Supply Chain Finance for Corporates

Transcription

1 Finance for Corporates Webinar for Experts Extending your Trade Finance options using BPO Webinar, 29 June 2012 Join Teleconference (Phone) Click Country/Region to select country code Complete phone number You are called back by an external number Pick up phone, press 1, you are in the conference Or try again, from the top menu: Communication >> Teleconference >> Join There will be silence until the session starts

2 If you cannot hear us: For the regular phone, go to the menu: Communication Teleconference Join Click on the country list to get your country code and complete your phone number. You will receive a callback on that number from an external line, just pick up the phone, press 1 and you will be put in the conference. If this still does not work: Go back to the you received Section: To join the teleconference only Click the "Global call-in numbers link Choose and call a number from the list Enter the Access code (also in the ) Voice over IP, being the internet, is not activated today 2

3 Our SWIFT speakers today gbb Marie-Christine Diaz Senior Solutions Manager Trade and Nadine Louis Market Manager Trade and Robert Marchal Business Analyst Payments and Trade Standards 3

4 Content Context and key challenges The BPO benefits Detailed features Risk mitigation and KPIs Corporate case studies Next steps and conclusions 4

5 Finance Context and key challenges SWIFT and your payments business 5

6 Financial Financial Physical Physical Financial Financial Physical Physical Current financial supply chain instruments Payment and risk mitigation tools Cash in advance Open account with SBLC / Demand Guarantees Order Production Shipment Delivery Delivery default or delay risk Order Production Shipment Delivery Payment Settlement Open account Payment & Settlement Payment default or delay risk Buyer s risk Seller s risk Seller s risk Buyer s risk Letter of credit Documentary collection Order Production Shipment Delivery Order Production Shipment Delivery Delivery default or delay risk Delivery default or delay risk Letter of credit Payment Payment (default) or delay risk Settlement Documentary collection Payment (default) or delay risk Payment Settlement 6

7 Financial Supply Chain Physical Supply Chain Challenges with documentary credits Need for operational efficiency and financing Longer inventory cycles or Delayed production Re-route ships, risk of sale at significant discount (even loss of entire shipment) in case of refusal.. Risk of significant demurrage charges Delayed delivery or risk due to a waiver..or storage at port of destination Purchase Order Production Shipment Delivery PO BOL Invoice L/C issuance and acceptance Documents presentation and and compliance verification Payment Need to request L/C earlier Waiver on discrepancies No opportunity to get financing Payment delay even when at sight or on delivery Customer cannot free its credit limits Trade Post-Trade Pre-settlement Settlement T T+1 T+10 S > T+20 Faster physical supply chain in some industries, regions and segments 7

8 Challenges with Open Account settlement Need for risk mitigation and financing Financial risk Weak credit rating of the importer Temporary liquidity shortage of the exporter Bank financial risk Insurrections Terrorism War Sanctions Force majeure Political & stability risk Working capital finance (loans or revolving credit lines) Standby LCs & Demand Guarantees (Reversed) Factoring & Forfaiting Credit Insurance Commercial risk Payment default Unpredictable cash-in flows Refuse to honour payment False or falsified information Performance issues / supply default Fluctuation in currency Volatility of interest rates Inflation rates Economic risk Transport risk Early or late shipment Loss, theft, deterioration Increased risks in some industries, regions and segments 8

9 Finance BPO benefits 9

10 The Bank Payment Obligation (BPO) A BPO is an irrevocable undertaking given by one bank to another bank that payment will be made on a specified date after a successful electronic matching of data according to an industry-wide set of rules. ICC Uniform Rules for Bank Payment Obligations New ICC Uniform Rules for BPO ICC approval in Q

