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1 Eindhovn, Fuay 212 Moding intnationa v actoing - and th utu o uppy chain inanc By Mak van La BSc. Indutia Engining and Managmnt Scinc TU/ 29 Studnt idntity num: TU/: UvT: in patia uimnt o th quimnt o th dg o Mat o Scinc in Opation Managmnt and Logitic and Mat o Scinc in Financ Supvio: d. F. Taniv, TU/, OPAC po. d. B.J.M. Wk, UvT, Economtic & Opation Rach

2 TUE. Schoo o Indutia Engining. Si Mat Th Opation Managmnt and Logitic Tiug Univity. Facuty o Economic and Managmnt. Dpatmnt o Financ Sujct hading: uppy chain managmnt, intnationa inanc, actoing I

3 Atact In thi tudy a mod i dvopd that can ud to vau th quantiia nit om v actoing o th uy, uppi and ank in an intnationa tting. Thi mod i ud to vau a v actoing pogam in a a uin ca. A nitivity anayi i pomd on thi ca tudy to gain inight in 1 th contact dvopmnt and 2 chang ov tim in ik and dadwight cot o capita. Thi tudy how that intnationa v actoing ha mo poit potntia than domtic v actoing and th condition und which v actoing i mo poita. Futh thi tudy xamin th impact o th Ba III anking guation on uppy chain inanc and v actoing pciic, howv at thi point in tim thi impact on poduct v i not ca. Dpit thi unctainty comind with ga iu and conomic unctainti, th utu outook o uppy chain i xpctd to good with high gowth at in th coming ya. II

4 Excutiv ummay In thi thi a mod i dvopd to vau intnationa v actoing. Rv actoing i a pciic om o uppy chain inanc. Though ot o dint dinition o uppy chain inanc go aound in th makt, thi thi wi u th dinition y Camini 28: th nam attachd to th coction o poduct and vic that inancia intitution o to aciitat th managmnt o th phyica and inomation ow o a uppy chain. On o th poduct within th cop o thi dinition i v actoing. Rv actoing i a th paty vau cating tanaction twn a ank, uppi and uy. In v actoing a ank wok togth with a uy to povid a inancing oution to uppi. In thi tanaction th uppi i a to it account civa to th ank in xchang o immdiat cah. Thi na th uppi to otain cdit at a ow cot, inca aanc ht iquidity and kp pac with th uy gowth. Th uy i a xtnd it paymnt piod, hy th uy duc it inancing cot, impov th ationhip and inancia poition o it citica uppi. Th ank i a to chag an xta pmium on th dicount at o th account civa, acc a nw makt and co oth poduct to th uppi. Nxt to quantitativ ach in th it pat o thi thi, th cond pat wi tak a mo appid appoach. In thi ction managia impication and utu that, oppotuniti and xpctation o v actoing and th uppy chain inanc makt in gna wi divd om th mod and om cunt pactica iu. Rach In a tim in which taditiona tad inanc, a tt o cdit and tt o guaant a oing popuaity, ank hav ot viiiity in inomation ow o tad and th atd copoation. Aout 8% o goa tad i conductd on opn account and tanaction vic a coming a commodity, hy putting pu on magin. Th inancia cii and cnt natua diat, a th Japan tunami, hav xpod th agiity o today uppy chain, wh copoation hav puhd thi uppi to th imit y dmanding ong paymnt tm and puhing mo aw matia invntoy up th uppy chain. Th cii ao d to a igniicant dop in dmand o good and vic and mad ank tightning thi cdit tm, uting in im having diicuti inancing thi poduction cyc Vaicu, 21. In th itatu tudy it appad that though v actoing ha had much attntion y pactition, acadmic puication a ti ath a. Mot puication a quaitativ and dicu po and con o v actoing. Th ony quantitativ ach i th woking pap o Rindop & Taniv 211 that ha not n puihd yt. Th mod dvopd in thi thi di om th mod om Rindop & Taniv 211 y intoducing daut poaiity and taking a nw appoach to vau v III

5 actoing. Und pactition it i ivd that intnationa v actoing i mo poita than domtic v actoing. Tho, ad on th itatu tudy, two ach qution hav n omuatd that wi anwd in thi thi: 1 What acto inunc intnationa v actoing and how to mod th? 2 What managia impication can divd om th mod popod und 1 and om cunt pactica iu in th uppy chain inanc makt and within RBS? Mod Th mod that i dvopd to vau v actoing xamin th dinc twn a tad tanaction without v actoing and with v actoing. Sinc utu cah ow a unctain, thy a mad ik nuta o dicounting with th ik at. A ik nuta cah ow i a dtminitic cah ow with th am pnt vau a th iky cah ow. Howv inc thi cah ow i ik, it can dicountd with th ik at to dtmin th pnt vau. Sinc th ik nuta poaiity o daut can otaind om th intt at, th actua daut poaiity do not nd to known and hnc impii th vauation. Th it mod divd in thi thi i und th aumption o pct capita makt. Pct capita makt to a ituation in which at a tadd againt thi nt pnt vau and tho no aitag oppotuniti, no makt iction uch a inomation aymmti and tax xit. Futh a im inancing dciion do not inunc utu cah ow no do it va inomation. Du to th popti, v actoing houd not add vau to th uppy chain in pct capita makt. In th nxt tp inomation aymmti a intoducd, maning that th ank can hav mo inomation on im than th makt do. Thi dinc i aumd to uy aod y th ank, though axing thi aumption woud not impact th ut. Finay th mod i put in an intnationa tting to chck whth intnationa v actoing povid indd mo vau than it do domticay. Rut Accoding to thoy, it ha indd n povn that, in pct capita makt, v actoing do not add vau to th uppy chain. By intoducing inomation aymmti into th mod, it ha n povn that, und th ight contact t-up, a th paticipant a a to mak a poit. Bad on th dvopd mod, th oowing concuion on th poitaiity can dawn: IV

6 Suppi In od o v actoing to add vau, th uppi nd to hav; 1 high inomation aymmty with inancia makt than th v actoing chagd y th ank, coctd o th paymnt piod xtnion and 2 a igniicant nd o xtna hot tm capita. Th nit o th uppi i ag whn 1 th initia paymnt piod i ag, 2 th uppi ha mo inomation aymmty with inancia makt, 3 whn th v actoing i ma and 4 whn th paymnt piod xtnion i ma. Buy Fo th uy v actoing add vau whn 1 th paymnt piod i xtndd. And hnc th nit om v actoing o th uy i ag whn 1 th paymnt piod xtnion i ag and 2 th uy intt at i ag indpndnt o compoition twn ik pmium and dadwight cot o capita. Bank Fo th ank th nit om v actoing i poitiv whn 1 th v actoing pu th uy dadwight cot o capita i poitiv. Th nit o th ank i ag whn 1 th dadwight cot o capita om th uy i ag, 2 th v actoing i ag and 3 th xtndd paymnt piod i ag. Fo ank it i tho mo poita to ocu on uy o which thy hav mo inomation. Thi man th ank ha aady invtd in inomation on thi uy and tho inomation aymmty twn th ank and inancia makt on thi uy i igg, impying mo vau o th ank. Suppy chain Fo th tota uppy chain v actoing i vau adding whn 1 a paticipation containt a mt. Tota uppy chain inanc nit i ag whn 1 dadwight cot o capita om oth th uy and th uppi i ag and 2 initia paymnt piod i ag. Hnc v actoing add mo vau in induti wh paymnt piod a ag. Intnationa Apat om additiona pati that a invovd in th da, intnationa v actoing do not di igniicanty om domtic v actoing. By adapting a w dinition and xping intt at in th am cuncy, th mod tay th am. Howv, inc intnationa dinc in inomation aymmty, dadwight cot o capita and cdit ationing a much ag, th vau adding potntia o intnationa v actoing i igg than domticay. Fom th nitivity anayi pomd on a a uin ca within RBS, it appad that ov tim, th vau o th pogam o th uppi can com ngativ. Tho th uppi houd nu th contact ha nough aty magin o th intt at o th uy to uctuat. Futh th uppi houd monito th pogam and quit th pogam o ngotiat th tm onc th pogam do not add vau anymo. V

7 At thi momnt it i too ay to uy captu th impact o Ba III on a poduct v. Ba III wi inca capita quimnt, and thy cot, ov th u pctum o uppy chain inanc oing. At thi momnt th iquidity covag atio i xpctd to hav th iggt impact on anking. Sinc th Ba Committ ony povid guidin, and tho av pac o giona govnmnt to mak chang, dinc in impmntation can kw uppy chain inanc to dint gion. Anoth iu with uppy chain inanc i that though thy a tatd a having th am ik a gua ank oan, in aity tad atd poduct tnd to hav ow ik. Thi i conimd y ICC anking commiion ach, howv o Ba guation to chang mo vidnc i quid. Dpit th upcoming conomic cii in Euop, uppy chain inanc i xpctd to gow y 1% to 3% in dvopd counti and 2% to 25% in dvoping counti. Thi gowth wi pimaiy divn y dvopd gion uch a th USA and Euop and th ag mging makt a China and India. Tagt induti o v actoing in tho counti a cunty tai, conum good, manuactuing, automotiv, ngining and machiny induty. Fo th utu th chmica, phamacutica and tcom induti a ivd to hav uth gowth potntia. In od o uppy chain inanc to tak th nxt tp om condition hav to mt. 1 Makt connu, 2 Standadization and 3 Oganizationa chang within ank. Within th uppy chain makt, dint dinition o uppy chain inanc xit. Moty uppy chain inanc i ud a ynonym o v actoing, whi y oth it i ud a a coctiv noun o a inancia poduct uppoting th nd to nd uppy chain. In od o ank and oth pay in thi makt to mov to th nxt tag n anw a gowing dmand o w-ad muti-ank oution, ank houd ag on tho dinition. Futh tandadization i ndd in od to mak uppy chain inanc oing avaia o a wid puic. Cunty SCF pogam nd high dvopmnt invtmnt, th can ony compnatd y onoading ag cint. Onc poduct and IT com mo tandadizd th oing wi ao com avaia to th SME makt. Finay ank nd to chang thi intna tuctu om a poduct ad io tuctu to a hoitic tuctu that i a to und dint inancia poduct and uppot th nd to nd uppy chain. VI

8 Do not xpct to haid a a ho whn you mak you gat dicovy. Mo iky you wi a atag may aid y you xamin. You tatitic, o you ovation, o you itatu tudy, o you omthing wi patnty dicint. Do not dout that in ou nightnd ag th ay impotant advanc a and wi jctd mo otn than accaimd. No houd w dout that in ou own poiona itim w too wi pudiat with ik pontiica inaity th mot igniicant inight v to ach ou dk. Samu Wan Cay , 1988 VII

9 Pac Thi thi i wittn in ight o my gaduation in a dua dg MSc pogam coniting o th MSc pogam Opation Managmnt and Logitic at Eindhovn Univity o Tchnoogy and th MSc pogam Financ at Tiug Univity. Thi ach wa conductd at Th Roya Bank o Scotand, Goa Tanaction Svic Amtdam, wh I wa pat o th Impmntation Managmnt & Advioy tam tationd paty at th Nw Da Tam and paty at th Tad tam. I woud ik to tak thi oppotunity to thank a pop that motivatd and uppotd m duing my tim a a tudnt and my gaduation pojct. I woud ik to thank my upvio at RBS, Bat Kooijman and Eic Lmmn, who povidd m th oppotunity to conduct my ach within RBS. And povidd m invaua guidanc and advic in tim I ndd it gading my thi and utu ca mov at gaduation. Mot o a I woud ik to thank thm o th conidnc and dom thy gav m to xpo and hap my pojct. Scond I woud ik to thank oth my mnto d. F. Taniv om Eindhovn Univity o Tchnoogy and po. d. B.J.M. Wk om Tiug Univity with whom I had tough dat on my thi. Howv thy away motivatd m and ought m ack on tack y poviding nw inight o dmanding caiication wh it wa ndd. I woud ao ik to thank a my coagu at RBS who w away inttd, vy opn, ag to hp m gathing inomation and povid m advic. Futh I woud ik to thank my co coagu o a non thi atd inight and advi thy gav m, o a hiaiou momnt and o thi tim whn I othd thm with my jok. Futh I woud ik to thank my unc po. d. P. Vhyn o hi input and ida on how to uth tngthn and impov my thi. Finay I woud ik to thank my amiy and ind who hav away uppotd m duing my tim a a tudnt. Thank to thm I hav had a gat tim a a tudnt, on which I can ook ack with much joy and pau which ha com to an nd y inaizing thi thi o now at at. Mak van La VIII

