supply chain related services right across the spectrum from large Fortune 1000 customers to the enormous base of MME and SME importers and exporters across the world. With over 2,000 trade staff working in our 10,000 offices in over 82 countries, and a global Supply Chain Business team in New York, London, Paris, Dusseldorf, Hong Kong and Shanghai dedicated to SCF, HSBC has devoted the resources to the financial supply chain. HSBC is also developing SCF instruments that will provide tailored financing for supply chain partners involved in transportation, storage and distribution processes. Supplier financing can be made available at a number of pre-agreed supply chain events. For example, at purchase order issue or acceptance, receipt of an ASN or an outbound inspection certificate, at invoice presentation, GRN receipt, based on an inbound inspection certificate, approved invoice, or payment file. 86

87 HSBC Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION HSBC provides a full range of SCF services to support pre, intransit and post shipment financing requirements using a range of traditional instruments i.e. letters of credit, collections, guarantees, credit insurance, forfaiting, etc. and a growing number of products developed to support customers in an open account environment and leveraging the increasingly electronic data now more readily and speedily available along the entire supply chain management process. Raw Material Financing Export Solutions Production Financing In-Transit & Inventory Financing A few examples of key product offerings: As one of the largest providers of international export factoring services, HSBC provides the full range of receivables finance and invoice discounting services to exporters in over 17 countries with 6 more coming on-board in 2007/8. HSBC has developed and will continue to develop and enrich a range of payables finance, reverse factoring platforms and related services to improve both the availability and cost of finance for export customers. HSCB is developing SCF instruments that will provide tailored financing for supply chain partners involved in transportation, storage and distribution processes. Our complex and structured trade finance teams provide short to mid-term financing solutions to support the production of commodities predicated on the on-sale to traders & manufacturers in the form of pre-export financing and warehouse finance. Production Financing Import Solutions Early Payment Discount Programs Payables Extension A few examples of key product offerings: Tailored financing solutions to support upstream supply chain requirements linked to commodity sourcing of traders and manufacturers notably in the form of prepayment structures. Supply chain financing services for import customers to fund pre-payment or provide working capital by way of traditional instruments like letters of credit; trust receipt finance; packing credits, etc. Where appropriate, key processes are moving onto electronic platforms. HSBC is the third largest import factor in the 2 factor FCI market. They provide importers with payables finance / reverse factoring schemes that can help extend accounts payable terms for the importer while providing exporters with early payment facilities that may be discounted at rates based on importer credit ratings. HSBC can also support logistics partners, wholesalers, distributors or importers that require inventory or intransit financing. HSBC provides SCF services across a broad spread of sectors including retail, consumer brands, industrials and technology, healthcare, telecommunications, transport and logistics. 87

88 HSBC Solution Capability Solution Capability HSBC has identified over 40 potential trigger activities along a typical supply chain. In our experience although technology is important, the successful implementation of SCF projects requires strong project management, effective change management and some process redesign, helping customers with business case development, internal and external stakeholder engagement and supplier enablement (enlightenment, engagement and implementation). These are important pre-requisites for success. What areas of the GSCF universe does your solution address? HSBC Supply Chain Finance services Typical SCF Service HSBC provides a range of blended, Supply Chain Finance services for a number of large corporates, based in North America and Europe, with strong international brands and a growing supplier base in the Asia Pacific region. Transaction Management Support HSBC can provide an element of transaction management notably electronic purchase order and invoice distribution, matching and reconciliation to accelerate authority to pay processes, in a range of open account relationships with suppliers. Document and data matching can be effected manually, using imaging technologies or via HSBC s sophisticated on-line reconciliation engines. The SCF Solution HSBC can provide a range of pre and post-shipment financing instruments for suppliers. Supplier financing can be made available at a number of pre-agreed supply chain events. For example at purchase order issue or acceptance, receipt of an ASN or an outbound inspection certificate, at invoice presentation, GRN receipt, based on an inbound inspection certificate, approved invoice, or payment file. Over 40 potential trigger activities have been identified along a typical supply chain. 88

89 HSBC Areas of Differentiation Explain any unique and differentiating element to your solution? Points of Differentiation Focused Team of Experts Our global Supply Chain Business team has SCF specialists in the HSBC offices in New York, London, Paris, Düsseldorf, Hong Kong and Shanghai. These teams quickly pull together the relevant financing and transaction management specialists required to cover the appropriate SCF solutions for importers or exporters. Flexible to Adapt to Client Needs A number of HSBC customers are pushing hard towards paperless straight-through processes but a fair amount also recognize the need for a stepped approach that recognizes different levels of e-maturity within parts of their own business and in the suppliers. To cater for this, HSBC can provide a mix of support based on paper, imaged or digital platforms and processes. In almost all cases, our customers want solutions that address their specific supply chain management issues and recognize the idiosyncrasies of their SCM processes and their relationships with their suppliers. These requirements may be shaped by advice received from auditors in respect to accounting treatment or may be as a result of a specific approach to supplier relationship management. HSBC can provide a range of non-recourse and recourse finance from both the buyer and supplier perspective and tailor solutions to meet specific customer requirements. Global Solution but ability to localize platforms HSBC has developed a number of SCF platforms to meet the needs of customers in specific markets notably in Mexico, Brazil and Korea. Blending traditional trade, receivables and payables finance services HSBC is working hard to improve and blend traditional trade, receivables and payables finance services with risk, transactions, payments and cash management products to provide customers with integrated Financial Supply Chain Management platforms and best of breed Supply Chain Finance services. 89