11 Financing Trade processing Accelerate the trade processing to get earlier financing The knowledge of the buyer s financial position and the exposure of the trade transaction allows the Buyer s Bank to guarantee the payables based on BPO The certainty of the origin of the received funds allows the Seller s Bank to finance export receivables secured by BPO Purchase Shipment Acceptance Settlement Match Purchase Orders Match transport (shipping) information Match and approve (e-)invoices Execute payment and reconcile collection Shorten acceptance time Earlier financing On-demand financing Approved Payables financing Due Date (D) Pre-Shipment finance Post-Shipment finance Post-Shipment finance Payment New opportunity windows to offer supply chain finance 11

12 Financial Physical BPO enhances the L/C process Processing and payment efficiencies BPO benefits Order Letter of credit Letter of credit Production Shipment Delivery T+0, +30 or +90 days Delivery default or delay risk Payment Payment (default) or delay risk Settlement Long, costly and cumbersome discrepancies management Electronic presentation of data instead of physical documents - Improve quality and objectivity of compliance verification Quicker process as it focuses only on data relevant for financing Can be added at any time, for any amount value Exporters gain certainty of the timing of cash flow and can improve liquidity forecasts Exporters may use BPO to get pre-/post-shipment finance through their own bank Exporters can offer commercial incentives Importers are able to reduce supply default risk Risk syndication for risk reward transactions Risk of delayed payment even for L/Cs at sight Shortening the processing time and decreasing costs while securing the transaction 12

13 Financial Physical BPO addresses Open Account challenges Processing and payment efficiencies BPO benefits Open account with SBLC / Demand Guarantees Order Production Shipment Delivery Open account Payment default or delay risk T+0, +30 or +90 days Payment & Settlement Political, economic and commercial risks Risk of delayed payment or payment default Exporters get pre-/post-shipment financing to support working capital needs no need for loans or revolving credit lines Exporters can negotiate earlier payment terms no need for forfaiting, factoring Importers can extend payment terms from their own banks Improve transaction tracking and payment reconciliation Establish and maintain successful win-win trade relationships Reduce on-boarding and operational costs Secure the transaction while maintaining a competitive offer 13

14 Key benefits for buyers Cash flow optimization Control payment time execution Pay key suppliers on time Syndicate payment risk Reduce administrative costs Reduce investigations & disputes Outsource payables processing Finance Extend payment terms Negotiate commercial terms Reduce supply default risk 14

15 Key benefits for sellers Cash flow optimisation Get paid on time Optimise risk-reward transactions Improve liquidity forecasts Improve discrepancy management Syndicate payment risk Simplify integration with e-invoices Reduce processing effort Finance Pre-/post shipment finance Alternative to factoring, reverse factoring etc Reduce interest costs 15

16 Key benefits for banks Market needs Open door to new business opportunities Strengthen core relationships Meet market requirement for banks to collaborate more on risk and client on-boarding Business rationale Low risk business Prudent use of capital Steady source of commission and fee income Automated solution Lower operating costs 16

17 Finance Detailed features 17

18 Message structure tsmt structure Matching conditions References Instruction Parties Baseline Datasets Buyer s bank Purchase order Transport Air Waybill (AWB), bill of lading (BOL), A unique end-toend Transaction Identification (TID) Seller s bank Submitting bank Insurance Certificate Insurance document Certificate document Obligor bank Commercial Invoice The Baseline gathers the matching conditions using data extracted from trade documents

