Analysis on the Value of Logistics Finance to Small and Medium-sized Enterprises

Transcription

1 Analysis on the Value of Logistics Finance to Small and Medium-sized Enterprises WANG Yongping School of Management, Beijing Union University, China, Abstract: Logistics finance business has an important significance for settling the financing difficulties of small and medium- sized enterprises, since it takes inventory or some flow capital of the financing enterprises as pledge, breaks through the traditional mortgage model and relieves the urgent need of cash flow for loan enterprises. This article analyzes the importance of logistics finance business on the basis of inductive analysis method by expounding the basic meaning, analyzing operating principle and studying the current development status of logistic finance. Keywords: small and medium- sized enterprises Logistics finance, Financing, Mortgage 1 Introduction Overseas logistics finance business developed in earlier time, on which there were a lot of corresponding studies. The early studies summed up the law atmosphere, business models, warehouse methods, monitoring ways and process during the development of inventory financing and accounts receivable financing business abroad. The recent studies are focused on the innovative model of logistics finance, the quantitative analysis of some key indexes on interest rate and loan limit, the capital transfer in the environment of internet as well as the supply chain management mode of logistics finance. Domestic logistics finance business developed relatively late. The studies are focused more on the qualitative interpretation of financing model and risk prevention & control. As for financing model,the domestic scholars have made a series of studies and put forward some concepts in succession, such as materials-bank, financing-transportation-warehouse, bonded warehouse, trade financing, pledge by warehouse receipts, etc. These studies have basically developed by concentrating on the pledge of goods right. The logistics finance model discussed by the scholars at home reflects the characteristic of bank business innovation. However, the related study on the role of financing enterprises in logistics finance and its significance should be deepened further. 2 Financing Difficulties of Small and Medium- sized Enterprises Small and medium-sized enterprises, as a high efficiency economic group, plays an important role in promoting economic growth, increasing employment, innovating technologies and culturing entrepreneurial spirit, and they are also the best active part for improving market competition & rational resource distribution. EU statistics show that per capita innovation result of small and medium-sized enterprises is twice as many as large-scale enterprises. In China, small and medium-sized enterprises perform a great function for national economy & social development. Information shows that the quantity of small and medium-sized enterprises in our country is about 43,000,000, 99% of total enterprises, and they create 60% of national economy and 50% of fiscal & tax revenue and provide 80% of employment posts. Therefore, accelerating healthy development of small and medium-sized enterprises is of great importance to promote economic growth, increase fiscal & tax revenue, expand urban & rural employment and maintain social stability. However, small and medium-sized enterprises face many difficulties during development and one of them is financing difficulty. According to one piece of information of National Development and Innovation Committee, only 10% of these enterprises obtained bank loans, 5% got the local public 309

2 subsidy, 1% was the targets of venture investors and 1% was listed, thus, so many enterprises fall into the business difficulty and are even bankrupted due to lack of funds. There are a lot of reasons of financing difficulty. One important reason is that their credit is low, so it is difficult to obtain the fiduciary loans of commercial banks. Mortgaged immovable asset is commonly less, so these enterprises cannot get the assurance of large-scale enterprises. Therefore, it is still very difficult for them to obtain financing services provided by banks under current circumstances. On the other hand, they have much movable estate. Year UPS Asia Business Monitor shows that domestic small and medium-sized enterprises had 11 trillion stock and receivables in Findings from People s Bank of China also show that domestic movable mortgage situation seriously falls behind the economic development reality. For small and medium-sized enterprises, real asset resource depletion and assurance with excess real asset dependence result in financing difficulty, but they have a large amount of idle movable estate. This contradiction leads to the financing difficulty of small and medium-sized enterprises and the logistics finance is just the new solution. 