90 HSBC Management Vision VISION Our services are being developed around supply chain event management technologies and the growing visibility being provided from a number of sources across both the physical and financial supply chains. What is your management vision for the GSCF space? We have developed a number of innovative supply chain finance services to support buyer-driven payables financing and reverse factoring requirements. A number of related services are either being piloted or rolled out for customers across a number of different regions. This is a relatively immature market at the moment and we anticipate that customer requirements will be refined and modified over the next 12 months as our product development teams monitor developments closely. HSBC has a range of services and enabling technologies that have been developed in-house. We also acknowledge that this is a very dynamic and competitive environment and are also working with a number of best of breed third-party service providers to continue to deliver best-in-class, end-to-end Financial Supply Chain Management services. These services can be delivered across the award winning internet web portal - HSBCnet or direct over private networks Key Technology Components aiding SCF HSBC is also quick to acknowledge that our customers and their logistics partners have been working hard to improve physical supply chain management processes in order to reduce cost, better manage risk and improve customer service. These same customers are increasingly focusing on financial supply chain management processes. Their expectation is that their strategic banking partners will work as hard to integrate and provide real value-adding FSCM services that will improve operation efficiencies and reduce finance-related costs - not just for the buying organization but for their supplier and supply chain partners as well. HSBC is committed to providing market-leading Financial Supply Chain Management for existing and target customers that will support domestic, cross border and global supply chain management improvement programs. Our vast experience in trade, combined with our unique global footprint and our ability to develop innovative and cost effective SCF solutions, puts HSBC in an excellent position to satisfy demanding customer requirements and stay ahead of the competition. Data Management and Service: HSBC offers a range of paper, imaged and digital transaction management services to support purchase to pay and order to cash processes, either across our of internet platform or direct. As part of our open account service suite we can upload and transmit electronic purchase orders and invoices and provide manual or on-line matching, reconciliation and dispute management services. These authority-to-pay processes can be linked to a range of supply chain financing services. HSBC provides an electronic LC application service that can upload electronic purchase orders as part of the letter of credit document for issuance to beneficiaries. HSBC Receivables Finance provides a range of paper, imaged based and digital platforms for its customers across 17 countries. We also provide export customers with an ability to create key trade documents electronically. 90

91 Royal Bank of Scotland (RBS) Web site: Key GSCF Contact: Lionel Taylor, Head of Trade Supply & Chain, International Banking at RBS. GSCF Segment: Solution Overview RBS provides an extensive and comprehensive range of supply chain finance solutions for buyers/ importers and suppliers/exporters, which assist our customers and their trading partners to reduce cost and provide working capital through the supply chain. The Bank has a wide franchise over all customer segments from Multi Nationals to SME companies. RBS combines this knowledge to structure balance sheet friendly solutions to meet the financial supply chain requirements of the large corporate and our skills and expertise in the middle and SME markets to provide a wide range of invoice finance and debt finance solutions. Pre- Shipment Finance Export SCF Programs Vendor Managed Inventory / In-Transit Inventory Factoring / Invoice Discounting Background The Royal Bank of Scotland Group ("RBS Group") is one of the world's leading financial services companies providing a range of retail and corporate banking, financial markets, consumer finance, insurance, and wealth management services. RBS Group operates in Europe, the US and Asia Pacific serving more than 36 million customers world-wide and employing more than 140,000 people. In addition to the provision of a full range of banking services under The Royal Bank of Scotland and NatWest brands, RBS Group also includes Citizens Financial Group in the USA and Ulster Bank in Ireland. Buyer Centric SCF Vendor Centric SCF Comprehensive Specific Function None Key GSCF Strengths RBS has a very strong presence in providing working capital finance solutions and services to all sizes of business to meet their supply chain funding costs. RBS is the largest provider of banking services and structured financing to medium and large businesses in the UK. It is a growing provider of debt financing and risk management solutions to large businesses in Europe and North America and is a provider of a range of products and services to small, mid-sized and large corporate and institutional customers in the UK and overseas. RBS is also Europe s premier invoice finance provider with extensive knowledge of supplier requirements and also regional and local legal and regulatory environments. 91

92 RBS Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION Pre-Shipment Phase Post-Shipment Phase The RBS Supplier Finance solution supports the full trade cycle, including: P.O. or L/C Issue Order Acknowledged Production Doc Prep / Ship In-Transit / Customs Cleared Order Received / Verified By Buyer Invoice negotiation / Approval 1. pre-shipment finance based on confirmed Purchase Orders; 2. post-shipment financing based on shipping activities and associated documentation; and 3. early settlement of the invoice at the time of approval. RBS Supplier Finance leveraging the Buyer relationship The RBS Supplier Finance solution is a payer centric reverse factoring solution primarily aimed at improving working capital and releasing cash flow for customers by: Reducing the financial impact on suppliers of moving to open account trading terms Accelerating payment to suppliers through early settlement of buyer specific invoices Leveraging the Buyer s credit strength, procurement and financial controls to provide cost effective finance to their suppliers Minimising changes in process and procedures for all parties RBS Supplier Finance can provide finance earlier at very competitive rates for all suppliers. For domestic supply chains, early settlement of the invoice is the main requirement. For international supply chains, access to pre-shipment finance is often a dependency to the acceptance of open account trading. Also, associated working capital and cash flow benefits are greatly improved if alternative forms of finance are made available. 92

93 RBS Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION The RBS Supplier Finance solution is a streamlined and easy to use web based service that minimises effort and changes to existing practices for both Buyer and their suppliers. RBS Supplier Finance Process Pre Shipment Finance Required: Where preshipment finance is required, the Buyer sends to the Bank a copy of the confirmed Purchase Order and the supplier is then offered pre-agreed finance by RBS or a local partner bank. In transit financing: Additional post-shipment finance may be offered to the supplier at the time of shipment reflecting the reduced risk of non-performance by the supplier. Early Settlement Finance: Early settlement finance is offered when the Buyer advises RBS that a payable is approved for settlement and the amount and due date. RBS offers the supplier early settlement of the payment. Details of any invoices, remittance information, discounts, debit or credit notes can be carried with the transaction. Automatic Discount: The discount may happen automatically when RBS is advised by the Buyer or the supplier may manually select to discount. If the supplier chooses to take early settlement, the full value approved by Buyer is settled after deducting pre-agreed discount costs and any previously advanced pre-shipment or postshipment finance. The value of the settlement is discounted at a rate reflecting the credit quality of the Buyer. The supplier receives funds earlier and often at a significantly reduced finance cost. If the supplier does not discount, the full value is paid on the due date. RBS s solution involves three key trigger events across the financial supply chain Confirmed PO Documents presented / Proof of Shipping Seller Approved Invoice Buyer 93