10 Contnt 1. Intoduction Woking capita managmnt Rv actoing Rach dign Litatu viw Mod omuation Rik nuta vauation Pct capita makt Impct capita makt Non auto-dicounting Opationa iu Concuion Intnationa acto Ca tudy Snitivity anayi Cot o impmntation, maintaining and opating Gogaphica gion Suppy chain inanc Paymnt mthod SCF poduct Ba III Impact on uppy chain inanc Concuion Futu o uppy chain inanc Impact o cunt inancia cicumtanc Tagt makt & induti Chang & Oppotuniti Concuion & Futu ach Concuion Futu ach & Rcommndation Biiogaphy Appndic IX

11 1. Intoduction Bo copoation tatd optimizing uppy chain ow, thy optimizd thi own poit y ocuing on intna poc ow and hnc gading thmv a ing indpndnt o th uppy chain. Du to comptitiv pu im tatd ooking at incaing opationa icincy and optimizing uppy chain. A uppy chain i dind y Homann & Bin 211 a a ntwok o patn that uppi aw matia, am manuactu poduct and thn ditiut thm via ing o mutip ditiution chann to nd cutom. A uppy chain conit o th paa ow; th good and/o vic ow, th inomation ow and th inancia ow. Suppy chain managmnt ocu on impoving th good and vic ow, y tt aignmnt twn intna dpatmnt and xtna tading patn, and cot duction in th phyica uppy chain, uting in tt oucing, pocumnt, ogitic, incad icincy, ducd invntoy and impovd ocating. Litt attntion wa paid howv to th inancia ow o a uppy chain. Th inancia ow conit o invoic, cdit not and paymnt, and wok in th oppoit diction o th phyica uppy chain. Th comination o th inancia ow and inomation ow i ao cad th inancia uppy chain Homann & Bin, 211. Suppy chain inanc i th nam attachd to th coction o poduct and vic that inancia intitution o to aciitat th managmnt o th phyica and inomation ow o a uppy chain Camini, 28. Sinc th intoduction o uppy chain managmnt aound 198, uppy chain manag hav puhd thi uppy chain to th imit y impmnting jut-in-tim and an pincip. In today goaizing maktpac comptition i putting mo pu on manag to innovat and tamin thi oganization vn uth Homann & Bin, 211. Som copoation hav howv aady wung a icinci out o thi phyica uppy chain, y oucing poduction to ow aay counti and moving a wat out o th poc Cot, 27. Howv, cnt dvopmnt hav hitd th attntion om an and jut-in-tim to a jut-in-ca appoach Cavnaghi, 211. Th inancia cii and th cnt Japan tunami hav xpod th agiity o today uppy chain, wh copoation hav puhd thi uppi to th imit y dmanding ong paymnt tm and puhing mo aw matia invntoy up th uppy chain. Th cii ao d to a igniicant dop in dmand o good and vic and mad ank tightning thi cdit tm, uting in im having diicuti inancing thi poduction cyc Vaicu, 21. Duing th cii in 29, nay on thid o th ag wtn wod copoation had to da with ankuptcy pom om thi uppi, no matt how good o ad thi tack cod wa. Copoation a tho ooking at uppy chain inanc, to poactivy nu thi uppi kp opating in hathy inancia condition, vn i a nw cii how up Cavnaghi,

12 In a tim in which taditiona tad inanc, a tt o cdit and tt o guaant a oing popuaity, aout 8% o goa tad i conductd on opn account. Futh tanaction vic a coming a commodity hy putting pu on magin; ank hav ot viiiity in inomation ow o tad and th atd copoation. Bank a tho oadning thi viw on uppy chain inanc, to taih makt ha in tad, inca magin on thi tanaction vic and uid co cutom ation to tt undtand thi cint uin and inancing nd Syvg & Akton, 211 Wod paymnt pot, 211. Athough uppy chain inanc gt much attntion y pactition, th attntion in acadmic itatu ha n ath ow. Mot tudi ocud on pactica iu, ut th t many ach gap Homann & Bin, 211 Rindop & Taniv, 211. On uppy chain inanc poduct i v actoing, which i cunty ao otn d to a uppy chain inanc and i a pcia om o th taditiona actoing Sit & Sit, 29. Thi thi wi a comination o oth igoou and vant ach on v actoing, y diving managia impication om oth a mod, which wi dvopd in th it pat, and om cunt iu in uppy chain inanc, which wi dicud in th cond pat, om a ank ppctiv Woking capita managmnt A dicud in th intoduction, uppi ac, du to a goaizing makt pac, a dmand o ong paymnt tm y thi cutom and incaing cot o hot tm inanc du to th cnt cii. Th ct ut in a high nd o woking capita at a high cot. Woking capita ntai a at o th cunt at that a tanomd into iquid at within on poduction cyc o at at within on ya Poh & Gomm, 29. Nt woking capita NWC i dind a th cunt at minu th cunt iaiiti. Th amount o woking capita gaug th amount o iquidity that a im nd daiy to xcut it opation poita and ct th tim twn cah owing out o th im, at th tat o th manuactuing poc, and th momnt cah ow ack into th im, whn ina poduct a od Bk & DMazo, 27 Camini, 28. Nomay a im uy and poduct on cdit, thi man that th ctiv tim twn in and outow o cah i dint than th in and outow o poduct. Th tim twn th in and outow o cah i maud y th cah convion cyc CCC. Th th mnt o th cah convion cyc mau th ngth o th woking capita u cyc, od to cah, od to divy and pucha to pay cyc. Tau can not gad th u cyc a 2

13 indpndnt and hav to tak th ct o uppy chain managmnt dciion on a u cyc into account. I o xamp a ngthning o th paymnt tm to uppi can ony taihd y pacing ag od, thi wi ut in high invntoy, th ova woking capita cot might nd up high than th initia ituation. Th itm in th cah convion cyc a coy atd to th capita invtmnt ndd to inanc th day to day opation, th invtmnt in nt woking capita. Th oppotunity cot o invting in th th itm i dtmind y thi vau and th hot-tm inancing cot. Thi i pntd in th oowing quation: Wh INV i th vau o th invntoy and AR n AP a pctivy th vau o th account civa and account paya. Sinc th mnt o th cah convion cyc a coy atd inkd to th phyica uppy chain, it i ao a mau o how ctivy th uppy chain i managd. It i tho highy impotant o uppy chain manag to pay attntion to th dint mnt in th cah convion cyc and whth opationa chang act tho mnt poitivy o ngativy. Sinc woking capita i ndd to inanc opation, it nd to managd w. Evn though a im ha ound poduct, vic and opation, i it woking capita i not managd w, it can un out o cah and daut. Th it mnt o woking capita i th account civa, howv in ation to uppy chain managmnt it i tt to to it tim quivant, th day a outtanding; th tim it tak to coct th pocd om a. Pooy managd paymnt coction and xtnion o th paymnt tm to cutom inca th woking capita and hnc th unding cot. Th cond mnt i th invntoy, wh it tim quivant i day in invntoy, thi i a w aw matia a wok in poc a ina good invntoy, o pacticay th cah tid up in th poduction poc. H inicinci in th poduction poc, uch a intna waiting tim o tock uid up, ut in unncaiy tying up cah in th uppy chain, hnc inca inancing cot. Th ina mnt o woking capita i th account paya and it tim quivant day paya outtanding. Extnding th day paya outtanding duc th capita quimnt, y putting mo inancia pu on th uppi 3

14 1.2. Rv actoing In taditiona actoing a ank uy account civa om a copoation, h cad th uppi. Factoing can dividd in two main catgoi, actoing with and without cou, in actoing with cou, th im ing th account civa tay xpod to th daut ik o th uy. In ca th uy daut, th ank tun to th uppi to gt ack thi und. Factoing without cou man th ank taking ov th daut ik o th uppi, thi typ o actoing i in pactic otn cad civa pucha. Gnay a ank ony uy account civa om im that a in thi cint a, o thy y compt potoio o account civa om mutip uy, in od to diviy th ik o daut om on ing uy. Th ank thn howv, nd to a th ik o a who potoio o civa which i tim conuming and coty, inc th ank nd to coct cdit inomation o many uy Kapp, 26. Factoing ha ao not n poita in dvoping counti inc tack cod and ia cdit ating agnci a miing. Futh, aud i a ig iu in tho counti and th wak ga nvionmnt mak it diicut to chck on and da with tho im. Factoing with cou wa pntd a poi oution in ca th cdit wothin o th uy wa had to a, howv, whn th uy daut th ank tun to th uppi to gt thi und ack, thi uppi might not hav nough inancia ouc to pay th oigation. In ca o a uy daut, th ank com xpod to th uppi cdit ik which i gnay high. To ovcom a iu aov, v actoing i dvopd. Rv actoing i a om o uppy chain inanc which ovcom th pom o inomation aymmty twn ank and uppi. In a v actoing agmnt a uy and uppi wok togth with a ank in od to optimiz th inancia ow Rindop & Taniv, 211. Th pincip hind v actoing i th am a hind th mo taditiona actoing. In a v actoing tanaction th ank ony uy account civa om patn copoation th uy with a high cdit ating. In thi t-up th ank convinc th uy oganization to paticipat in th v actoing pogam. Thi uy on it tun on-oad it uppi. I thi uppi want to convt hi account civa into cah at a ctain momnt o matuity, th uppi contact th ank, who thn uy th account civa at a dicount, which i dpndnt on th cditwothin o th uy. Sinc in v actoing th uy i pat o th agmnt too, th uy want a pic o th pi and uuay dmand a ctain nit a w. Thi incntiv can com in dint om, xtndd paymnt piod, pic duction o a om th ank. Uuay th paymnt piod i xtndd o th uy do not dmand a inancia nit at a. An xtndd paymnt piod wi duc th cah convion cyc and th nt woking capita, and tho duc th hot tm inancing cot, a hown in th pio ction on woking capita managmnt. 4

15 Th poc o v actoing tat at th tim whn th uppi div th poduct to th uy. Th uy wi thn nd an appova o invoic to th ank, maning th invoic wi paid within th agd paymnt tm. I th uppi nd cah twn th momnt th uy ha nd th appova o invoic and th ina paymnt o th uy, th uppi contact th ank and th account civa againt a dicount. Th ik o th account civa i dpndnt on th cdit wothin o th uy, with high cdit ating, and not on th uppi, with ow cdit ating. Th uppi gain y thi tanaction compad to an odinay ank oan, inc thy can th account civa at an intt ow than thi own intt at. Th dicount th ank chag o actoing th account civa i th intt at o th uy pu om additiona actoing tim th maining paymnt tm Bnit and concn Rv actoing i a th patit vau cating tanaction which na a win-win-win ituation o th uppi, th uy and th ank. Thi paagaph wi tat th nit and concn o v actoing o th th acto paaty. Th uppi Fit o a v actoing o th uppi acc to o aanc ht, chap hot-tm cdit. Sinc undying ik o th account civa i not th uppi cdit wothin, ut th uy. A dicud in th chapt on woking capita managmnt, th inancing cot o th nt woking capita i th poduct o th amount to inancd, th duation o th inancing and th cot o capita. Sinc v actoing duc th cot o capita, y kping th oth vaia contant, it wi duc th inancing cot. Nxt to poviding im a ow cot o capita, v actoing i ao nicia o im in dvoping counti. Du to th dicud inomation aymmty and aud in tho counti SME did not hav o tictd acc to inancing. Sinc v actoing i a coopation twn th uy and th ank, th gitimacy o th account civa i nud. And inc th uy ing in th uppi, ony th ia, high quaity uppi a on-oadd and th poaiity o aud i hy ducd. Du to th impovmnt ov taditiona om o inanc, SME in dvoping counti gt acc to a who nw makt o inancing. And cau thi ank ony wok togth with ia, high quaity, cditwothy im, th SME a a to acto thi civa without cou. Futh, inc account civa a od to th ank, thy a immdiaty convtd into cah and hnc a not potd a ank oan on th aanc ht. Tho, v actoing do not act th intt at and dt capacity o th uppi. 5