3 The Basic Meaning of Logistics Finance Logistics finance is still a new business model in our country. For most of the domestic enterprises, it is a new concept. In a broad sense, logistics finance is a comprehensive service platform, including small and medium-sized enterprise s credit integration and restructure, logistics distribution, e-business and conventional s commerce, by mainly taking small and medium-sized enterprises as clients and storing flow goods as the foundation. Such new type of finance service belongs to one of the finance derivative instruments. It is called logistics finance business instead of traditional mortgage loan or inventory financing, for it has gradually changed the responsibility and right relation between the bank and the enterprise applying for loan during the course of traditional finance loan and it is also different from three parties relationship of warrantor bearing joint compensation liability in the course of guaranteed loan. It relies on the third party logistics enterprises more and more, mainly reflecting in the management and service of logistics enterprises, so as to form close cooperative relationship among banks, logistics enterprises and loan enterprises. In a limited sense, logistics finance business is bank comprehensive service mainly for small and medium-sized enterprises that lack of fixed assets for mortgage. The bank takes as credit condition logistics product pledge popular in the market and lower price fluctuation, uses better information management system of a logistics enterprise, combines bank fund flow with business logistics, and then offers many kinds of bank comprehensive service business to small and medium-sized enterprises. It is the result by combining logistics service with financial service, including logistics service with financial service function. Service mainly includes: logistics, distribution processing, financing, evaluation, supervision, disposition of resources and financial consultation, etc. 4 Basic Principle of Financing Operation for Logistics Finance The basic principle of financing operation for logistics finance is as the following. Production and business enterprises take the raw materials or products purchased as the collaterals or anti securities and then store them in the logistics warehouses of the third party logistics enterprises. Based on the above, the enterprises get the loan from their collaboration bank and later make repayment in phases during the process of production and operation or collateral sales. The third party logistics enterprises provide the services, such as custody of pledged goods, value assessment, where-to-go supervision, credit guarantees, etc. in order to set up a bridge between banks and enterprises for financing. Logistics finance not only provides customers with direct or indirect financial services, but also provides customers with high-quality and high value-added logistics and processing services so as to enhance the overall performance of the supply chain and customers business & capital operation efficiency. 310

3 5 The Practice of Logistics Finance Business Logistics finance has a longer development history abroad, and America issued US Warehousing Act as early as in 1916, on this account the whole set of system rules related to pledge of warehouse receipts was established. Logistics finance has rapidly developed, especially in 21st century. Large-scale manufacturing enterprises as core enterprises of supply chain, large-scale logistics enterprises undertaking logistics business of supply chain, and financial enterprises bearing fund flow service of supply chain, participate in logistics finance activities in which these enterprises not only strengthen their own competitive status, but also gain the huge profit. World No.1 Maersk shipping company and world No.1 UPS express company are participants of logistics finance activities. Logistics finance has become the main profit source of these two super-giant companies. In China, some scholars put forward the concept of materials-bank in the 1980s. At the beginning of this century, many banks started to explore the innovation of logistics finance and gained a great development. Guangzhou Development Bank firmly launched the logistics bank business in June 3, 2004, ran pilot project in ten cities, such as Guangzhou, Beijing, Hangzhou, Nanjing, etc, and tailored Private enterprises 100 project for private enterprises in accordance with characters of the private enterprises in each stage from establishment, growth and development. Guangzhou Development Bank regards small and medium-sized enterprises and private enterprises as the important service clients, so at present more than 80% of its customers are small and medium-sized enterprises and more than 70% loans have been invested to these companies. Moreover, Guangzhou Development Bank has signed comprehensive cooperation agreements of logistics business with many nationwide logistics enterprises, such as COSCO Logistics, SINOTRANS Limited and China National Materials Storage & Trans Co., etc; meanwhile, it has also supported 200 dealers and 1000 end