94 RBS Management Vision VISION RBS is committed to Partnerships RBS TradeFlow supports the full suite of Trade Finance products including electronic advice of discrepancies and documentary presentations, confirmations and access to all related SWIFT messages What is your management vision for the GSCF space? With our customers RBS believes that success in a long-term customer relationship is founded upon understanding our customers requirements and maintaining a dynamic and fresh dialogue to deliver added value throughout the life of the relationship. RBS prides itself on the close relationship that it develops with our customers. Our financing solutions have been developed following consultation with customers looking to create greater working capital efficiency in their financial supply chain, delivering earlier access to finance for their trading partners whilst supporting later settlement for buyer at the agreed invoice due date. Supplier Finance will continue to be enhanced in consultation with customers to meet their changing requirements. Key Technology Components aiding SCF RBS TradeFlow - an integrated portfolio of web enabled banking and trade related services The RBS TradeFlow solution is an integrated portfolio of web enabled banking and trade related services, providing an electronic gateway enabling all parties in the supply chain to communicate and exchange documents in a paperless manner. Integration within the TradeFlow platform of financial, banking and logistics services enables RBS to offer With bank partners As a major international bank, we are well equipped to deliver our customers international objectives. With supply chains crossing continents, RBS recognises the need for local expertise as in many cases the suppliers will be SME's in emerging markets while the buyers will be strong corporates in established economies. RBS is therefore committed to working with partner banks to deliver benefits to all parties in the supply chain. Our partners are the top tier banks in their primary geographic regions providing a full range of local banking facilities. RBS continues to build on the strength of our global partner bank relationships including our relationship with the Bank of China. We work in partnership with them to deliver supplier acquisition, support and financing to meet the global supply chain needs of today s companies. comprehensive end to end trade finance solutions to our customers. Complete visibility through the supply chain is achieved by extending linkages to relevant 3rd parties such as logistics and shipping companies. RBS TradeFlow delivers the customers benefits through two main services: Trade Finance Document Management Services (DMS) 94

95 Wachovia Bank Web site: Key GSCF Contact: John F. McFadden Manager - Trade Services Product Management Tel: [email protected] GSCF Segment: Pre- Shipment Finance Export SCF Programs Buyer Centric SCF Vendor Managed Inventory / In-Transit Inventory Factoring / Invoice Discounting Vendor Centric SCF Comprehensive Specific Function None Solution Overview Background Key GSCF Strengths Wachovia s solution set is designed to provide flexible implementation solutions that maximize benefits while minimizing disruptive change for suppliers. This includes support for traditional as well as new financing mechanisms, support for paper as well as web-based communications, and Supply Chain Finance programs that leverage existing relationships and processes. Programs include pre/post shipment financing options for Open Account, as well as traditional LC and Private Label LC draft discount, packing credit, and in transit inventory options. GFITS invests significantly in development of its own proprietary front and back office technology products. GFITS is a major provider of financial insourcing services to global financial institutions including white-labled technology components. Wachovia is the #4 US bank. Wachovia Global Financial Institution (GFITS) and Trade Services group provides international banking products and services for global financial institutions and corporate clients. GFITS has a partnership orientation with global financial institutions that leverages local banking relationships for foreign SME financing services. Over 7,000 correspondent banking and trade relationships with 3,000 accounts in 130 countries. Through its global correspondent network Wachovia is able to deliver products and services on a global scale while leveraging the strength of local relationships. Wachovia s Power Through Partnership approach means that our customers can leverage our network of relationships throughout the globe to provide localized services and financing options for trading partners without forcing process changes or banking relationship changes. Wachovia s Web-based platform enables: End-to-end transaction support with embedded financing triggers Electronic data integration for key transaction documents (PO, Invoice, ASN etc. Support for non-data driven financing transactions (ie. file upload, image upload, paper-based processing support) to enable financing Trading partner collaboration with automated workflow based on buyer and/or supplier profiles enables both Wachovia direct funding or intermediation of local correspondent. 95

96 Wachovia Bank Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION Wachovia has a dedicated Supply Chain Solution organization that focuses on analyzing customer s international sourcing, logistics, and settlement processes and providing solution recommendations that generate hard financial benefits. Our focus is taking a holistic view of the physical and financial supply chain processes and aligning supply chain programs with overall corporate financial goals. Wachovia calls this their Building Block Approach. Wachovia Supply Chain Solutions takes a building blocks approach to supply chain service delivery Approach emphasizes customization of solution based on supply chain characteristics and financial objectives Common areas of focus are: Operational Efficiency Transaction Cost Reduction Free Cash flow Improvements Supply Chain Finance is an embedded component to the overall solution that provides working capital solutions for LC and Open Account Transactions. Supply Chain Finance can be supplier focused or designed to leverage the credit standing of the buyer to provide lower cost financing to the vendors. Financing programs utilize physical supply chain data (ASN, efcr) to accelerate document presentation and options for financing Wachovia s Trade Exchange provides a single supporting technology platform for all transaction types Supply Chain Solution Building Blocks 96

97 Wachovia Scope and Functionality of Global Supply Chain Finance Solution SOLUTION Wachovia SCF Portfolio What areas of the GSCF universe does your solution address? Pre Shipment Finance (PO Financing) Confirmed Purchase Order delivery via Wachovia Trade Exchange Financing approved via local bank relationships through online application Optional credit enhancement provided by Wachovia based on credit worthiness of buyer Direct Wachovia underwriting of Open Account working capital in select Asian markets Post Shipment (Factoring) Invoice created on Wachovia Trade Exchange from PO data Invoice and finance request presented electronically to local bank or directly to Wachovia Funding approval done directly online No buyer approval of payment obligation required Post Shipment (Approved Payable) Invoice and Shipping Documentation created on Wachovia Trade Exchange Electronic ASN integrated into document creation engine for shipment data Documentation and finance request presented electronically through online application Buyer payment approval completed online or via integration with buyer ERP AP system Financing can be structured as AR Purchase to preserve US GAAP accounting treatment Off balance sheet funding available through use of Wachovia securitization conduit In-transit Inventory Lending Provided for Wachovia s Asset Based Lending clients Wachovia s solution involves three key trigger events across the financial supply chain Pre-Shipment Phase Confirmed PO Shipment / Invoice Generation Seller Confirmed Purchase Order delivery via Wachovia Trade Exchange Post-Shipment Phase Invoice acceptance Invoice created on Wachovia Trade Exchange from PO data Buyer 97