16 A cond nit o v actoing to th uppi i th incad iquidity. Du to th v actoing pogam, th uppi i a to tan hi account civa into cah at any momnt in tim, which inca th iquidity o th uppi at. Sinc th iquidity o th at ha incad y v actoing, th uppi i a to duc hi cah hoding. Thi i t iutatd y th duction in th cah convion cyc, a aady dicud, th cah convion cyc ct th iquidity o th at and i coy atd to th capita invtmnt that i ndd to inanc day to day opation. A duction in th cah convion cyc againt a ow cot o capita ad to ow inancing cot. Th duction in th cah convion cyc i iutatd in Figu 1. Figu 1: Ect o v actoing on th cah convion cyc o th uppi ouc: RBS pntation, F. Taniv A thid nit to th uppi i tt tad ationhip and tt intgatd ytm with th uy and th ank. Sinc th v actoing agmnt i uppotd y a tchnoogica patom, im can automat th invoicing and paymnt ytm and mov a pap om th poc, making it mo ia and ao intn. Thi ut in ow cot and at pocing, it wi ao giv th uppi mo inight in th uppy chain. Du to v actoing, pocing tim might duc om 3/6 day to appoximaty 1 day Hutz, 21. Futh, th tad ation with th uy impov inc oth nit om v actoing. Th uppi hy cu utu tad with thi uy and du to impovd woking capita managmnt too th utu inancia taiity can incad. 6

17 Dinc in paymnt pactic - Tagt paymnt piod in intnationa compaion Bgium Bugaia Gmany Spain Gc Poand Romania Ruia Sovakia Unitd Kingdom Figu 2: Intnationa dinc in tagt paymnt piod EOS, In th igu aov, tagt paymnt piod o tn counti a compad. Fim in Gc hav th ongt paymnt piod and hnc uppi o tho im nd to idg th agt gap with xtna inancing. Impotant to not i that th tagt and not th actua paymnt piod a hown and hnc th paymnt iaiity houd ao conidd. Rcnt ach y Dun & Badtt 211 ov 2.8 miion Euopan im ha hown that paymnt havio o ctain Euopan counti i impactd mo haviy than oth counti. In Gmany, 6% o a invoic a paid on tim, th oth 4% a paid on avag ony th day ovdu. Th Nthand coy oow Gmany, 55% i paid on tim and 45% i paid on avag 5 day ovdu. Potuga, Iand and Engand a th owt pay, on avag thy pay 19, 17 and 16 day ovdu pctivy. Whn woking with im in tho counti it i highy impotant to monito thi paymnt havio and thy pvnt cah hotag, uth a ctain inca in dayd paymnt might indicat cah hotag o vn upcoming ankuptcy om you cint. Athough v actoing i potntiay poita, uppi hav om concn in paticipating in th v actoing pogam. Fit o a might a SME not hav th quid knowdg aout inanc and woking capita managmnt to uy undtand th nit om v actoing. Du to ditut catd y ya o xpoitation y thi uy, wh uy wung out thi uppi y dmanding 1 Suvy-211_Tagt-Paymnt-Piod_15dpi.jpg 7

18 ong paymnt tm, pic duction, high vic v tc., uppi uctant to paticipat in v actoing pogam. Suppi ack th intna inancia knowdg to uy undtand th concpt and dynamic o v actoing ndd to convinc uppi to paticipat. A atd concn i that a v actoing agmnt that wa poita at th ginning might gt out o th mony du to changing makt condition a intt at and changing im condition a cditwothin. Whn a im do not know whth to convt account civa into cah o not, paticipating in a v actoing pogam might ham th im intad o making in tong. Athough v actoing do povid th im xiiity in thi inancing and woking capita managmnt, a ack o undtanding might vn duc xiiity. Whn a im duc it cah hoding and at th am tim acto th account civa, th im wi com vuna in ca o adv dmand and cah ow hock o aonaity in dmand. Anoth ut o ow undtanding o woking capita might that th uppi gt cah addictd and au th xta iquidity to pay down ong-tm dt, which coud ut in cah hotag again duing piod with ow dmand o adv cah ow hock. A cond concn to th uppi i th duation o th pogam. Whn th uppi acto it civa and a o a uddn th ank and/o th uy dcid to pu th pug out o th pogam, th uppi nd up in a piod in which it wi not civ mony om th uy ut it ti nd to inanc th ongoing uin. Th uppi tho nd to hav ctainty om th uy and th ank aout th ngth o th pogam, othwi thy nd to nd mony at high cot in ca th pogam nd. Anoth concn o th uppi com om th xiting dt hod, thy might not aow th im to th account civa. Sinc th undying im o th account civa ha a high cdit ating, th account civa povid high idua vau in ca th uppi daut. Whn th uppi woud tho at and invt in iquid at, th ik on xiting dt inca, and tho xiting dt hod might wo o. Th xiting dt hod might hav agd upon om dt covnant with th uppi, which do not aow th uppi to paticipat in th v actoing aangmnt. Th uy Sinc v actoing i a om o uy initiatd uppy chain inanc, th uy nd an incntiv to paticipat in th pogam and to ing uppi into th pogam a w. Th incntiv can com in many way, xtndd paymnt piod, pic duction o a om th ank. In ca th paymnt piod i xtndd, th nit o th uy i in th ducd dmand o nt woking capita and tho in th ducd hot-tm inancing cot. Du to th xtndd paymnt piod, th cah convion cyc dca and thy th iquidity o th at inca. I th v actoing agmnt pcii that 8

19 th nit om th uy wi in a ducd pic o a, th uy wi gt hi nit om a ow unit cot and tho a high magin. A th uppi, ao th uy nit om a tt ationhip with it uppi and a tt intgatd paymnt ytm. Th uy do not nd to tak on o th inancia nit dicud aov, thy might ony povid th actoing oppotunity to thi uppi in od to cat a tt ationhip and cu thi uppi a. Du to th pogam, uppi a iky to gt cah hotag and hnc a mo iky to kp opating in down tim. In pactic, th aon to adopt v actoing o th uy di igniicanty om county to county and induty to induty. Mo impotant than th inancia nit, th uy impmnt a uppy chain inanc oution on tatgic gound. Buy in induti wh th uppi hav mo againing pow, ik in th automotiv induty, wh manuactu otn y on on o two uppi p componnt, a mo iky to adopt a v actoing pogam to cu thi uppi a. In inancia down tim, wh SME a capita containt and uppy chain com incaingy vuna to dauting uppi, poduction o th uy i in dang cau o inanciay ditd uppi not ing a to inanc thi poduction cyc and div on tim. Thi might ditu th poduction poc o th uy, o vn oc thm to hut th poc down ti a nw uppi ha n ound. So in induti wh th uy i highy dpndnt on it uppi and tho uppi a not aiy paca, uy a mo opn to v actoing. Futh, dmand o v actoing in igg in induti which a mo nitiv to th conomy. Again th automotiv induty i a good xamp o th inunc o conomic nitivity. Automotiv induty i on o th induti which a th it to notic an upcoming cii, y igniicant od duction. Du to th natu o th poduct, dmand i highy dpndnt on th conomy, wh dmand i ow duing conomic down tim. Sinc thi high ikin, SME in thi induty a ockd out o ank oan it, haming th who uppy chain. Induti which a nitiv to th conomy do not xpinc uch a ig dmand dop and do not hav uch a nd o xta inanc. In ca mo againing pow i at th uy, th v actoing pogam can ud to acqui a tt ngotiation poition to th uppi and a to ngotiat tt paymnt tm, ow pic, high vic v tc. Concn o th uy a th a that th v actoing oution might hamp thi dt capacity, i th paymnt tm i incad, th tota amount o account paya on th aanc ht wi inca too and hnc might duc th tota dt a im can attact. Expinc t dt capacity i ony actd whn account paya a tand into ank dt, in v actoing howv, account paya a ti ookd a account paya on th uy aanc ht, and hnc do not act dt capacity. 9

20 O cou ao th uy ac om ik y paticipating in th v actoing pogam. Th uy nd to ag to paticipat o a ctain piod in th pogam, thi i ndd o th uppi i not acing th ik o an unxpctd nd o th pogam that woud ut in iquidity pom a dicud. Th uy nd to ind him to a ctain ank o a ctain piod whi in th man tim tt oppotuniti might ai. Th ank Fo th ank th nit i o cou in th xta incom om uying th account civa at a dicount. Sinc th undying ik o th account civa i th daut ik o th uy, with high cdit ating, th ank ha acc to th SME makt with ony imitd ik in oth dvopd a dvoping counti. Sinc th ank i coopating with th uy, th ank ha acc to mo dtaid cdit and uppy chain inomation than in taditiona inancing. Th ank i cau o thi inomation tt a to timat th cditwothin o th im and pot oppotuniti and that in th makt. Th ank ao gt acc to makt that w initiay too iky du to aud and inomation aymmty, ik dvoping counti. Sinc th makt ack w unctioning cdit ating agnci, dtmining th cditwothin and iaiity o a im and it account civa i vy coty. Bcau in v actoing th uy i coopating with th ank, and thi uy ony on-oad high quaity uppi, th iaiity o th uppi i nud. Ao aud wa a concn o taditiona actoing in dvoping counti, uppi coud ty to acto account civa o non-xiting im Kapp, 26 o acto account civa mutip tim. Sinc th uy upoad hi account paya on th patom and paymnt i pomd via th ank, th gitimacy o th account civa and th ina paymnt a nud. Sinc th ank ha acc to a nw makt in which it woud othwi not nd, th ank i a to inca it makt ha y v actoing, ut inc it gain nw contact in th SME makt th ank wi ao a to xpand it xiting uin in th makt y co-ing xiting oution. A ina nit om v actoing o th ank might th compianc with th nw Ba III guation. Sinc th ik on a v actoing aangmnt i much ow a on a noma oan to a SME, th ank do not nd to hod a much capita v to ack it unding to th high ik im. Concn o th ank a that v actoing might canniaiz on thi xiting uin. Fim that oiginay nd mony at high intt at om th ank wi jump to v actoing. Dpndnt on th magin on oth o th oan and th undying ik, thi might nicia o not. Futh ank hav to dvop o pay o a tchnoogica patom. Thi invtmnt might too ag with pct to th incom that v actoing wi gnat and thy put pu on magin. 1

21 1.3. Rach dign Bad on th itatu viw, mnto dicuion and dicuion with my upvio within RBS, th oowing ach qution hav n dind: 1 What acto inunc intnationa v actoing and how to mod th? In thi thi a mod wi dvopd to vau v actoing. Th mod wi dint than, ut ad on th mod om Rindop & Taniv 211. Lat on om aumption o th a mod wi axd and impact o intnationa acto wi dicud. 2 What managia impication can divd om th mod popod und 1 and om cunt pactica iu in th uppy chain inanc makt and within RBS? Onc th mod und 1 i dvopd, managia impication wi divd. Futh pactica iu o v actoing wi dicud om a ank ppctiv and th utu o uppy chain inanc wi anayzd. Th maind o thi thi wi oganizd a: In Chapt 2 th cunt tat o acadmic itatu wi dicud. Chapt 3 wi how th v actoing mod, and in Chapt 4 th intnationa apct o v actoing wi pntd. In th cond pat o thi thi th ocu wi mov om v actoing to uppy chain inanc, tho Chapt 5 wi giv a hot intoduction to uppy chain inanc. In Chapt 6 th impact o Ba III on v actoing wi dicud. In th ina chapt th utu o uppy chain inanc wi dicud. 11