customers. By the end of December 2004, this bank had provided logistics bank business for over 20 enterprises (such as Nokia, FAW Trade, and China National Cotton Exchange) and the total amount had broken through 4 billion yuan. Since 2005, several domestic third party logistics have jointed hands to develop new businesses in logistics finance with banks. For example, China Chengtong Group of China National Materials Storage and Transportation Corporation with the largest warehousing enterprise in China has established cooperation relationship with the four state-owned commercial banks of Industrial and Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China and over ten financial institutions such as CITIC Industrial Bank and Guangdong Development Bank and supplied a cumulative total of 20 billion yuan of pledge supervision financing for more than 500 customers with mortgage products involving many kinds such as ferrous metal materials, nonferrous materials, building materials, foodstuff, household electrical appliances, automobile, paper, coal, chemical, etc. COSCO Logistics started to explore logistics finance business since 2006 and has singed framework agreements with 14 domestic banks in succession with accumulated developed projects of over 300 at present. Combining COSCO Logistics own advantages, this company has made operation mode of ocean shipping, land transportation & warehouse on the basis of pledge by warehouse receipts and bonded warehouse, i.e. goods detain business, in which the bank will open L/C for importer to purchase goods from foreign producer and the importer will pay a certain proportion of security deposit and pledge loan will be supplied in the form of goods right of imported goods for the rest. China National Foreign Trade Transportation (Group) Corporation signed Logistics Finance Strategy Framework Agreement with Industrial and Commercial Bank of China on July In this agreement, both parties agreed to jointly research and develop new products in logistics supervision & commodity financing, logistics settlement, logistics factoring, logistics guarantee & customer credit risk management and service platform of both parties will be tied to extend customer service scope so as to offer customers high-efficiency and low-cost value-added services. The development of logistics finance has had numerous small or medium enterprises get badly needed circulating capital to relieve effectively difficult problem that has existed for a long time, i.e. small and medium-sized enterprises obtain financing by real estate mortgage. 311

4 6 The Realistic Significance of Carrying on Logistics Finance Business on Dealing with Small and Medium-sized Enterprises Finance Logistics finance business has brought a new source of profit for commercial bank, also promoted the development of warehousing logistics into a higher level. The important realistic significance of carrying on and popularizing logistics financing business for small and medium-sized enterprises that in the condition of financial dilemma is as follows: 1. Solve the problems of collateral deficit in small and medium-sized enterprises finance and reduce the financing cost of small and medium-sized enterprises. Due to low credit level and lack of mortgageable fixed assets, it is difficult for small and medium-sized enterprises to obtain the credit financing from banks. Through the logistics financial service, inventory and other current assets are mortgaged by small and medium-sized enterprises with financing. In this way, the traditional fixed assets mortgage mode has been broken and at the same time the badly needed capital of the loan enterprises is relieved. Banks possess both the concrete guaranty and guarantee by logistics and warehouse enterprise with good reputation or goods management, so the loan risk will reduce greatly. 2. Reduce the information asymmetry phenomenon between small and medium-sized enterprises and banks and upgrade the credit level of small and medium-sized enterprises. In logistics finance, third-party logistics enterprise authorized by financial institutions should learn dynamically about logistics information of small and medium-sized enterprises in detail so as to help the bank to get precise internal information of small and medium-sized enterprises timely and judge scientifically the profitability and loan repayment capacity of small and medium-sized enterprises based on these information, thus ensuring the security and profitability of capital to reduce the information asymmetry phenomenon between small and medium-sized enterprises and banks as well as be good to the establishment of credit system of small and medium-sized enterprises to reduce the occurrence of adverse selection, moral hazard of small and medium-sized enterprises during financing and enhance the enthusiasm of bank lending for small and medium-sized enterprises. 