98 Wachovia Scope and Functionality of Global Supply Chain Finance Solution Key Trigger points for GSCF solutions SOLUTION Wachovia s Building Block Approach helps assemble the client needs into the best solution for them. Day 1 Day 5 Day 30 Day 45 UNDERLYING TRANSACTION FRAMEWORK and TRIGGER POINTS Day 75 PO Issued PO Acknowledged Shipment/Invoice Generation PRE AND POST SHIPMENT FINANCING OPTIONS Invoice Acceptance Payment at Maturity Pre-Shipment Finance PO Delivered via Trade Exchange; Supplier requests finance for production based on PO; Request forwarded electronically to Wachovia partner bank. Loan granted with recourse to supplier. Optional credit enhancement available Post-Shipment Finance Supplier presents invoice for financing via Wachovia s Trade Exchange; structured as working capital loan or receivable purchase by partner bank or Wachovia. Preshipment advance factored into financing amount. Payables Finance Buyer confirms receipt of goods and confirms payment obligation. Accounts payable posted to Trade Exchange for discounting selection by suppliers. Receivable purchase by partner bank or Wachovia. 98

99 Wachovia Bank Supply Chain Technology Components Key Technology Components aiding SCF Trade Exchange Messaging Platform TECHNOLOGY Wachovia's Trade Exchange technology platform enables complete visibility into the supply chain from initial PO creation through the financial and physical settlement of the transaction. The collaborative webbased technology has embedded Supply Chain Finance triggers that utilize PO, Invoice, or shipment data to automate the financing request and approval process. Optional credit enhancement services can be added as part of financing workflows. Secure, collaborative messaging platform for supply chain visibility and trade transaction processing Single, web-based application set supports all trade transaction types including Open Account and Letter of Credit Integrates with Buyer s ERP systems for automated distribution and management of PO information Suppliers can view and acknowledge purchase orders, electronically create and present documentation for payment, and request financing on a pre-shipment and post-shipment basis Enables suppliers local banking partners to collaborate online and provide timely and efficient finance Integrates 3rd party logistics providers for physical supply chain milestones and document delivery Automates workflow and embeds financing options at different trigger points in the transaction 99

100 Wachovia Bank Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? CASE STUDY Trade Payable Program Case Study The Situation Large US-based importer seeking to streamline its supply chain and lower supply chain costs transitions from LC s to Import Collections, Private Label LC s and Open Account. The transition creates a need for working capital finance for vendors relying on LC s for trade finance. The Background Client is a US$3 billion specialty apparel retailer for women's apparel, accessories and casual footwear in the United States. It operates over 2,300 retail stores and related e-commerce Web sites through multiple brands in 48 states. The supplier base is heavily international. The client historically used bank issued LC s as its primary trade settlement mechanism, but sought to transition suppliers to Import Collections, Private Label LCs (Corporate LC), and Open Account as a means to streamline its financial supply chain and lower transaction costs for suppliers. As part of the program, the client wanted to include Supply Chain Finance options for the suppliers in order to mitigate the working capital issues created with the transition from LC to the new transaction types. The Solution Wachovia assisted in the design and implementation of a financial supply chain program that included options for the desired transaction types and options for suppliers to use Wachovia s Trade Exchange technology to increase the efficiency of operations. Wachovia provided a Transition Guide to facilitate the change for impacted suppliers. The program included a post shipment Supply Chain Finance option that provided a low cost source of financing to suppliers based on the transactional history and credit worthiness of the client. The Bottom Line The program streamlined the financial supply chain processes for vendors while allowing for flexibility and customization. The result was significantly lowered transaction fees and provided suppliers access to cheaper working capital. 100

101 ABN AMRO Web site: Key GSCF Contact: Shalini Lall, Supply Chain Business Banking Tel: GSCF Segment: Pre- Shipment Finance Export SCF Programs Buyer Centric SCF Vendor Managed Inventory / In-Transit Inventory Factoring / Invoice Discounting Vendor Centric SCF Comprehensive Specific Function None Solution Overview Background Key GSCF Strengths MaxTrad Supply Chain services offer solutions to connect buyers and sellers within the global supply chain. MaxTrad is ABN AMRO s based trade platform used by more than 2,500 Corporates and 12,000 users in more than 30 countries worldwide Accessed through this network are online modules that address the many financial data needs of customers involved in the order management and settlement processes. Through its MaxTrad Purchase Order Manager (POM) module, customers can efficiently manage the issuance of purchase orders and trade data matching, as well as the processing, payment and settlement under Import Letters of Credit, Collections, Open Account and Authority-to-Pay terms. The MaxTrad POM focuses on Order Management, Delivery, Payment and Financing issues within the global supply chain. ABN AMRO was one of the first banks to launch a trade finance portal in 1998, and at that point, the site was predominantly U.S. focused. It has since developed global coverage and expanded the both the functionality and linkages with key partners. Web site is Third largest network bank covering Europe, North America, Latin America (including Brazil) and Asia enables the Bank to execute transactions globally for our large corporate clients in their role as Buyers End-to-end solution capability with our web-based interface (MaxTradTM Supply Chain Portal) and back office processing capabilities (Global Trade Finance Platform); allows the Bank to centralize all trade processing in Chennai, India, thereby providing low implementation and execution costs while seamlessly processing large volume transactions SCB uses simplified credit scoring models to score suppliers in a programme to meet the minimum defined criteria. This allows rapid on-boarding of large nos of suppliers Wide network of internal legal counsels available to consult on local legal issues and offer innovative approaches to perfecting interest in receivables in order to minimise legal costs. SME and mid market focus in Europe, Asia, Brazil and North America enables us to provide suppliers with additional banking products that they would not otherwise receive from any international bank. 101