22 2. Litatu viw A mot copoat inanc itatu ao thi tudy tat om Modigiani and Mi Modigiani and Mi how in thi tudy that, und pciic aumption, a im vau i not actd y it capita tuctu, it i tho ao cad th capita tuctu ivanc thoy. Thi impi that capita tuctu i not vau cating and vau i ony catd y a im opation. Th th aumption und which thi thoy hod a pctivy: pct capita makt, ationa havio and pct ctainty. Th it aumption, pct capita makt, man that a invto hav th am cot inomation, o no inomation aymmty, and no tanaction cot, tax tc. Capita makt in aity a howv not pct, it o a cau im hav to pay tax and tanaction cot and cond cau inomation aymmty xit. Thi inomation aymmty xit cau o diicuti o high aociatd cot in taning thi inomation om th im to th ank and du to th pincip agnt pom Poh & Gomm, 29. Du to inomation aymmty th cot o intna inanc may di igniicanty om th cot o xtna inanc. Sinc ank ack th inomation and inight in SME thy chag high intt at on hot-tm inanc, i thy a wiing to povid cdit at a. Th phnomnon o ank not poviding capita at a i cad cdit ationing, cdit ationing to a ituation in which ith oan appicant who appa to idntica om civ a oan and oth do not, th appicant who don t civ a oan woud ti not civ on i thy woud wiing to pay a high intt at o whn th a idntiia goup in th popuation who a una to otain a oan againt any intt at, vn whn th cdit uppy woud inca Stigitz & Wi, Sinc a ank poitaiity i dpndnt on th xtnt to which oow pay thi oan, a ank woud ik to a to dtmin th ikihood o a oow paying it oan on ohand. On uch cning dvic i th intt at a oow i wiing to pay, i a oow i wiing to pay a high intt at thy a aumd to mo iky at om point. Fit im with pojct yiding high NPV a xpctd to hav a high wiingn to pay a high intt at, howv, at om point th ank aum im pciv th chanc o having nough poit to pay th oan thi ow, that thy a wiing to accpt high intt at. Thi mchanim mak that poitiv NPV yiding pojct a not a to otain cdit vn againt high intt at at a ank optima intt at. Athough uppy chain inanc ha had much attntion y pactition, it attntion in acadmic itatu ha n ath ow. Homann 25 popo a uppy chain inanc amwok and concptua inight, y dicuing uppy chain inanc dynamic. Poh & Gomm 29 tat in thi pap that uppy chain inanc i a way o mitigating th inomation aymmty twn a uppi and th inancia makt, 12

23 y tating that du to th uy uppi ationhip, th uy ha mo and chap inomation on th uppi cditwothin than th inanci. Hnc, th uy can chag a ow ik pmium on it inancing to th uppi than th inanci woud. Suppy chain inanc and v actoing a cunty ud intchangay in th uppy chain inanc makt Sit & Sit, 29. A on uppy chain inanc, itt ha n puihd on v actoing. Sinc v actoing i not an opn makt tanaction, itt data i avaia and hnc mpiica ach i quit a. On th mo taditiona actoing, om data tudi hav n pomd. Kapp 26 concud that actoing i ag in counti with gat conomic dvopmnt, gowth and dvopd cdit uau. Howv v actoing potntiay mitigat th hotcoming o taditiona actoing, why th ut might not gnaiz to v actoing. Summ & Wion 2 ind that im iz i a igniicant mau on a im dciion to u actoing, wh ma im a mo iky to acto thi account civa. Quantitativ ach on actoing ha n don y Sopanztti 1998 who modd a moa hazad pom in actoing, whn th cdit monitoing o th uppi i unova, th inanci wi xpct a moa hazad pom and thi wi ctd in th pic. Thi mak a with igniicant high daut poaiity una to it high ik account civa without cou. Howv, inc in v actoing, th ank coopat with th uy, th ank i igniicanty tt a to monito th paymnt and gay noc paymnt, tho thi ut i had to gnaiz to v actoing. Th ony quantitativ mod on v actoing i th woking pap o Rindop & Taniv 211. In thi pap thy dvop a mathmatica mod o intgation, optimization and anayi o th ct o opationa and inancia dciion on th uy, uppi and ank a w a th uppy chain a a who. Thi pap povid th optima v actoing contact und a mak to tock and a mak to od poduction ytm. Howv thi mod i dvopd on a domtic v actoing ituation and ony ook at ik nuta cah ow, it don t mod daut poaiity xpicity. Sinc pactition vn mo oppotuniti o v actoing in intnationa tting, a nw mod wi dvopd, it in pct capita makt and at in impct capita makt, nxt th cop o th mod wi xtndd to an intnationa tting, in od to th ct o thi on th vau o v actoing. 13

24 3. Mod omuation In thi chapt th mod to vau v actoing wi dvopd. In th it paagaph om thotica ackgound on ik nuta wi povidd. Paagaph 2 tat with a dciption o pct capita makt, nxt th mod dciption, vaia, paamt and th mod it wi divd. Paagaph 3 wi ax th aumption o pct capita makt wi axd y intoducing inomation aymmty in th mod. Paagaph 4 and 5 wi da with th axation o auto dicounting and anayi o opationa iu pctivy. Finay Paagaph 5 wi povid a ummay o th otaind ut and concuion wi dawn om th mod Rik nuta vauation In th a o phyica wod, invto a on avag ik av, maning thy want to hav a compnation o th ik thy tak. Sinc invto civ a ik pmium o ik, th pic o an at i ow it xpctd payo. Futh, in a ik av wod, th pic o an at dpnd on th ik avion v o invto, which i nomay had to quantiy. In a ik nuta wod, invto a aumd to indint to ik and hnc do not qui a pmium o th ik thy tak. Tho, in a ik nuta wod, th tun o an at i qua to th ik at and contay to th a wod, ut in in with at picing thoy, th pic o an at i qua to it xpctd dicountd payo. Th ig advantag o ik nuta vauation i th act that th a poaiiti o an up o down movmnt o th at a not quid to cacuat th vau o an at. Th at i picd y uing th o cad ik nuta poaiiti, which a chon uch that th xpctd payo o an at i qua to th ik at. Th at i thn picd y cacuating th xpctd payo y uing th ik nuta poaiiti. Impotant to notic i that th vau o an at in th ik nuta wod i qua to th vau o an at in th a o phyica wod, inc two ct tnd to ot ach oth. Fit, in th a wod th vau o an at i ow it xpctd payo du to th ik pmium. Scond, th ik nuta poaiity o a down movmnt o an at i ovtimating th poaiity o a downwad movmnt in th a wod. Sinc oth ct a o qua iz, th otaind pic a not ony coct in th ik nuta wod, ut in th a wod a w Hu, Pct capita makt In th pviou chapt pct capita makt hav aady n mntiond, in thi ction pct capita makt wi dind in mo dtai. Modigiani and Mi 1958 povd that und a t o 14

25 condition, cad pct capita makt, vag do not act tota im vau. Thi t o condition i Bk & DMazo, 27: 1. Invto and im can tad th am t o cuiti at comptitiv makt pic qua to th pnt vau o thi utu cah ow. 2. Th a no tax, tanaction cot, o iuanc cot aociatd with cuity tading. 3. A im inancing dciion do not chang th cah ow gnat y it invtmnt, no do thy va nw inomation aout thm. Pct capita makt om th ai om aoning on copoat capita tuctu, om hon acto uch a ankuptcy cot, inomation aymmty, tax and tanaction cot can incudd to th inunc. A pct capita makt i a makt without aitag oppotuniti. In a makt, invto gnay qui a high ik pmium o aing mo ik which mak th pic o an at ow than it actua nt pnt vau Mod dciption In thi a mod, th uy appov th invoic o a uppi at t =. Thi invoic i immdiat avaia o dicount to th uppi and th uppi mak u o auto dicounting, maning th invoic i od to th ank at tim t = automaticay. Fo impicity, th invoic amount i ing nomaizd to on and nit a cacuatd on a p-tax ai. In th oigina, p v actoing ituation, th uy pay an invoic at n piod to a uppi. Thi uy inanc it hot tm capita againt an annua hot tm inancing at,, which i continuouy compoundd, and inc th a mod aum pct capita makt, thi intt at conit o th ik at pu a ik pmium ta, = β, thi ik pmium i chagd y th nd to compnat o th ik o hoding that at. Th uppi inanc it woking capita againt a inancing at o, wh = β. In thi mod th uppi nd a hot tm oan at t = o L, which i ing paid at n. At matuity, th uy, i not dautd, pay it outtanding account paya to th uppi. Sinc thi uy can daut within th paymnt piod, th pay o at matuity i tochatic. To vau thi tochatic cah ow th ik nuta cah ow i ud, thi i a dtminitic cah ow with th am vau a th tochatic cah ow, howv inc thi cah ow i dtminitic it can dicountd y th ik at. Th daut twn t = and t = t o th uy and th uppi pctivy i indicatd y D t and D t, th a inomia vaia, wh 1 indicat th acto do 15

26 not daut twn tim and t, and in ca o daut. Thi mak th vau at t = o th tochatic cah ow, V []. : V i Q i t βi t [ D ] = E [ D ] = t t t Expanation: Tak a ituation wh im i tak a oan o 1 uo at a ank, in 1 piod i pay a tochatic cah ow which i ith i β, o i daut and pay. In pct capita makt th vau o thi cah ow houd qua to th initia oan o 1, which houd th ik nuta cah ow dicountd y th ik at. Th ik nuta poaiity o daut i q, o: βi = q q = β i Thi mak th vau at t = o a tochatic cah ow, E Q i Q i βit dicountd ik nuta cah ow, [ ], wh E [ D ] q t D t i Q i t βi t cah ow i: [ ] [ ] V D t = E D =. t t i D t, which i ith 1 o, qua to th t t = 1 * =, o th vau o thi In th ituation with v actoing, th uy wi xtnd it paymnt piod om n to, tho th uppi ha to wait ong to gt it invoic paid. Howv, in ca o waiting o thi mony, th uppi immdiaty it invoic, at a dicount, to th ank at t =. Th ank chag a v actoing,, o thi vic, making th v actoing dicount at β. Th uppi ti nd hot tm inancing at t = o L. Howv, inc th invoic wi od to th ank, thi hot tm oan wi ducd y th pocd om thi a. Th maining amount, i any, wi paid at t = n, i th uppi did not daut. Sinc th ank took ownhip o th invoic, th uy wi pay th invoic dicty to th ank. In thi mod it i aumd that th uppi can daut, and hnc not pay it dt to th ank. At th am tim th might ti vau in th im t cau th uy ha paid it oigation to th uppi. Thi aumption i howv not acting th ut, inc i th woud a covy at on 16

27 th ank dt, thi woud incopoatd in th intt at and hnc cah ow woud vaud th am way a it i don in thi mod Aumption In dvoping th a mod o v actoing, om aumption hav to mad. Th aumption aow to mod v actoing, without oing pactica vanc o th mod. Aumption 1: Acto a in th am cuncy union Th it aumption da with th pogam t-up, o th a mod th uy, uppi and ank a aumd to ocatd in th am county. Thi thy impi that paymnt mad y th uy and th ank a in th domtic cuncy which i th am a paymnt civd y th ank and th uppi. Aumption 2: No t-up cot/opationa cot Nxt th a no ixd cot and vaia cot, maning th a not t-up cot invovd, nith a th tanaction cot and opationa cot, o maintaining and opating th v actoing pogam do not cot mony. Aumption 3: No anking guation Futh th nw popod guation on capita and iquidity quimnt, Ba III, a not takn into account in cacuating th inancia nit o th ank. Thi ank i aumd not to pdat on it xiting uin, i.. th uppi in th v actoing pogam i not an oigina cint o th ank no do it utitut oowing y nw v actoing. Futh th ank i aumd not ing capita containt. Aumption 4: No tim dpndnt intt at Intt at a not tim dpndnt. Aumption 5: Buy and uppi daut i indpndnt Th hot tm oan a uppi nd to tak at t =, can ttd at matuity with pocd om oth a. In ca th uy daut, th uppi can tt it dt with pocd om oth a, and hnc do not automaticay daut a w. 17

28 Paamt Dciion vaia n, Paymnt tm without and with v actoing pctivy in ya Suppy chain inanc pmium chagd y th ank to th uppi Paamt Annua Rik- at Annua inancing at o acto i, wh i {, } i β Rik pmium o acto i, wh i {, } i π Bnit om v actoing wh i {,,, c} i chain pctivy o th uy and uppi pctivy o th uy and uppi pctivy o th uy, uppi, inanci and uppy L t Loan at tim t D Binomia tochatic vaia, in ca o daut twn tim and t, wh i {, } i t []. o th uy and uppi pctivy E Rik nuta xpctd cah ow at tim t Q t q Rik nuta poaiity o daut N.B.: A intt at a continuouy compoundd Mod In thi ction th mod to vau v actoing und pct capita makt wi divd, ad on th thoy, ituation, aumption and paamt om th pviou ction. Fit th vau o th uy wi divd, oowd y th uppi and th ank. Evntuay tho nit wi takn togth to gt th tota vau to th uppy chain. Th coctn o th mod i thn ttd, inc in pct capita makt inancing houd not add vau, thi tota uppy chain poit houd qua zo. Buy 18