19 Comparison between Baseline with BPO and MT700 Baseline SubmitterBaselineIdentification ServiceCode PurchaseOrderReference Buyer Seller BuyerBank SellerBank BuyerSideSubmittingBank SellerSideSubmittingBank BillTo ShipTo Consignee Goods PaymentTerms SettlementTerms PaymentObligation LatestMatchDate CommercialDataSetRequired TransportDataSetRequired InsuranceDataSetRequired CertificateDataSetRequired OtherCertificateDataSetRequired IntentToPayExpected 40E APPLICABLE RULES UCP LATEST VERSION Rules of the TSU (pending ICC) 50 APPLICANT XXXXXXX Buyer 59 BENEFICIARY BP ASIA LIMITED Seller 43P PARTIAL SHIPMENTS PERMITTED Goods/PartialShipment 43T TRANSHIPMENT PERMITTED Goods/Transshipment 44E LOADING PORT/DEPART Goods/RoutingSummary/IndividualTranspo ANY PORT IN XXXX AIRPORT rt/transportbysea/portofloading 44F DISCHARGE PORT/DEST Goods/RoutingSummary/IndividualTranspo XXXXX AIRPORT rt/transportbysea/portofdestination 44C LATEST DATE OF SHIPMENT 05-Jun-11 Goods/ShipmentDateRange/LatestDate 45A GOODS 1000 MTS AT USD XXX/- PMT OF PURIFIED TEREPHTHALIC ACID (PTA) Goods/GoodsDescription 31D EXPIRY DATE AND PLACE 06JUL11 HONG KONG PaymentObligation/ExpiryDate 71B DETAILS OF CHARGES ALL BANK CHARGES OUTSIDE PaymentObligation/ChargesAmount, COUNTRY etc ChargesPercentage 32B DC AMT USDXXXXXXXXX PaymentObligation/Amount AVAILABLE WITH/BY ANY BANK IN HONG KONG SellerBank 42C DRAFTS AT 60 DAYS FROM B/L DATE FOR A DRAWEE XXXXXXXXXX 48 PERIOD FOR PRESENTATION DOCUMENTS ARE TO BE PRESENTED FOR PaymentObligation/ExpiryDate 46A DOCUMENTS REQUIRED 47A ADDITIONAL CONDITIONS 01.SIGNED COMMERCIAL INVOICE IN 3 ORIGINALS 01.ALL DOCUMENTS TO BE MARKED WITH etc Example CommercialDataSetRequired, TransportDataSetRequired, InsuranceDataSetRequired, CertificateDataSetRequired BuyerDefinedInformation, SellerDefinedInformation 19

20 Key roles and responsibilities for BPO Buyers and Sellers Negotiate the merchandise details (description, quantities, unit price,...) Agree on the amount of the payment obligation and settlement/charges conditions Define the payment terms: on receipt of the invoice, on delivery or deferred Agree on the expiry date, the shipping terms and latest shipment date Obligor bank(s) Analyse the risk and manage internal compliance (KYC of the buyer) Price the BPO to the Buyer Propose the BPO in favour of the Recipient Bank (Seller s Bank) Settle the BPO on the due date, subject to matching conditions having been met Provide optional financing services to the Buyer, as required Recipient Bank Analyse the risk and manage internal compliance ( KYC on the Seller) Validate the Seller s data set submissions Price the BPO-based services to the Seller Advise/confirm the BPO to the Seller Provide optional financing services to the Seller, as required 20

21 Financial Physical Financial Physical Financial Physical BPO offers flexible payment terms and allows early information gathering on settlement details Case 1: Mitigate delivery default risk and offer extended payment terms to the buyer Purchase Order Case 2: Mitigate payment default risk and offer post-shipment finance to the seller Purchase Order Purchase Order PO BPO PO BPO PO BPO Production Shipment Delivery BOL Production BOL Shipment Data match Invoice I+0, +30 or +P or +P+30 days Case 3: Mitigate payment default risk and offer pre-shipment finance to the seller Delivery Payment Production Shipment Delivery BOL Data match Data match Invoice Invoice M+0 Payment D+0, +30 or +P or +P+30 days Payment Payment vs. delivery On delivery date (D) Payment vs. invoice On receipt of invoice (I) When? Open account At the end of the month of delivery (D+30) At the end of a period after delivery (D+P) At the end of a month after period of delivery (D+P+30) When? Letter of credit At the end of the month of invoice (I+30) At the end of a period after invoice receipt (I+P) At the end of a month after period of received invoice (I+P+30) When? Cash in advance Payment vs. presentation (matching) After match or mismatch acceptance (M) 21