102 ABN AMRO Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION Inventory Finance and ownership Partnership with Factoring Focus industries are retail, technology and automotive, leveraging our global network and significant corporate relationships in these sectors. PO Manager Global Supply Chain Business Conduit Securitisation, syndication and insurance Supply Side Receivable Purchase Structured Receivable Purchase Pre-shipment financing Provides pre-shipment financing against confirmed POs in selected countries including but not limited to Brazil, Turkey and Asia Use of MaxTrad TM s Purchase Order Manager module to manage POs and the related financing activity. Use logistics data to provide greater visibility and control Receivable Purchase structures Purchases selected receivables of clients with the objective to provide liquidity Available globally across North America, Europe, Brazil and Asia Solutions structured allowing legal true sale and off balance sheet management under IFRS and US GAAP and are without recourse to the Seller Structures can be insured or clean risk Country specific solutions including Channel financing in India and Brazil where the solution is fully integrated into the Bank s branch network in those countries. Supply side receivable purchase structures Purchases receivables from the suppliers of our clients to provide liquidity to our suppliers and provide working capital relief to large Buyers Leverages the end-to-end technological capabilities of ABN AMRO s award winning MaxTrad TM portal Uses our globally recognised Conduit Securitization and Syndication capabilities to optimally manage large transactions Factoring solutions Select European and Asian countries through our partnership with our wholly owned subsidiary, IFN SME and mid market client focus in Asia, Europe and Brazil 102

103 ABN AMRO Scope and Functionality of Global Supply Chain Finance Solution SOLUTION ABN s Supply Chain Business is extending into a broad offering utilizing internal and external developments Supply Chain Business INTERNAL DEVELOPMENT EXTERNAL PARTNERSHIPS Existing financing programs Insurance Balance sheet and capital management Inventory financing Factoring Logistics partnership Receivables purchase programs targeting Europe- Asia and US-Asia flows Pre-shipment loans in partnership with Commercial strategy Dedicated policies with key insurers Used for receivable purchase and invoice discounting structures Underwriting strategies for large Supply side deals Conduit securitization Syndication Insurance Evaluate 3 rd party intermediaries for purchase of receivables Partnership with IFN (ABN AMRO subsidiary) for selected European and Asian markets Work with DHL, UPS or CEVA Widen the deal origination base Use logistics data for innovative supply chain structures 103

104 ABN AMRO Case Study What areas of the GSCF universe does your solution address? CASE STUDY Financing the extended supply chain: Automotive case study Tier 3 Supplier in South Africa Raw Materials 16 week working capital gap Part Finished Product by sea Finished Goods by road OEM in Western Europe Global Reach With offices in 56 countries and representation on six continents, ABN AMRO is able to help clients manage their trade portfolio and finance their suppliers on a truly global level. Tier 2 Supplier in South Africa Controlled financing based on POs and actual deliveries Tier 1 Supplier in Eastern Europe Off-take commitment Payment from OEM on due date into loan account after delivery from Parts Supplier The Situation Tier 3 suppliers had working capital constraints for extraction of raw materials (platinum). The Solution The solution provided facilities to the entire supply chain competitively priced linked to the credit rating of the OEM. Preproduction financing therefore eases the company s work-in-progress funding requirements enabling it to utilise Supply Chain Finance by the back-to-back use of pre-shipment loans and receivables purchase. This requires monitoring of POs and shipments especially for dilutions. The solution is improved by partnerships with Logistic Providers to enhance risk mitigation. The Bottom Line ABN AMRO puts a lot more emphasis on the quality of the relationship between the anchor client and the counterparty and the flow of funds. 104

105 ABN AMRO Supply Chain Technology Components TECHNOLOGY No Upfront IT Costs As the Supply Chain Portal is a web-based solution hosted by ABN AMRO, there is no requirement for costly IT investment or lengthy implementation timescales PO Manager Manages the distribution, storage and status of PO s Invoice Invoice Shipment Manager Manager Manager Manages the ability to capture and generate Invoices. Connects to Supply Chain Finance Supply Chain Portal Administration Administration Security Security Access Access Collects transport data and other shipment information Shipment Warehouse Manager Collects Warehouse receipt data essential for 3-way match Discrepancy Warehouse Supply Discrepancy Payment Manager Manager Chain Manager Finance 3-way matching capability Facilitates the routing and resolution of mismatched data Enables Receivabl es Purchase Programs Manages the payment instructions for settlement Document Imaging, Reporting and Workflow Integrated and modular-based solution - Integrates both Supply Chain Services and Finance with sophisticated technology Centralized Data management -Captures and manages data flows along the entire supply chain life cycle - Provides both buyers and suppliers with visibility to their PO, shipping, invoice, and payment data via a common platform - Stores PO data, tracks the shipping/warehouse information, performs reconciliation on shipment/warehouse to PO - Leverages the PO, advance shipment notice (ASN), and shipping data in the Supply Chain Services Module for pre-shipment financing - Suppliers are funded throughout the supply chain with a decreasing cost of borrowing as more shipping data is made available (as the risk of default on the transaction reduces) 105