29 In th oigina ituation th uy pay th invoic at n piod, wh y making u o v actoing, th uy ony nd to pay at piod, on a tim in thi ook ik: Buy pay th invoic to th uppi in th oigina ituation D n Buy pay th invoic with v actoing to th ank D Cah ow n Tim Figu 3: Buy cah ow with and without v actoing Ta 1: Buy cah ow without v actoing Tim n tota Cah ow D n Vau o th cah ow at tim t= β n β n Ta 2: Buy cah ow with v actoing Tim n tota Cah ow D Vau o th cah ow at tim t= β β Fom th ta it i vidnt that th tota nit om v actoing qua: π = β β n To mak thi ut mo intpta, th it od Tayo appoximation i ud. Th it od Tayo appoximation o x i: x = 1 x Thi giv: π = β n 19

30 Tho, th uy nit om v actoing in pct capita makt i poitivy atd to th paymnt piod xtnion and it ik pmium. Suppi In thi ituation it i aumd that th uppi nd a hot tm oan in th oigina ituation at tim t = o L, thi mony i immdiaty invtd in th poduction poc o oth opation. Thi hot tm oan i paid at tim n whn th uy pay th invoic i h did not daut. In cacuating th vau o th cah ow, it i aumd that th uppi pay th u oan, o pay zo whn h daut, indpndnt o th cah ow that i civd om th uy. In ca th uppi daut, th cah that i civd om th uy wi dipd ov mo nio caim hod than th ank. Sinc th uppi tak out a oan o L, th amount that nd to paid i qua to L β n, howv inc th uppi can daut, thi amount nd to mutipid y th daut indicato to otain th cah ow, β n L D n. At th am tim, t = n, th uy pay it invoic, which i nomaizd to on o qua th daut indicato 3 o thi chapt. D n. Th cah ow a thn vaud y th way dcid in paagaph Ta 3: Suppi cah ow without v actoing Tim n β n L D D n n Cah ow Vau o th cah ow at tim t= β n L tota β n L In th nw ituation with v actoing, th uy again appov th invoic at tim t =, ut ony pay th invoic at piod to th ank. Th uppi th invoic at tim t = to th ank in xchang o immdiat cah, thi amount i th ina paymnt o th uy dicountd y th oowing at pu an additiona t y th ank:. At matuity, th uy pay it outtanding account paya to th ank, i th uy did not daut twn t = and t = n. In ca th uy daut, it do not pay out anything. In ca th uy do not daut, it i aumd to pay at matuity, o no ay o dayd paymnt. Sinc th uy in th oigina ituation ndd a oan o L, th uy now ony nd a oan o L th account civa. β, inc th cond pat i th amount that i otaind y dicounting 2

31 Ta 4: Suppi cah ow with v actoing Tim n tota Cah ow β β n L D Vau o th cah ow at tim t= L n β β L Taking Ta 3 and Ta 4 togth, th oowing nit om v actoing wi otaind: π = β β n Again, th Tayo appoximation i ud to mak th ut mo intpta: π = β β n Hnc, th nit om v actoing o th uppi i ngativy atd to th paymnt piod xtnion, th v actoing and th uy ik pmium, auming th paymnt piod i xtndd. Bank Th ank nit i cacuatd y auming th oppotunity cot o mony o th ank i qua to th ik at. At tim t =, th ank uy th account civa om th uppi o wh th tota invoic amount i paid at tim D. Ta 5: Bank cah ow with v actoing β t = y th uy dicty to th ank, thi paymnt i, Tim n Cah ow Vau o th cah ow at tim t= D β β β tota β β Fom Ta 5 it vidnt that th vau o v actoing o th ank i: π = β 21

32 Again th Tayo appoximation i ud to mak th ut mo intpta, th nit thn com: π = Hnc th nit o ank i ony dpndnt on th v actoing and th paymnt piod in v actoing. Suppy chain Th tota uppy chain nit can otaind y adding th nit o th th individua paticipant cacuatd o, inc thi mod i dvopd und th aumption o pct capita makt, thi ut houd in in with Modigiani and Mi and th tota uppy chain nit om v actoing houd qua zo. π c = π π π = β n β β β n β = Paticipation containt By diving th paticipation containt o th uy, uppi and ank, th optima contact can dtmind und th aumption o pct capita makt. Fo dtmining th optima contact, a acto a aumd to maximiz thi inancia nit. In thi ituation th i ony on contact in which nith paty o mony, thi i th ituation in which th uy do not xtnd it paymnt tm and th ank do not chag any. Thi contact i Pato icint, inc y changing th paymnt tm,, o th v actoing,, at at on acto o mony in thi tanaction. Pato icincy i d to a a ituation in which no Pato impovmnt i poi, a Pato impovmnt i an impovmnt in which ouc aocation i changd which mak at at on pon tt o, ut do not mak th oth pon wo o. Sinc y incaing o, at at on pon gt a ngativ nit, o th optima contact in pct capita makt i a contact in which = and =. n β β n Buy: n β β n Suppi: β β n 22

33 β Bank: and Putting a th paticipation containt togth, th optima contact com: = and =, in thi contact a paticipant wi not mak any poit o o. n A Modigiani and Mi aady concudd in thi pap, capita tuctu do not cat, no dtoy vau. Athough th uppy chain inanc makt aon a i it do. Th makt aum no daut poaiity o th uy and th uppi, though th i a ik pmium chagd, which i in conict with th aumption o pct capita makt. In th nxt ction th aumption o pct capita makt wi axd and wi hown wh th nit om v actoing com om Impct capita makt In th pviou ction, a mod ha n dvopd which coud ud to cacuat th nit o th uy, uppi and ank in a v actoing pogam und pct capita makt. Howv, in aity capita makt a not pct, inc makt impction uch a, tanaction cot, tax and inomation aymmty xit. By axing th aumption o pct capita makt, th oowing mod i otaind. Th inancing at o a im wa compod o th ik at pu a ik pmium. Du to th xitnc o inomation aymmty now a acto pnting th dadwight cot o capita i addd. Thi dadwight cot o capita i caud y dinc in inomation twn th makt and a ank. Sinc a ank invt in it ationhip with th uy and th uppi, it ha mo inomation than th makt, and tho coud chag a ow intt at. Howv, in thi mod, it i aumd that th ank chag th am at a th makt, ut th dinc twn th makt and th ank i dadwight cot o capita o th uppi and poit o th ank and i indicatd y pion: Dad wight cot o capita wh i {, } i o th uy and uppi pctivy Futh it i aumd that th uppi do not hav mo inomation on th uy than th makt, athough it ha a tad ation with th uy. Th inancing cot o th uy and th uppi 23

34 pctivy com: = β and = β. Wh ta i th ik pmium and pion i pnting th dadwight cot o inancing. Buy Fo th uy two ituation can ditinguihd, a ituation in which th uy ha woking capita hotag, and a ituation in which th uy ha nough cah to inanc it own poduction cyc, o h do not oow mony om th ank o th makt. Fit th nit om v actoing in a ituation in which th uy ha woking capita hotag wi dvopd, nxt a mod wi dvopd wh th uy i not capita containt and hnc do not oow mony om th ank o th makt. Capita containt uy Sinc th uy i capita containt in thi it ituation, th uy nd hi mony at th ank/makt at a at o = β. Tho, th ik nuta cah ow o th uy nd to dicountd y ik at pu th dadwight cot o capita, in oth wod, inc th uy i nding mony, h i paying intt o th inomation aymmty twn him and th makt. Th vau o a tochatic cah ow i i i t D hy com: [ ] i t V D t β =. Expanation Again th tochatic cah ow om th uy i tand in a dtminitic cah ow which ha th am vau, th ik nuta xpctd cah ow. Howv, vn whn th cah ow i coctd o ik, th ik nuta cah ow can not dicountd y th ik at cau o th dadwight cot o capita. Tho th vau at t =, = β : i i i E 1 V, o a ik nuta cah ow [ ] Q D i, wh i intt at i V i Q i i [ D ] E [ D ] = 1 1 β Q i βi i i i Sinc E [ D1 ] =, V [ D1 ] = Futh th ituation i compaa to th ituation und th aumption o pct capita makt. In th initia ituation, th uy pay th invoic o th uppi at n day, ti thi invoic i nomaizd to 1. In th nw ituation with v actoing, th uy pay th nomaizd cah ow at piod. 24

35 Ta 6: Cah ow o th uy without v actoing in impct capita makt Tim n tota Cah ow D n Vau o th cah ow at tim t= β n β n Ta 7: Cah ow o th uy om v actoing in impct capita makt Tim n tota Cah ow D Vau o th cah ow at tim t= β β Comining Ta 6 and Ta 7 mak th tota nit om v actoing o th uy: π = β n β Th it od Tayo i appoximation hy com: π = β n Not capita containt uy Fo a uy who i not capita containt, th nit om v actoing can otaind in th am way, howv, th cah ow houd thn dicount y ony th ik at pu th ik pmium, inc th mony i not nd at a ank o th makt and hnc do not hav to pay o th inomation aymmty with th inancia makt. Th nit o th uy thn com: π = β n β Fit od Tayo i appoximation: π = β n Hnc th nit om v actoing o th uy dpnd on it nd o xtna hot tm inanc. Whn th uy nd xtna inanc th nit i poitivy atd to th paymnt piod xtnion and to th intt at, ik at, ik pmium and dadwight cot o capita. Whn th uy ha no 25

36 nd o xtna inanc th nit i ti poitivy atd to th paymnt piod xtnion, howv th tota nit i ducd inc th th dadwight cot o capita a out. Suppi A o th uy, ao o th uppi two ituation can dintiatd, on in which th uppi i capita containt and on in which th uppi ha nough cah to inanc it own poduction cyc. In thi ction th ct o imitd nd o hot tm inanc wi ao invtigatd. Capita containt uppi In th it ituation th uppi i capita containt and hnc it cah ow houd dicountd y β. In th oigina ituation th uppi again civ th paymnt om th uy at n piod, wh in th ituation with v actoing th uppi civ hi cah immdiaty at a dicount, th amount th uppi wi otain y making u o v actoing i qua to: β. At tim t = th uppi hot tm oowing qua L. Wh it i aumd that th oan ndd i ag o qua to th pocd om v actoing L and thi oowing wi paid at tim t = n in tota whn th uppi do not daut. Ta 8: Cah ow o th uppi without v actoing in impct capita makt Tim Cah ow Vau o th cah ow at tim t= n β n L D D n n n β n L tota β n n L Ta 9: Cah ow o th uppi om v actoing in impct capita makt Tim n tota Cah ow β n β n L D Vau o th cah ow at tim t= n β β n β n L β n L Taking togth Ta 8 and Ta 9 thi giv: π = β β n Fit od Tayo i appoximation: n 26

37 π = β β n By auming th uy do not want a paymnt piod xtnion, o =, th uppi mak a n poit whn. So in thi ituation, th uppi mak a poit whn th v actoing chagd y th ank, i ma than it own dadwight cot o capita. Not capita containt uppi Whn th uppi i not capita containt, th nit om v actoing can otaind in th am way. Howv th uppi do now not nd a oan at tim t =, th cah ow which a civd om th uy ti nd to dicountd y th intt at which incud th dad wight cot o capita, inc th uppi do not hav mo inomation than th makt. Th nit o th uy thn com: π = β β n Fit od Tayo i appoximation: π = β β n So th nit o th uppi wi nv poitiv, vn whn th uy do not qui a paymnt piod xtnion. Limitd capita containt uppi Fo th uppi ao a thid ituation can ditinguihd, whn th hot tm capita nd o th uppi a ma than th tota amount that wi dicountd du to v actoing, L β, in thi aumption it i ti aumd that a capita cot can, i ndd, ot y th pocd om oth a. Tota nit om v actoing in thi cnaio com: π = β n β n L L Tayo i appoximation: π = β L β n Dpnding on th amount o th initia oan o th uppi, v actoing might poita in thi ituation, o th uppi to mak a poit, th hot tm oan at t =, houd at at : L β β n n n 27