22 Financial Physical Supply Chain Financial Physical BPO includes details of charges as per international standard trade terms - INCOTERMS Option 1: Specification of the freight charges for the shipment Allows partial and multiple shipment Purchase Order PO BPO Production Shipment Delivery BOL Data match Invoice Payment Shipment terms Costs and freight Cost insurance and freight Carriage paid Carriage and insurance paid Option 2: Specification of the freight charges for the delivery Purchase Order PO BPO Production Shipment Delivery BOL Data match Invoice Payment Delivery terms Delivered at point Delivered duty paid Delivered duty unpaid Delivered ex quay Delivered ex ship Exworks Free alongside ship Free carrier Free on board 22

23 Finance Risk mitigation and KPIs 23

24 Process efficiency BPO offers the best cost vs. risk performance High Open Account SBLC, Demand Guarantee Bank Payment Obligation Process efficiency - Less paper work and training than L/C or insurance on Open Account - Need workflow management compared to SBLC or demand guarantee Low Insurance on Open Account Low Risk mitigation Letter of Credit High Payment risk mitigation - Similar to L/C (liquidity nature of the underlying assets) - Banks do not transmit the paper document (bill of lading) - Better payment delay risk mitigation than insurance on open account 24

25 Political Economic Transport Commercial Financial Risk BPO offers security for open account transactions Risk mitigation Risk description Open Account SBLC/ Insurance L/C BPO Notes Weak credit rating of the importer Substitute by bank's credit worthiness Temporary liquidity shortage of the exporter Finance production and shipment or forfaiting Bank financial risk Payment default Unpredictable cash-in flows to payment delay Refuse to honor payment False or falsified information (do not match goods) Transfer risk from issuing to confirming bank (L/C and BPO) or split the risk (BPO only) Full protection for SBLC, LC and BPO but more objective and faster compliance verification for BPO than others Faster compliance verification for BPO compared to others (for L/Cs, mitigation through additional financing) Usually irrevocable for L/C under UCP600; Always irrevocable for BPO. Validate authenticity on their face (L/C) or electronically (BPO) - Link BPO to the carriers for fraud Early or late shipment Specify last shipment date Loss, theft, deterioration Mitigate through additional insurances Fluctuations in currency, interest, inflation rates Can predict cash flows in FX risk hedging - can use home currency Insurrections, terrorism war Syndicate the risk to other countries Sanctions, force majeure Legend: No risk protection Highest risk protection Mitigate through additional insurances, through ECA s and private insurances. 25

26 Financial Supply Chain Physical Supply Chain BPO improves operational risk mitigation Measuring efficiency using KPIs Sales Cycle 8 1 Reduce opening and negotiation time 2 Increase inventory turnover cycle (DIO) Purchase Order 2 PO Issue BPO Production Shipment Delivery BOL & Invoice Pre-match is possible Match data Payment Reduce production lead time (DIO) Reduce shipment delivery delays Reduce the number of amendments not related to financial liability Reduce payment delays when at sight (DSO) Reduce risk coverage needs 7 Risk coverage 8 Shorten sales cycle increased window of opportunity to sell Accelerate the negotiation and the compliance verification in the financial supply chain 26

27 Finance Corporate case studies 27

28 BPO corporate case studies Case studies by sector and industry Manufacturing Petrochemicals Live Retail Consumer goods Live Basic materials Technology Iron ore Electronics and computers Ongoing Under discussion Manufacturing Automotive parts Under discussion 30+ Corporates live or in implementation on BPO today 28