106 Bank of Montreal (BMO) Capital Markets Web site: Key GSCF Contact: Philippa Fitzsimons Supply Chain & Trade Solutions Tel: Solution Overview BMO Capital Markets has partnered with leading Supply Chain Finance platform and trade technology providers to deliver specific, individualized business solutions to our clients which build on the strength and resources of BMO Financial Group. BMO offers a full suite of traditional and non-traditional Trade Finance products and services, and stand ready to develop new approaches in support of business needs. GSCF Segment: Pre- Shipment Finance Export SCF Programs Vendor Managed Inventory / In-Transit Inventory Factoring / Invoice Discounting Background BMO Capital Markets is Canada s premier supply chain finance bank offering the full array of products, services, and technology infrastructure comprising Supply Chain Finance. BMO Capital Markets is a leading, full-service North American financial services provider offering corporate, institutional and government clients access to a compete range of products and services. This includes equity and debt underwriting, corporate lending and project financing, merger and acquisitions advisory services, merchant banking, securitization, treasury and market risk management, debt and equity research and institutional sales and trading. With over 2000 professionals in offices in 26 locations around the world, including 14 in North America, BMO Capital Markets works proactively with clients to provide innovative and integrated financial solutions. Buyer Centric SCF Vendor Centric SCF Comprehensive Specific Function None Key GSCF Strengths BMO Capital Markets has centres of expertise in key locations such as Mexico, Brazil and China along with a strong correspondent network of more than 3000 Financial Institutions. Tradevenue Direct, our state-of-the-art portal powered by Proponix facilitates document imaging and processing of payment/settlement under Letters of Credit, Collections, Approval to Pay (ATP), Open Account Payment (OAP) and export finance. The instrument s transaction history and general reporting is accessible on an ongoing basis. Proponix s new supply chain finance enhancements extend and complement our other offerings. Our Bank Assisted Open Account provides for document checking and/or data matching under open account transactions. 106

107 Bank of Montreal Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION We are constantly reviewing our service offerings and adding new features in anticipation of client needs. We combine the best of traditional trade products and services with the latest in technology and integration capability to help our clients realize their ambitions. Sara Joyce, Executive Managing Director and Head of IFI and Trade Finance Export Solutions A few examples of key product offerings: Financing Exports Receivables discounting for commercial, mid-market and corporate clients Pre-shipment financing on a select basis Risk Mitigation Use of private insurers can protect clients and offer a solution to convert receivables into cash earlier in the cycle In addition to an active Risk Distribution team, BMO provides links to Government credit enhancement agencies like Export Development Canada, Ex-Im Bank, International Finance Corporation, Inter American Development Bank and many other multilateral agencies to mitigate tough risks. Import Solutions A few examples of key product offerings: Payables financing in partnership with PrimeRevenue. BMO s partnership with PrimeRevenue allows the Bank to offer increased flexibility in managing working capital, real-time, on line monitoring and tracking of accounts payable or receivable, and streamlined purchase order processing. Payables data can be uploaded seamlessly from a client s own enterprise system directly to the robust PrimeRevenue platform without the need for expensive integration. BMO s supply chain solutions offered in partnership with PrimeRevenue create tangible value - compelling, easily quantified and quickly executed. Import and procurement processing solution which: Enhances workflow management and reduces costs Uploads transaction details to ERP systems Provides comprehensive reports on all import and procurement business Consolidates payments 107

108 GE Commercial Finance Website: Key GSCF Contact: Edward S Alvarez GE Commercial Finance Working Capital Solutions Tel: GSCF Segment: Pre- Shipment Finance Export SCF Programs Buyer Centric SCF Vendor Managed Inventory / In-Transit Inventory Factoring / Invoice Discounting Vendor Centric SCF Comprehensive Specific Function None Solution Overview Background Key GSCF Strengths Working Capital Solutions, a GE Commercial Finance business, provides tailored global accounts receivable solutions for multinational corporations. We help customers optimize their cash flow, transfer credit risk and enhance transparency throughout their entire organization. GE Commercial Finance is one of GE s growth engines with lending products, growth capital, revolving lines of credit, equipment leasing of every kind, cash flow programs, asset financing, and more. With over one million customers in over 30 countries, GE Commercial Finance delivers global presence and local underwriting expertise. Established as captive accounts receivable monetization and shared credit and collection servicing provider for its GE s industrial businesses. Delivering global infrastructure and local presence to support order to cash needs of large multinational corporations. Built single largest factoring network worldwide with non-recourse exposure to debtors in 100+ countries covering the Americas, Europe, Middle East, Africa and Asia-Pacific. Offering global access through a single point of contact. Guaranteed performance on credit and collection service deliverables broad industrial expertise and applied Six Sigma discipline drive operating performance and greater customer insight. 108

109 GE Commercial Finance Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION Liquidity and Risk Transfer Purchase portfolios of global accounts receivable on a 100% non-recourse basis for debtor insolvency; recourse against commercial disputes and fraud Available globally across the Americas, Europe, Middle East, Africa and Asia-Pacific Client s customers can be in developed and emerging countries Potential true sale and off balance sheet management Non-notification typically (discreet) Receivable management: Comprehensive order-to-cash solution Credit decision making assessing the creditworthiness of clients customers and setting appropriate credit limits and terms Collection services performing all order-to-cash activities Order release management conditioning input provisions and releasing Payment management processing cash receipts from clients customer Reporting portfolio status, client ledger & operations Compliance conform to legal and regulatory requirements Dispute resolution management state-of-the-art support system IT systems & accounting scalable systems capable of accounting on clients general ledger 109

110 GE Commercial Finance Solution Example What areas of the GSCF universe does your solution address? Solution Example GE Commercial Finance Supply Chain Finance services Customer Background: One of the world s leaders in the production and finished metal products with over 7,000 employees and 15 manufacturing plants across Europe and Asia Key Issues Metals pricing volatility: price increase of 300%+ year-over-year Price increases causing insufficient credit lines for obligors Reaching limits on financial covenants with existing financiers Significant pressure on working capital inhibiting New equity investor looking for changes to enhance returns Customer Pain Points Constrained Working Capital reached limits on non-recourse financing due to static structure with limited flexibility; seeking partners capable of addressing pricing volatility Non-strategic partnership multiple solution providers structure slow moving and difficult to manage; seeking fewer partners with global reach, infrastructure and financial strength Solution: Purchase and manage accounts receivable globally via multi-year non-recourse account receivables factoring facility Benefits: One single system globally and a standardized credit and collection process Greater clarity and predictability of cash flow Ability to fully focus on growth Higher debtor credit lines Off balance sheet management g 110