38 In ca th uy do not qui a paymnt piod xtnion, thi quation can wittn a: L. Hnc in th ituation o auto-dicounting, th uppi mut hav a ctain nd o xtna hot tm inanc. Futh th nit om v actoing i ngativy dpndnt on th paymnt piod xtnion and th v actoing, howv poitivy dpndnt on it own dadwight cot o capita. Bank Th ank nit om v actoing i cacuatd a in th ituation auming pct capita makt, inc auto-dicounting i aumd, th ank i not actd y th inancing nd o th uppi. Th ank povid a oan o tim t = β, i h did not daut. to th uppi at tim t =, and th uy pay thi oan at Ta 1: Cah ow o th ank om v actoing in impct capita makt Tim n tota Cah ow Vau o th cah ow at tim t= β D β β β β π = β β Fom thi, th Tayo i appoximation com: π = Suppy chain Comining th nit om th uy, uppi and ank giv th uppy chain inanc nit om v actoing. Thi i givn y: π c = β β β β n n n Th Tayo i appoximation o thi i: π = c n 28

39 3.4. Non auto-dicounting By axing th aumption that a uppi mak u o auto dicounting, two unctainti ai. Th momnt o dicounting and th amount o th tota invoic that i ing dicountd. H ony th amount that wi dicountd wi intoducd in th mod, ony in ca th hot tm oan that i ndd y th uppi i twn zo and th maximum amount avaia o dicounting, th nit om v actoing wi di om th ituation in which th uppi mad u o auto-dicounting and had hotag o hot tm capita. Auming L. In thi ituation, ony th nit om th uppi and th ank chang, th nit om v actoing o th uy, who ha no hotag o hot tm capita tay: π = n Th nit o th uppi com: π = β n β L L n Th nit o th ank com: π = L 1 Fo ank non auto-dicounting i howv mo iky than auto-dicounting, it o a cau it duc nit in ca th uppi ha no high hot tm capita dmand o whn th hot tm capita dmand o th uppi dcin ov tim. And cond cau th ank com dpndnt on th invovmnt o th uppi, whn th uppi ha ow undtanding o th pogam and it nit, th uppi might not dicount it invoic athough thi might poita. Sinc ank hav high t up cot, thy a tt o y inducing auto dicounting on th uppi. In Figu 4 th uppi nit om v actoing i how againt th amount o hot tm capita that it nd. Und a ctain amount, th nit o th uppi i ngativ, thi i th point wh π L Figu 4: Suppi nit om v actoing 29

40 β β n L =. At a ctain amount, th nit om v actoing do not n inca anymo, thi i th amount wh th u invoic i dicountd, o L = β. In Appndix A th ct o a tochatic hot tm oan o th uppi i hown Opationa iu In a v actoing pogam om opationa iu nd to managd y th ank in od to xcut th da poita. In thi paagaph th iu wi itd, a a a thy hav not yt n mntiond in th intoduction. 1. High t up cot: Bank that a tagting th tai makt with thi v actoing oution hav to cop with high t up cot o th tchnoogica patom wh uy can upoad th invoic. Th tai makt i chaactizd y high voum, ow vau invoic, o th cint manua nting th invoic on th patom i not an option. Tho an intac nd to uid o tho im to automaticay upoad thi invoic. Dvoping uch a ytm i gnay coty and hnc th da nd to o igniicant iz in od to poita. Sinc th a no oady accptd intnationa tandad o invoic and -invoicing, th ytm nd to adaptd o vy ing uy in od to a to communicat with th uy ytm, and tho tho initia invtmnt nd to mad o vy nw uy that i onoadd. Mo intting tagt induti a makt which a chaactizd y ow voum, high vau invoic, inc th da do not qui a ophiticatd otwa oution and hnc do not nd a high initia invtmnt. 2. Cdit not: At th uy ha appovd th invoic, th uy might notic om hot coming o dct in th good that a uppid y th uppi. Th uy wi utact th cot o th good om th tota invoic amount, howv, i th uppi ha aady dicountd th who invoic, th ank wi mak a o, inc th uy do not pay th u amount, o th ank ha to gt und ack at th uppi, which ha a ow cdit ating and/o do not hav a cint ation with th ank. Fo thi aon, th ank and th uy ag on a tntion at, thi i a pcntag o th tota invoic amount that i not avaia o dicounting. At matuity, th uy wi pay th u invoic amount minu th cdit not to th ank. What i t om th tntion minu th cdit not wi tand to th uppi, i th tota cdit not a ag than th tntion, th uy ha to tt th with utu invoic. 3

41 3. Buy and uppi daut: Th undying ik o th invoic/account civa i th uy ik, hnc a daut o th uy woud iouy act th ank, and ut in ong juidica poc and/o high o. In pactic though, it tun out that ao uppi daut might hamu to th ank, wh th uy wi ty to ind a way out o paying th invoic, y pa xamp cating a cdit not a ag a th invoic. Bank nd to dign thi contact in uch a way that tho cdit not a not aowd xcd a ctain Pcntag o th invoic vau, in ca th cdit not xcd thi pcntag, it nd to ttd with utu invoic. In ca o a uppi daut, thi woud ut in a o o th uy, ut th uy houd ony invit high quaity uppi in to th pogam, uch that cdit not a not iky to xcd thi pcntag. 4. Too high xpou: Athough th nit om v actoing might poitiv accoding to th mod which i dvopd in pviou paagaph, th o om th ank might o uch iz, compad to it tota at, that a uy daut woud igniicanty ham th ank. In ituation in which th xpou to a uy com too ag, th ank nd to ind outid invto, a oth ank, to paticipat in th da and ha th xpou, thi i cad ditiution. Th xtna invto might howv want to invovd o ong piod and hnc duc vnu ov a ong piod. 5. Economic cii: Th cunt uncu and voati Euopan inancia makt povid a ouc o potntia dang to ank. What wi happn? Wi th Euo zon pit up in a dint cuncy o th dicipind Nothn counti, th Nuo, and th Southn counti with udgt and cdit iu, th Zuo? Wi Gc kickd out o th Euo, wi thi od hut down ov night o inancia tanaction and hnc wi ank not gt ack thi und? At thi momnt noody know and hnc invting in Gc and oth outhn Euopan counti ing om ik with it. 31

42 3.6. Concuion Ta 11: Summay o nit and paticipation containt o v actoing o a non capita containd uy and a uy capita containd uppi in impct capita makt. Th it omua in th c o th nit i th a nit, th cond omua i th Tayo i appoximation. Bnit Paticipation containt Buy Suppi Bank Suppy chain π = β β n π = β n π = β β n π = β β π = π c n β β = π = n β β β β π = c n n n n π i n n β β In Ta 11 th nit om v actoing a hown in a ituation in which th uy i not capita containd and a uppi who nd o hot tm inancing xcd th amount o cah that can aid y v actoing. Fom th omua and omua om oth cnaio which a dicud in thi chapt, it can concudd that in od v actoing to add vau in a ituation o auto-dicounting, th uppi nd to hav 1 high inomation aymmty with inancia makt than th v actoing chagd y th ank, coctd o th paymnt piod xtnion and 2 a igniicant nd o xtna hot tm capita. Th nit o th uppi i ag whn 1 th initia paymnt piod i ag, 2 th uppi ha mo inomation aymmty with inancia makt 3 whn th v actoing i ma and 4 whn th paymnt piod xtnion i ma. Fo th uy v actoing add vau whn 1 th paymnt piod i xtndd. And hnc th nit om v actoing o th uy i ag whn 1 th paymnt piod xtnion i ag and 2 th uy intt at i ag. Fo th ank th nit om v actoing i poitiv whn 1 th v actoing pu th uy dadwight cot o capita i poitiv. Th nit o th ank i ag whn 1 th dadwight cot o capita om th uy i ag, 2 th v actoing i ag and 3 th xtndd 32

43 paymnt piod i ag. Fo ank it i tho mo poita to ocu on uy o which thy hav mo inomation. Thi man th ank ha aady invtd in inomation on thi uy and tho inomation aymmty twn th ank and inancia makt on thi uy i igg, impying mo vau o th ank. Fo th tota uppy chain v actoing i poita whn 1 a paticipation containt a mt. Tota uppy chain inanc nit i ag whn 1 dadwight cot o capita om oth th uy and th uppi i ag and 2 initia paymnt piod i ag. Hnc v actoing i mo poita in induti wh paymnt piod a ag. 33

44 4. Intnationa acto Th mod dvopd in chapt 3 ct a v actoing ituation in a domtic tting. In pactic th xpinc i that v actoing i much mo poita in intnationa tad tanaction. In intnationa v actoing th t up do not di igniicanty om th t up in domtic v actoing, ony th incuion o a oca ank in th uppi county i incudd. Thi oca ank can a anch o th uy patn ank in th pogam, o it can anoth ank that ha a oca ootpint. Thi oca ootpint i impotant o ank can vag thi oca ntwok and knowdg. A oca ank i a to pom poc a on-oading and know you cint mo icint and can communicat to cint mo aiy. Fo th domtic ank thi i intting inc it do not nd to ui th uppi on-oading and thy incuding know you cutom poc and o th oign oca ank thi i intting inc it can tak a magin o th tota v actoing. Th intnationa v actoing t up i hown in th igu ow. Domtic Buy Foign Suppi Bank Bank Figu 5: Intnationa v actoing t-up Th pviou paagaph dicud t up chang twn domtic and intnationa v actoing and mntiond that th incuion o a oca ank in th uppi gion can ut in cot advantag in th on-oading and know you cutom poc, howv, ti th qution main why i intnationa v actoing mo nicia than domtic v actoing? Thi wi dicud y making u o th mod dvopd in th pviou chapt. In th pviou chapt i concudd that th nit om v actoing i poitivy atd to th initia paymnt piod, o th ong th initia paymnt piod th high th potntia nit om v actoing. Gnay, paymnt piod in intnationa tad a ong than in domtic tad and tho intnationa tad tanaction a potntiay mo nicia. 34

45 A cond concuion om Chapt 3 i that th tota nit om v actoing i poitivy atd to th inomation aymmty twn th uppi and th makt. Bcau o county pciic and macoconomic ituation, th inomation aymmty o uppi might ag in oign counti than domticay. County pciic iu which contiut to incad inomation aymmty a iu uch a poo inancia makt, no ating agnci and no inancia tack cod o th uppi. Th iu a gnay a pnt in dvoping counti, inc tho counti do not hav w dvopd inancia makt, im in tho counti xpinc cdit ationing. Thi man that thy can not o hady not otain cdit. SME tho do not hav cdit to und gowth and a not a to withtand a inancia cii. Sinc tho im hav no capita makt o intitution to communicat inomation to th makt, thy a chagd a high dadwight cot o capita. Tho v actoing account civa o im in dvoping counti ha high poit potntia than tho o im in dvopd counti. Anoth county pciic acto that contiut to th poitaiity o intnationa v actoing i th capita avaiaiity to th inancia intitution, a cunty ovd in China, th xamp ow, wh again SME a not a to otain cdit, inc ank impy do not hav nough capita to inanc a th dmand and tho invt in mo ia im. Examp: Capita Containt Bank China Lot o SME in China a ncounting inancia pom, inc thy a not a to otain cdit at th gua govnmnt ank. Tho ank p to nd to ag govnmnt copoation, inc thy ik th ik poi o th im ov th ik poi o SME. Lot o SME hav tho witchd to atnativ chann, om o thm iga, wh high intt at a chagd, omtim up to 1% a ya. Th Chin govnmnt i dpat to ovcom tho inancia iu, inc SME mak up 8% o th tota mpoymnt. Tho SME can cunty not cop with thi ica and cdit caim and hav tou in inding cdit. Th Chin govnmnt ha xpd thi concn aout th cunt ituation. Dijk, 211 Maco conomica iu a a cii, a in 28/29, ut in a high poitaiity o intnationa v actoing, inc duing thi cii, ank w tightning thi cdit poici, uting in incad cot o capita o im that w not a to otain cdit at a. Th im tho acd hug amount o dadwight cot o capita and hnc v actoing povid a oid woking capita oution to nu woking capita taiity and kp opation going. 35