3. Raise the fund utilization efficiency of the financial companies. In the process of manufacture and operation of minor enterprises, there are lots of raw materials, semi-finished products and finished products that occupy a lot of funds and increase capital cost of the enterprise. Logistics finances allow the financial company to make a loan by mortgaging their raw materials and their products available at the market so as to solve the financing problems of the enterprise in realizing scale management and expansion, effectively activate the sedimentary money, raise the flow efficiency of the funds as well as raise the utilization rate of the enterprise capital. 4. Effectively reduce the logistics cost and promote the core competency of the enterprise. Since the logistics enterprises have integrated themselves into raw material supply chain and products distribution chain of the manufacture, it can make use of their professional logistics knowledge and rich operating experience to provide enterprises with logistics proposal and actual operation and supply high quality the third party logistics service like multi-modal transport (air-sea-land-railway), warehouse, transportation, load and unload, dispatching, general freight, dangerous goods and container transport. In this way enterprises could not only reduce the logistics cost effectively, but also devote their limited funds and energy to the core business to promote the enterprise core competency. 7 Conclusion Since logistics finance is a short cut for small and medium-sized enterprises to go out of financing difficulties, speeding up the development of finance logistics is one of the important measures to develop small and medium-sized enterprises. Therefore, small and medium-sized enterprises should pay much attention to logistics finance, create conditions for developing logistics finance, speed up logistics and improve fund utilization rate. On one hand, small and medium-sized enterprises should have the idea on modern logistics, set up 312

5 strategic alliance relationship with the third party logistics enterprises and upgrade their own logistics system. The third party logistics enterprise is the foundation for implementing logistics finance, so small and medium-sized enterprises should change conventional ideas on logistics and upgrade logistics system through the help of the third party logistics enterprises. In addition, it is necessary to build up strategic alliance relationship with the third party logistics enterprises, resolve the problem of information asymmetry of both sides and establish mutual credit mechanism. In this way, logistics cost of small and medium-sized enterprises can be reduced and their profitability can be increased. It is helpful for financial institutions to learn the related information of small and medium-sized enterprise and also beneficial for small and medium-sized enterprises to set up long-term cooperation relation with financial institutions. Furthermore, mutual credit mechanism between small and medium-sized enterprises and the third party logistics enterprises facilitates credit mechanism establishment between small and medium-sized enterprises and financial institutions. On the other hand, small and medium-sized enterprises should set up long-term cooperation mechanism and benefit-based relation with financial institutions. Financial institutions are final decision-makers of finance logistics, so improving financial institution credit for small and medium-sized enterprises is critical for developing finance logistics effectively. Long-term cooperation and benefit-based relation with financial institutions can overcome adverse selection and moral risk of small and medium-sized enterprises, thus increasing their credit. Therefore, small and medium-sized enterprises should take logistics supply chain as the basis, take the third party logistics enterprise as a bridge, explore long-term cooperation mechanism with financial institutions and build up long-term benefit-based relation with them, making small and medium-sized enterprises, the third party logistics enterprises and financial institutions into a interests community. References [1]. YANG Zhihua.Logistics Banking: New Kind of Financing.[J]. China Business Monthly, 2005,(2):72-73(in Chinese) [2]. FENG Gengzhong. An Invaluable Business Model [J].China Storage and Transport,2004(2):23-24 [3]. LIIU Guiying. The Study on Development Trend of Logistic Finance [J]. China Business And Market (12) 26-27(in Chinese) [4]. FENG Gengzhong. Analysis of Logistics Financing Business Innovation in China forecasting (1)49-54(in Chinese) [5]. Daniel M.Friedman.Fied warehousing[j].columbia Law Review,1942,42(6): [6]. Albert R.Koch. Economic Aspects of Inventory and Receivable Financing[J]. Law and Contemporary Problems,1948,13(4): [7]. David Biederman.Logistics Financiers[J].The Journal ofcommerce,2004(4): [8]. Sidney Rutberg.Financing the Supply Chain by Piggy-backing on the Massive Distribution Clout of United Par-cel Service[J].The Secured lender,2002,58(6): [9]. Buzacott J.A., R.Q.Zhang. Inventory Management with Asset-Based Financing[J]. Management Science,2004(24):