111 Morgan Stanley Website: Key Contact: Roland Hartley-Urquhart Vice President Morgan Stanley Fixed Income Phone: GSCF Segment: Pre- Shipment Finance Export SCF Programs Buyer Centric SCF Vendor Managed Inventory / In-Transit Inventory Factoring / Invoice Discounting Vendor Centric SCF Comprehensive Specific Function None Solution Overview Background Key Key GSCF Strengths Strengths Morgan Stanley s delivers a complete platform for buyer centric supply chain finance. Their program offer s low cost, price risk through securitization and is a true sale of receivable for the supplier. They harness the global capital markets to provide low cost, market risk based pricing. Morgan Stanly also provides specific capabilities around factoring and invoice discounting. Morgan Stanley are experts in pricing risk and do it most efficiently using their skill and resources in the global capital markets. They have come to recognize there is a major opportunity in the mis-match of investment grade and non investment grade working capital requirements in the supply chain. Morgan Stanley sells these solutions direct to corporates. Morgan Stanley are experts at pricing risk in the capital markets and delivers the lowest cost of funding for Suppliers through the innovative use of the capital markets. The capital markets have substantial capacity to deliver a single global SCF solution for buyers. They find that many suppliers use the system to mitigate credit risk and not just for credit arbitrage. Their deals do not unwind with credit rating downgrades and industry problems. This is part of how they hedge their risk. A credit of Aa3/A+/AA-, among the highest in the securities industry Morgan Stanley funds their programs in the public markets using Morgan Stanley's name and guarantee. When a bank underwrites a program, it uses credit capacity for that name, which is generally some percentage of its lending limit. 111

112 Morgan Stanley Scope and Functionality of Global Supply Chain Finance Solution What areas of the GSCF universe does your solution address? SOLUTION Credit Ratings of Select Consumer Electronics Brand Owners and Contract Manufacturers Morgan Stanley s program is targeted at supply chains where the contract manufacturers have a higher cost of capital than their large buying partners. The higher cost of financing the contract manufacturer is added to the supply chain. For companies with investment grade ratings, the cost differentials between non investment grade suppliers, particularly overseas, can be significant. Recent average 90-Day corporate bond spreads between Major buyer and select major suppliers Credit Quality Contract Manufacturers Brand Owners 120 Investment Grade Non- Investment Grade Very Few, mostly very large Asian names such as Hon Hai and Jabil Flextronics SCI-Sanmina Solectron Celestica Dell Hewlett-Packard Motorola Philips Cisco Nortel Xerox Investment grade Non investmentdomestic suppliers Source: Supply Chain Management Review, Sept Non investment- Overseas 112

113 Morgan Stanley Areas of Differentiation Explain any unique and differentiating element to your solution? POINTS OF DIFFERENTIATION Capacity for Supplier Financing Many SCF programs are financed by balance sheet lenders and subject to credit capacity limits. Negative impact on suppliers and stifles the benefits that could flow from SCF. Removing capacity constraints ensure that Buyers can maximise the benefits of SCF Buyer Credit Capacity Morgan Stanley s financing structure does not utilize the buyer s name in the capital markets Buyer s credit capacity is not impaired by TReFS CDS hedging Onboarding suppliers PrimeRevnue does this, but Morgan Stanley has unique capabilities, such as 100% electronic documentation for suppliers. They also have a global receivable purchase agreement so we on-board vendors faster in all jurisdictions. Global Solution Morgan Stanley/PrimeRevenue solution will operate in every jurisdiction in which corpoates do business, including China / RMB and India / Rupee SAS 70 Type II Certified No competing SCF program has the SAS70 Type 1 and 2 audit certification. The parties can rely on the information for their Sarbanes-Oxley reporting. Companies do not need to do an independent audit of their receivables / payables balances in their financial reporting without this certification. Use of PrimeRevenue technology PrimeRevenue s combination of technology, solution flexibility and supplier adoption services is unique Achieved without software or maintenance fees Minimal business process change Rapid deployment No risk of long term commitment 113

114 National City Web site: NationalCity.com Rory Kaplan, Vice President & Senior Product Manager Global Treasury Management Tel: GSCF Segment: Pre- Shipment Finance Export SCF Programs Buyer Centric SCF Vendor Managed Inventory / In-Transit Inventory Factoring / Invoice Discounting Vendor Centric SCF Comprehensive Specific Function None Solution Overview Background Key GSCF Strengths Key Strengths National City focuses primarily on the buyer centric, Trade Payable space for Global Supply Chain Finance (GSCF). Trade Payables Finance solution enables National City clients to leverage web-based technology to optimize working capital efficiencies throughout their global supply chain. The Trade Payables Finance solution creates a platform for buyers and suppliers to collaborate using the most efficient source of capital to replace the investment and manage the risk embedded in the global supply chain. Information transparency allows suppliers to save time, better manage capital and minimize risk. Launched in 2006, National City works with the Prime Revenue platform to offer a suite of products called Trade Payables Finance solutions. As a result of the paradigm shift from traditional trade products to open account, our goal is to provide a suite of products that serves strategic partners and technology enablers. Therefore, National City focuses on open account processing and supply chain finance. The National City Trade Payables Finance Solution provides both strong buyer and supplier benefits. Key Buyer Benefits: Fewer A/P inquiries and reduces check processing costs Improves management of working capital Operational cost savings Opportunity to improve returns on short term investments Key Supplier Benefits: Significant procurement benefits to importers to provide new cash flow management flexibility to suppliers; helps maximize supplier value for buyer procurement initiatives Streamlines A/P and settlement processes at reduced cost while providing secure access to online remittance details 24/7 Provides cash and trade integrated reporting to help customers conduct cash projections, better manage their payables and have a tool for generally improved cash management 114