46 Mod In an intnationa v actoing tanaction, paymnt a mad in th am cuncy, uuay th uy cuncy, th xchang at ik i thu at th uppi. Th ank pay th uppi in th domtic cuncy and th uy at matuity pay th ank ao in th am cuncy. Howv, inc th uppi civ th domtic cuncy and opat in th oign cuncy, th i om xchang at ik. Sinc th uy and th uppi do not opat in th am cuncy, cacuating th nit om v actoing i not jut compaing nomina intt at o th uy and th uppi. To vau th nit om v actoing o th uppi, th intt at hav to xpd in th am cuncy. H th intt at o th uppi wi xpd in th domtic cuncy, in od to do thi, two nw vaia hav to intoducd, th xchang at twn th domtic and oign cuncy, FX, wh at tim t, 1 unit o th domtic cuncy i vaia that i intoducd i Futh it i ndd to din th uppi intt at, wh i { d, } i intt at componnt,, T FX t unit o th oign cuncy. Th cond F, th owad pic at tim t = o th oign cuncy at tim T. i i th uppi intt at in cuncy i,, pctivy th domtic and oign cuncy. Th am dinition hod o th i β and i. It i now poi to wit intt at in dint cunci y uing th covd intt at paity Hu, 29. Th covd intt at paity tat that it i indint whth mony i domticay intt aing and thn convtd with a owad contact into a oign cuncy o that mony i convtd with th pot xchang at to a oign cuncy and a intt in that cuncy, in omua om thi ook ik: t d T F = T T FX t By aanging tho vaia, it i poi to otain th intt at xpd in a dint cuncy, in thi ca th oign intt at i xpd in th domtic cuncy. d T FX T t FX d t = n T, and hnc ao = n T. F T F T By dining, β and a th uppi intt at, ik pmium and dadwight cot o capita xpd in th domtic cuncy, a omua om th mod in Chapt 3 ti hod. Th ik at o th uppi do not nd to xpd in th domtic cuncy inc th ik at houd th am a ov th wod whn xpd in th am cuncy and hnc th domtic ik at can ud. 36

47 5. Ca tudy In thi ca tudy th mod om pviou chapt wi put into pactic. Th uy and uppi und conidation tt thi paymnt in Euo, 3 month Euio i 1.5% and th inancing at o th uy and th uppi xpd in th domtic cuncy a 2.5% and 5.5% o th uy and uppi pctivy. Th oigina paymnt piod i 6 day, y paticipating in v actoing, thi paymnt piod i xtndd to 9 day. Th inancing at o th uy i compod o.5% ik pmium and.5% dadwight cot o capita. Th inancing at o th uppi i compod o 2% ik pmium and 2% dadwight cot o capita. Th v actoing chagd y th ank qua.25% and a ya i aumd to conit o 36 day. In thi ituation, th vau o v actoing, wh oth th uy and uppi a capita containd, a pcntag o th tota invoic amount a qua to: Buy:.21% Suppi:.6% Bank:.19% Suppy chain:.46% 5.1. Snitivity anayi Contact dvopmnt In thi paagaph th nitivity o th v actoing nit on th contact wi invtigatd. In th contact th v actoing and th xtndd paymnt piod wi pciid, in th gaph ow, th nitivity on th vaia i hown. Bnit nitivity to Rv actoing Bnit nitivity to Extndd paymnt piod.6%.6% Bnit % o invoic.5%.4%.3%.2%.1%.% -.1%.%.1%.1%.2%.2%.3%.3%.4%.4%.5%.5% Rv actoing "" Figu 7: Bnit nitivity to th v actoing π π π π c Bnit % o invoic.5%.4%.3%.2%.1%.% -.1% Extndd paymnt piod Figu 6: Bnit nitivity to th xtndd paymnt piod π π π π c 37

48 Fom Figu 6 can ovd that th tota uppy chain nit i poitivy atd to th paymnt piod xtnion, a ao th nit to th ank and th uy. Th nit o th uppi i ogicay ngativy atd to th paymnt piod, a ao ovd in th mod. Th uppi ha th hight aout gadint in thi ituation, maning that a chang in paymnt piod ha th hight ct on it nit. Th uy ha th hight poitiv gadint with th xtndd paymnt piod, ag than th ank, inc th nit o th uy i dpndnt on th ik pmium and dadwight cot o capita, wh th ank nit i ony dpndnt on th dadwight cot o capita and th v actoing, which i ma in thi ituation. Du to th high againing pow o th ank and th uy, thy wi mot poay xtnd th paymnt piod a much a poi, wh th uppi do not mak a o. In th vntua contact, th xtndd paymnt piod wa ixd at 9 day, howing th ank and uy took th agt potion o th tota uppy chain nit. In Figu 7 it can ovd that, a in th mod, th uy i not dpndnt on th v actoing and on th tota uppy chain nit. It i a ditiution o th nit twn th uy and th uppi, th uy and th ank ditiut th uppi dadwight cot o capita twn ach oth, in th vntua contact thy pit it vny, oth.25% o th tota.5%. Tim ct In thi ction th ct o chang ov tim wi xamind at th contact i taihd. Th xtndd paymnt piod and th v actoing a aady ixd, howv ik pmium and dadwight cot o capita might chang. In th gaph ow, th ct on th vau o v actoing du to chang in intt at i dipayd. Bnit nitivity to Buy ik Bnit nitivity to Buy dadwight cot o capita.5%.45%.4%.35%.3%.25%.2%.15%.1%.5%.%.1%.2%.3%.4%.5%.6%.7%.8%.9% 1.% π π π πc.7%.6%.5%.4%.3%.2%.1%.%.1%.2%.3%.4%.5%.6%.7%.8%.9% 1.% π π π πc Buy ik pmium Buy dadwight cot o capit a Figu 9: Bnit nitivity to th uppi' dadwight cot o capita Figu 8: Bnit nitivity to th uy' dadwight cot o capita 38

49 Bnit nitivity to Suppi dadwight cot o capita.6%.5%.4%.3%.2%.1% π π π πc.% -.1% 1.5% 1.6% 1.7% 1.8% 1.9% 2.% 2.1% 2.2% 2.3% 2.4% Suppi dadwight cot o capit a Figu 1: Bnit nitivity to th uppi' dadwight cot o capita Figu 9 how again that th ank i not actd y an inca in th ik pmium o th uy, thi i cau th tota dicount at i dind a th uy intt at pu a v actoing, hnc th v actoing dicount at i adaptd whn th ik o th uy chang. Ao again it how that a th uy ik pmium inca ov tim, th uppi nit dca, on th intva th nit to th uppi i ti poitiv howv, onc th ik pmium com high than 1%, th uppi houd cau in thi ca. In Figu 8 it i hown that whn th uy dadwight cot o capita inca ov tim, y kping th ik pmium th am, th nit o v actoing inca o th uy and th ank and dca o th uppi. Ova th uppy chain nit inca. Again, whn th uy dadwight cot o capita inca aov 1%, th poitiv nit o th uppi i in dang. Comining thi ut with Figu 9, th uppi poitiv nit om v actoing i in dang whn th tota intt at o th uy inca aov 3%. Fo th uppi th nit om v actoing dop whn it dadwight cot o capita dop ov tim, a can ovd in Figu 1. Hnc th uppi houd cau whn it inomation aymmty with inancia makt i dcaing and houd ngotiat nw tm o quit th pogam in tim Cot o impmntation, maintaining and opating Conidntia 5.3. Gogaphica gion Conidntia 39

50 6. Suppy chain inanc In th intoduction it ha aady mntiond that in thi thi uppy chain inanc i dind a y Camini 28 a th nam attachd to th coction o poduct and vic that inancia intitution o to aciitat th managmnt o th phyica and inomation ow o a uppy chain. Accoding to Bin and Homann 211 can th poduct/oution chaactizd y th oowing ky mnt: - Dmatiaization and automation: By moving pap om th poc and automating th inancia and inomation poc, poc and dciion making can accatd. - Tanpancy: Sinc inomation i aiy avaia du to automation and oth intna and xtna ouc can xchang inomation mo aiy. - Pdictaiity: Du to an incad avaiaiity o data, th uppy chain havio can tudid mo intnivy and hnc it havio can undtood and pdictd tt. - Conto: Bcau o mo tanpancy and pdictaiity, th uppy chain can contod tt. Conto and chck can automatd and impmntd in th ytm which impov monitoing and contoing o th uppy chain. - Coaoation: Both intna and xtna ouc a tiggd to xchang mo data and coaoat, to cat mo tut, win-win ituation and mo ta ation within th uppy chain Paymnt mthod Within intnationa tad, two oad paymnt mthod can idntiid Homann & Bin, 211, tt o cdit LC and opn account OA, wh goay aound 8% o a tanaction a cunty pomd on opn account WPR, 211. An opn account tanaction i ad on mutua tut twn th uy and th uppi. A LC i a tt om a ank guaanting that, povidd that th uppi how th ight ga documnt to th ank, th ank wi pay th ight amount on a pdtmind momnt. Tho it tan th cdit ik om th uy to th uy domtic ank. Thi tanaction y th ank i oy ad on documntation, gad o phyica divy, i th documntation i coct, th ank i oigd to pay. Th ank wi, i poi, cdit th uy. In om intnationa tanaction, th uppi i not atiid i th uy domtic ank tak ov th cdit ik and dmand a oca ank to conim th LC. Maning th uppi domtic ank, at it 4

51 tun, tak ov th cdit ik o th oign ank. So wh opn account i ad on tut, th uppi i tuting th uy to pay th coct amount in tim, a LC tanaction i to ovcom cdit ik o th uy. Fom a ank ppctiv, a LC i a contingnt caim, whn th uy i not a to pay th uppi, th ank ha to pay th uppi and hnc th LC tay o aanc ht unti that momnt. Tho LC a cad o aanc ht itm om th ank ppctiv SCF poduct Oiginay inanc dciion y th ank w ad xcuivy on inancia paamt om th im. By th automation and tandadization o uppy chain poc, which ad to th intgation o th phyica, inomationa and inancia poc, inancia intitution hav oadnd thi taditiona tad poduct oing y dvoping inancia poduct ad on tad documntation and tad tigg point. In th ca o v actoing, thi tad documnt i th invoic and th tigg point i th conimation o th invoic y th uy. Aong th tad poc within a uppy chain, mo documnt and tigg point can idntiid Camini, 28. Th commonaity twn a dint uppy chain inanc oing i that thy a mitigat inomation aymmti on way o th oth. In th maind o thi chapt wi ocud on pciic uppy chain inanc oing: civa inanc, invntoy inanc and pucha od inanc Rciva inanc Rciva inanc can dividd in dint poduct oing, actoing, v actoing, civa pucha and civa cuitization. O th poduct, actoing and v actoing hav aady n dicud in th intoduction, wh it wa mntiond that actoing coud oth with and without cou, actoing without cou i ao cad civa pucha. In civa cuitization, a im put it account civa i a pcia pupo vhic SPV, uuay thi i don y a a agmnt, which man that th im ha od it account civa to th SPV and hnc in ca o daut can not taind to tt dt oigation, in xchang o immdiat cah. Th account civa om th coata o th not iud y th SPV. Whn th account civa in th SPV a ttd, th SPV i a to uy mo account civa om th im, o thi aon th not iud y th SPV hav gnay a ong tno than th account civa it. In thi way th im i a to gt inanc with th civa a coata. Bcau thi SPV uuay gt a high cdit ating than th im it, th im can otain cdit againt ow at and cot than a noma ank oan. Anoth advantag om civa cuitization o th im i that it i o-aanc 41