29 Live BP Chemicals and Standard Chartered Bank BPO to replace confirmed L/Cs Company profile 2010 Revenues of USD 14 billion Revenue created for approx. 50% in Asia Trade account receivables of EUR 1.4 billion (consolidated receivables only) More than 600 clients worldwide Challenges About 50% of exposure on secured terms Competitive commodities market requires a secure and cheaper alternative to L/Cs High processing and confirming costs (0,8% of transaction value) LCs process limits commercial possibilities and weakens compliance under certain conditions Key benefits Get paid on time and avoid judicial proceedings Reduce complexity removal of paper trail Limit to relevant trade information only Reduce cost by removing vetting activities and presentation assistance Improve customer offer by allowing for flexible options Improve speed of handling discrepancies Reduce the risk of discrepancies Reduce need for confirmation cost by being able to tap larger pools. Free up banking lines. Easy to exercise tool for liquidity Easier access to banks to secure transactions Possibility to spread the risk with multiple obligors Avoid unnecessary paper flows Gains expected greater than $1m worldwide per year but most of the upside lies in more marginal income 29

30 Kabushiki-gaisha Itō Yōkadō ( 株 式 会 社 イトーヨーカ 堂 ) BPO to replace L/C and D/P Company profile Subsidiary of Seven & I Holdings operating convenience stores, superstores, food supermarkets, department stores, food services, financial services, and IT/services One of the 5 hypermarkets (Superstore) in Japan, part of Seven & I Holdings Co stores in Japan, 10+ stores in China Food (48.7%), Apparel (18.9%), Household goods (14%), Tenants (17.3%) 167 million USD revenue & 40,000 employees Challenges Sales decrease of 2.5% in 2011 due to lower consumer spending: offset by cost reduction Leverage group strengths to raise competitiveness Direct overseas procurement for apparel Import garments from suppliers in Hong-Kong and China requires 2 weeks until fund settlement: goods are already sold. Delay in reconciliation of Account Payables. Key benefits Live Bank of Tokyo-Mitsubishi UFJ Branch network on TSU Reduce costs of document handling B/L from exporter to importer directly (70-80% of L/Cs) Agreement template for local regulations Importer: Early payment to the exporter financial support Ability to negotiate better trade terms with exporter Improve the reconciliation of the Account Payables by using shipping data from TSU Optimize working capital thanks to earlier settlement Streamline operations Flexible order of goods : increase business opportunities Exporter: Easier operation and earlier funds collection and FX risk elimination: from 10 days to 3 days in average No need to secure professional resources Cut discrepancy fees Improve visibility and traceability Reduce process from 2 weeks to 3 days: pay suppliers in advance, reduce discrepancy and outsourcing costs, improve working capital management 30

31 Ongoing Vale case BPO based on confirmed invoice Company profile 2010 Revenues of USD 46,8 billion Main product Iron ore (69.9%) Approximately 100 clients worldwide (Iron Ore) Main market is China (32%) Challenges Competitive commodities market requires a secure and cheaper alternative to L/Cs L/Cs at sight for USD 18 billion with Chinese clients DSO (Days Sales Outstanding) is between 25 and 30 days Key benefits Reduce the DSO by approx.10 days (including internal processes efficiency gains) with a financial gain over USD 37 million / year. Freeing up Working Capital USD 600 million. Reduce costs for customers Reduce document delivery costs Reduce the risk of discrepancies Improve access to Trade Financing products to our customers. Reduced environmental impact - reducing paper usage in extra copies of the shipping documents for the banks Significant working capital gains estimated over USD 37 million / year and DSO reduced by 10 days 31

32 Discussion Manufacturer of computer and telecoms products BPO to replace L/C and SBLC on OA Company profile Manufacturer of computer and telecom products Revenue 20+ billion USD 100,000+ employees worldwide 10% on transactional L./Cs and 90% on OA 50% of sales contracts are secured Transaction value from 10 to 100 KUSD Indirect business model - a trusted network of distributors Challenges High complexity and costs of L/Cs, Guarantees and SBLC is a constraint on distributors Long issuance process to enhance the quality of the L/C Skilled resources required with expertise in L/C business - design templates per country High number of various discrepancies : amendments required in 50% of the cases Items in inventory period for periods of 2+ months Key benefits Mitigate commercial risk by sustaining financially key distributors Establish and continue a long term relationship Reduce investigation time and process Improvements to inventory allocation Reduction of inventory cycles Reduce the complexity of the trade settlement for the distributors Reduce the need for skilled resources and training Mitigate potential high country risk Sustain key distributors financially and improve inventory allocation (DIO) 32