115 National City Trade Payables Finance Solution Scope and Functionality Trade Payable Program Case Study CASE STUDY As the Trade Payables Finance field continues to emerge, our ability to customize solutions that bring together the right mix of partners, technology, financing and ideas, will position our clients to maximize value through their global supply chains. The Situation Big Lots (NYSE: BIG) is the nation s largest broad line closeout retailer with over 1,300 stores in 47 states. Viewing its vendor relations and supply chain management as key components in its operational success, Big Lots sought to further enhance its customer value proposition and vendor experience through a reduction in supply chain inefficiencies. The Background National City (NYSE: NCC) has been actively engaged in reengineering traditional financial relationships within the supply chain. By challenging the norms of trade and engaging stakeholders throughout the chain, we work with our clients to develop value-added solutions and win-win scenarios. We have established a partnership with PrimeRevenue, a pioneer in platforms supporting supply chain finance - creating holistic solutions tailored to our clients needs. The Solution Creating an integrated Trade Payables Finance Solution using PrimeRevenue s platform, National City enhanced Big Lots vendor experience through an innovative supply chain finance program. In developing this solution, we worked with Big Lots, its vendors and PrimeRevenue to leverage the strength of Big Lots credit profile. The rollout targeted both domestic and import vendors, many of whom utilized LC-based financing. The Bottom Line Big Lots vendors have found an additional payment and financing vehicle which allows for more efficient and flexible financing. Big Lots has recognized and shared in the efficiency gains. 115

116 National City Points of Differentiation POINTS OF DIFFERENTIATION National City currently has in place and is continuing to build a solution that bundles together the necessary components to provide a holistic solution. The open architecture allows clients to add or remove components to meet their specific needs. Credit Risk Management The principal value-add of our current solution is in removing the cost-of-capital inefficiency at work within the supply chain. National City is positioned to most efficiently underwrite the buyer s risk of repayment and have a low-cost source of capital to deploy in financing that risk. At this stage, the buyer is in a better position to underwrite the commercial risk of their supplier relationship and it is more efficient for the buyer to manage that risk. As we continue to work through the supply chain and develop the necessary logistics relationships, we hope to be able to efficiently inject ourselves into this process as well. Non Recourse Financing To maintain the accounting integrity of our Trade Payables Finance Solution, our partner, Prime Revenue, provides an important layer to the structure. Through this program, the buyer becomes contractually liable for a date-certain, dollar-certain obligation to the supplier. Our solution provides a means for us to acquire that obligation directly from the supplier. Data Translation National City currently receives and stores uploads of purchase order data from buyers. The solutions include a data translator to facilitate data and imaging file exchanges with customers. Accommodate Small Suppliers Trade Payables Finance Solution allows National City to provide a financing solution with little reliance on the wherewithal of the supplier. This solution provides efficiency through creating a structure that allows the bifurcation of risk; buyer risk vs. supplier risk; and also allows competitive pricing of these risk components based on our position to underwrite and hold your risk most efficiently. We are best positioned to underwrite and hold buyer risk, and that is exactly what our solution enables. Geography We believe the proprietary structure and components of our documentation enables us to offer this solution to suppliers globally. However, perfection is an issue which varies by jurisdiction. 116

117 National City Messaging MESSAGING Messaging Platform The globalization of the economy, and technology have provided tremendous advancements in trade. The physical supply chain has evolved with these developments, while the financial supply chain has remained relatively stagnant. However, as we have seen elsewhere in the global marketplace, where there is an inefficiency, capital and competition will emerge to profit from and displace the inefficiency. These forces are now playing out in the financial supply chain and National City is committed to remaining at the forefront of these developments. 5 1 Buyer submits data on approved invoices to the Trade Payables Finance Platform. 2 Suppliers view invoice data and request early payment. Trade Payables Finance Platform 4 National City provides funding to Supplier. Trade Payables Finance Platform sends banking instructions against Buyer s clearing account at maturity of invoice, paying the supplier or National City, if invoice was discounted. 3 National City receives and reviews early payment requests. 117

118 National City Vision VISION What is your management vision for the GSCF space? National City sees the transformation taking place in trade finance with demand for traditional trade finance flattening and a significant movement to open account payment terms. We are very much committed to the GSCF products, as evidenced by our partnership with Prime Revenue, to offer trade payables finance products. This partnership is a major component of the future of our trade business and we are continuing to explore new supply chain finance solutions. We work with supply chain thought leaders and experienced technology providers as we evaluate new ways to provide working capital optimization and financing solutions related to various events in the supply chain. The Trade Services Utility (TSU), offered by SWIFT, presents a new industry standard for banks to leverage and offer new services and solutions in the supply chain. Connectivity to customers plays a major role in being able to capture and exchange data, giving banks the ability to provide new services. Banks, such as ours, are information providers. Supplying information in new and meaningful ways is critical to their continued relevance and intermediation in the trade world. We will play a more consultative role with our customers. To be able to analyze a company s trade needs and offer solutions that will create efficiencies for them. Key Technology Components Aiding SCF Data Management and Service Provides a variety of reports through the platform and its Web-based reporting tool. Additionally, both buyers and suppliers are able to view their obligations, maturity dates, projected fees, etc. via the platform. Remittance advice information, produced as payments, are settled either on the day invoices are discounted to cash or when receivables reach their due date. Buyers may access the remittance information in the system as an Adobe Acrobat.pdf file or a.csv file which can be read by Microsoft Excel or other popular spreadsheet packages. Corporate Integration Issues For buyers, in order to populate the TPF Platform service with payables data, a small payables extract file is published to TPF Platform. For most buyers, configuration of this payables extract can be accomplished within a few days to a week. For suppliers, no software is required to purchase, install or configure TPF Platform. An Internet connection and simple web browser are the only requirements. 118

119 Who is Global Business Intelligence? Global Business Intelligence (GBI), conducts proprietary and consortium international trade research programs. GBI works with importers, exporters, banks, insurers, logistic and transportation partners and global trade management vendors on both a syndicated as well as proprietary basis. GBI conducts the following syndicated trade research programs on a biannual or periodic basis: Global Business Intelligence Suite Marine Drive West Vancouver, BC V7T 1B8 Canada (001) [email protected] Importer Trade Payment and Finance Trends Export Financial Value Chain Trends Capital Adequacy and Trade Services The Who, What, and Where Guide to International Supply Chain Finance Who's Who Directory of Global Trade Management Vendors Financial Institutions Trade Operations performance review 119