33 Discussion Manufacturer of automotive parts BPO to reduce export bills Company profile Manufacturer of automotive parts Global operations +30 bn USD revenue +150,000 employees Challenges Delays in delivery parts to automotive assembly companies (JIT) Export bills require collection document handling Importer issue an L/C to pick up goods from shipment Trade company as intermediary Key benefits Get earlier payment Safe payment terms Reduce the document handling costs Send documents directly to counterpart Importer can pick up the parts earlier Facilitate the move to direct trade Improve physical supply chain supply planning and delivery Sustain JIT production cycles for key clients by sending documents directly to the client 33

34 Finance Next steps and conclusion What is my business case? Where shall I start? 34

35 Key considerations for your business case Working capital optimisation (CCC) Get paid quicker (from 10 to 5 days), Extend payment terms Better cash allocation to inventory and transportation Reduce loans and interest charges, Improve financing terms Quality and compliance Improve business relationships Improve credit rating and credit risk management Reduce rate of litigation Adjacent benefits Financial benefits Business case Costs Operational benefits Trade transaction processing Lower on-boarding costs Improved cash management Lower auditing, collection, accounting effort Lower rate of investigations 35

36 Example of costs vs. savings for an exporter Assumptions 100 L/Cs per year with average L/C value of 1 mn EUR Confirmation costs at 0.8% EUR per set of documents (4 sets) Opening L/C later by 20 days Savings of 1,2 FTE in processing 5% savings in opening and document collection fees 25% savings in confirmation fees Reduction of DSO and DIO by 5 days 0,1% sales increase 36

37 Example A joint proof-of-concept (say 3 months elapsed time) High level project plan Live Project definition March 2012 Implementation April 2012 Operational Readiness Tests (ORT) on TSU May 2012 Counterparts identification (seller and buyer) Scope and plan Internal stakeholders identification Project team nominations Project plan Operational readiness test plan Contractual agreements Data mapping, forms and test cases Internal building and testing of straight through capabilities BIC set up Process flows, KPIs Internal and external training (optional) integration with ERP Seller-to-bank documentation Buyer-to-bank documentation BPO facility set up Go LIVE Rollout plan 37

38 Summarising BPO value for Corporates Process efficiency Payment timeliness Business growth Standards & Rulebook ICC adoption Multi-bank access 38

39 Thank you Contact us via at Join our LinkedIn group on SWIFT 39

40 Contact us now! André Casterman Head of Banking and Trade solutions Patrick Krekels Legal Counsel Nadine Louis Finance and Business Intelligence Marie-Christine Diaz Finance David Hennah Finance Aline Henrard Finance Raimo Naatsaari Documentary Trade Finance and e-invoicing David Dobbing Standards Robert Marchal Standards Kineth Yuen Standards Asia Pacific Angéline Tan Standards Asia Pacific Filip Versluys Partner Management Chris Conn Business Development Americas James Wills Business Development Americas Connie Leung Business Development Asia Pacific Vivian Zeng Business Development Asia Pacific Robert Schneider Business Development EMEA Urs Kern Business Development EMEA Neil Gray Matt Monaco Corporate Sales Americas Jan Heinsbroek Zelda Anthony Corporate Sales Asia/Pacific Roger Inderbitzin Thomas Peeters Corporate Sales Benelux Ashley Schmidt Sebastian Niemeyer Corporate Sales AT/DE/CH Sandra Gavard Arnaud Dupuy Corporate Sales France Thea George Corporate Sales UK/Ireland/Nordics Corporate Sales Nordics Corporate Sales Switzerland Media Relations Americas Media Relations Asia Pacific Media Relations EMEA 40

41 38 banks adopting BPO (update as at 20 June 2012) Including 14 from the top20 Trade banks 41