52 ht inancing, ik v actoing, and hnc do not act th dt capacity and cdit ating o th im Batt & Katz, 28, though it do impov day a outtanding Invntoy inanc Invntoy inanc i a coataizd oan, ackd y th invntoy o a im. Invntoy i howv mo iky coata than account civa, inc invntoy might piha and oo vau quicky o it might had to. To u aout th invntoy vau and how thi chang ov tim, a ank houd a to monito th invntoy coy. Two mthod to conto th invntoy can idntiid; wahou toag and dict aignmnt y poduct ia o idntiication num Sidman, 24. Und wahou toag, th invntoy i tod in a on- o o-it wahou, managd y a thid paty. Onc invntoy i tad in th wahou, th im civ a cipt, thi cipt can povidd to th ank in xchang o a oan. Ony with th cipt, invntoy can tivd om th wahou, and hnc ony whn th im ha paid it oan, it civ ack th cipt and ha acc to it invntoy again. Th cond mthod wok in th am mann, howv, than th poduct that a pdgd a potd to th ank with thi ia num. Main diadvantag o invntoy inanc i that i ha high adminitativ and tanactiona cot and that i on aanc ht inancing, and hnc it might act cdit ating and dt capacity. Lot o woking capita and iquidity i tid up in invntoy, cauing incad ik and coting mony and pac, ducing invntoy woud up capita ut on th oth id it woud duc th vic v to cutom. Fo im that hav itt account civa and a not in th poition to otain a gua ank oan, invntoy inanc i a good atnativ, without oing vic v to cutom. Fo th ank an iu o invntoy inanc i th idua invntoy vau in ca th im daut. Bank houd tho ocu on induti in which th invntoy i non piha, pic ta and thid paty uy can ound aiy, commoditi mt a tho quimnt. Commoditi a highy iquid inc thy a makt tadd at and vau ta and hnc a ida o invntoy inanc. To ovcom th pom with on aanc ht inancing, th im might tmpoaiy th invntoy to th ank, in thi ca th ank howv gt th invoic on it aanc ht and com ia o it. A oution o th pom might, jut a in civa cuitization, to cat a SPV to which th im it invntoy. Sti th invntoy nd to coy monitod y th ank, o thid paty wahou manag, to au th quaity, amount and vau, o th invntoy. Iday th invntoy o th im woud monitod via a thid paty o a dict inkag to th cint ERP ytm. 42

53 Pucha od inanc Rciva inanc i a om o p hipmnt inanc wh invntoy inanc and pucha od inanc a om o pot hipmnt inanc. Invntoy inanc i a inanc oution o im who hav aady invtd in invntoy a aw matia and inihd good, ut not yt od th. Pucha od inanc go uth uptam in th uppy chain cyc y aady poviding inanc whn aw matia nd to puchad, hnc it i a om o p hipmnt inanc Camini, 28. Though th dynamic a th am, two typ o pucha od inancing can ditinguihd. In th it typ th ank povid cah to th im ad on th pucha od, in th cond typ th ank povid tt o cdit to th uppi. Th advantag o th cond typ ov th it on i that it ovcom moa hazad. Whn cah i povidd to th im dicty it can ud to inanc oth uncud pucha od Fnmo, 1998, wh y poviding LC to th uppi th und o th ank a ud to uy aw matia o u. Sti th im nd to hav ound opation to poduc and div th good to th uy. Th dynamic o pucha od inanc y making u o LC a: 1. A im gt a pucha od 2. A ank povid LC to th uppi o that im 3. Th im manuactu th good and hip tho to th uy 4. Th uy pay th invoic to th ank 5. Th ank withhod th inancing and tan th maining to th im 3. Finihd good 2. Raw matia Buy Fim Suppi 1. Pucha od 4. Paymnt 5. Fina ttmnt 2. LC Bank Figu 11: Pucha od inanc dynamic Sinc th im i a to civ inanc ad on utu cah ow intad o it cunt inancia ituation, th im i a to otain mo inancing and hnc tak on igg pucha od. Taditionay, ank ocud on cunt cdit tanding and inancia atio o a im to dtmin th 43

54 cdit imit and at. With pucha od inanc, th im i a to otain cdit ad on a conimd pucha od, vn whn th at on th aanc ht do not aow th im to tak on mo dt. Pucha od inanc i intting o im which a ockd out o taditiona cdit du to th inancia cii om th at ya and th hypcomptitiv makt, ut ti hav hathy opation. Futh pucha od inancing i moty a non-ptitiv uin, im who xpinc an xtaodinay o pak dmand can u it to inanc thi poduction cyc Mai, 2. Fim that do not hav th und to pucha thi aw matia o inanc thi poduction poc coud u it to cop with thi dmand. Thi aow uppi to kp pac with th unpdicta gowth o thi cint Mai, 2. Accoding to King 211 i pucha od inanc a inancing mthod o im to gow ack to thi p-cii iz. Howv, pucha od inanc i not ony an ctiv oution in conomic down tim, it aow uin to capitaiz oppotuniti ipctiv o th conomy tat. King, 211. Fo th ank, pucha od inanc i mo iky than th oth om o uppy chain inanc dicud aov Fnmo, 24. It ntai mo ik than account civa inanc, inc th ank i not ony dpndnt on th uy paying it invoic, ut ao on th im opating quaity. Whn th im poduc ow quaity poduct, o daut duing poduction o vn o poduction ha tatd, th uy wi not pay and hnc th ank wi not gt it und ack. Th ik pucha od inancing i thu dtmind y th poaiity o th uy paying o th poduct and y th quaity and continuity o th im opation. Tho ank houd ocu on tad ation in whom th uy ha povn to a ia tad paty in paying it i and wh uppi hav povn to hav ia opation, in poducing high quaity good, and can xpctd to ui th od. Un thi, ank wi hav to invt in monitoing th uppi, to au th uppi i invting th und in th ight pucha od and to au th opationa quaity. Onc poduct a hippd and th invoic i conimd, th pucha od inancing tan into account civa inancing. Pucha od inanc ha mo ik than invntoy inanc, inc in invntoy inanc th ank tak ownhip o th invntoy, o u th invntoy a coata, which i mo ia than a pucha od. A mntiond, th xpou in pucha od inanc i on oth th manuactu and th uy, i on o th daut th pucha od i woth, invntoy ha idua vau o ank can cov thi und. 44

55 7. Ba III Th Ba committ, taihd in 1974 y cnta-ank govno o tn counti, cunty conit o pntativ om 27 counti and i chaid y M. Stan Ingv, Govno o Svig Rikank, who uccdd M. Nout Wink. Counti a guay pntd y thi nationa ank and y th authoity which i poni o ank upviion wh thi i not th cnta ank. Th guation dvopd y th Ba committ, a not and w nv intndd to gay inding to it mm. It povid howv, upvioy tandad and guidin to it mm, who on thi tun a uppod to u tho tandad and guidin to dvop dtaid aangmnt which uit th oca cicumtanc t. Th mot impotant ojctiv o th Committ wok ha n to co th gap in intnationa upvioy covag in puuit o two aic pincip: that no oign anking taihmnt houd cap upviion; and that upviion houd adquat. 2 To accompih thi, th committ ha dvopd a i o documnt inc Th Ba guation a w know it today, tatd in 1988, whn th committ puihd Ba I, ao cad th Ba Capita Accod, to intoduc a capita maumnt ytm, o a conitnt appication o u aco intnationa ank. Thi cdit ik maumnt amwok aimd to uid a gna minimum capita tandad o 8%, maning that 8% o th ank tota aanc ht houd ackd y own und in od to xi nough to ao unxpctd o. Sinc it intoduction in 1988, th amwok ha com th tandad in not ony mm, ut ao in non mm counti with intnationa ank. In 1999, th Ba committ, puihd th vid Capita Adquacy Famwok, known a Ba II. Thi amwok aowd ank to mau ik mo ganuay y appying vant poaiity o daut at and covy at on coata, o that ank coud pic in ik mo accuaty. Th amwok conit o th impotant pia; minimum capita quimnt, upvioy viw o an intitution intna amnt poc and capita adquacy, and ctiv u o dicou to tngthn makt dicipin a a compmnt to upvioy ot. 2 In 24, th committ puihd th ina vion o Ba II, wh thi coud a ai o nationa guato to impmnt nw anking guation. Und Ba II, ank coud choo twn dint impmntation appoach, dpndnt on th v o ouc dvotd to ik managmnt. Advancd Intna Rating- Bad appoach AIRB i xpctd o intnationa opating ank, wh ank with imitd ouc a xpctd to u tandadid and Foundation Intna Rating-Bad appoach FIRB. Th inancia cii o 28 ha xpod vunaiiti and hotcoming in th Ba I and II anking guation. Athough Ba II wa, via incad tanpancy, dignd to ctiv opation o makt

56 oc whi at th am tim nuing popotiona cot o guation to th ik ank w unning, ank aid on oth howv Ahy, 211: - Ctain ank, o cad hadow ank, vitua anking oganization catd a vhic to hod a ang o inancia cuiti, did not a und th Ba II dicou guation. Und th cuiti ong th coataizd dt oigation CDO, th cuitizd motgag packag that w undd and od, and undd again unti viiiity and ik w too had to a. Sinc th ank did not a und th Ba II guation, om ank ud thm to cap om th guation, why viiiity doppd vn uth. - Ba II did itt to impov ank ik managmnt, o may vn hav won it, inc ank dvoppd thi own ik mod in uch a way that thy hpd duc thi guatoy iaiiti and ank ot ight in th ik accumuating on thi aanc ht. In action to th 28 inancia cii, th Ba committ iud th nw anking guation cad Ba III in Dcm 21, thi nw guation i ad on th on and om th inancia cii wh capita appad not o aoing, iquidity managmnt aid, ank hd xciv vag and inadquat ik managmnt Wod Paymnt Rpot, 211Ba III,211. Th nw guation i dvopd to impov ank iinc to hock aiing om conomic and inancia t, whatv th ouc 3, y impoving ik managmnt and govnanc and tngthn ank tanpancy and dicou, cad th th pia o Ba III. Ba III mov om a uni-dimniona appoach, Ba I and II anking guation ony ocud on capita quimnt, to a muti-dimniona appoach, wh th guation ocu on th mau, capita, iquidity and vag atio 3 : 1. Capita quimnt To nu ank kp nough capita to ack thi xpou, th Ba committ ha incad capita quimnt. Capita i dividd in 2 catgoi in Ba III, Ti 1 and Ti 2 capita, wh Ti 1 capita i th mot cu capita. Th ojctiv o Ti 1 capita i to povid o aoption on a going concn ai and conit o Common Equity Ti 1 CET1, capita uch a common ha iud y th ank, taind aning and oth CET1 quaiia capita, thi capita i cunty ao ing d at a th co ti 1 capita. And Additiona Ti 1 capita that i not incudd in CET1. Th ojctiv o Ti

57 capita i to povid o aoption on a gon concn ai, and conit o itm uch a undicod v, vauation v, gna poviion, hyid intumnt 4 and uodinatd tm dt 5. Th capita atio a cacuatd a capita to Rik Wightd At RWA, and t at a minimum o: CET1 atio o 4.5%, tota Ti 1 Capita atio o 6% and tota Capita atio Ti 1 Ti 2 o 8% 6. On top o th atio, th committ intoduc two u, th capita convation u and countcycica u. Th capita convation u i intoducd o ank to uid up capita in tim o conomic gowth, wh thi u can ud in tim o t. Whn th u i ow 2.5% o CET1, th ank wi tictd in it ditiution o aning popotiona to th hotag. Wh th convation u i ud to uid up and withdaw cah on a mico v ai, o whn th ank i in up o down tim, i th countcycica u ud to iint ov th maco conomic cyc. Th countcycica u i dtmind y th nationa authoity and wi di twn and 2.5% and mut compod o CET1 o oth uy o aoing capita. Fo intnationa opating ank, th countcycica u wi a wightd avag ov it xpou in a gion it i opating. In Appndix D a ummay o th tota capita quimnt can ound Liquidity atio Th it atio th committ dvopd i th Liquidity Covag Ratio LCR. Thi atio houd pomot hot-tm iinc o a ank iquidity ik poi y nuing that th ank ha uicint high quaity iquid at to uviv an acut 3 day ating t cnaio. Th cond atio i th Nt Sta Funding Ratio NSFR. Thi atio pomot th ong-tm iinc o a ank iquidity ik poi y nuing ank a matching ong tm oigation with ong tm unding. Th NSFR aim to imit ov-ianc on hot-tm whoa unding duing tim o uoyant makt iquidity and ncouag tt amnt o iquidity ik in oth on- and o-aanc ht itm. 4 Not: A om o hyid capita, cad contingnt capita o contingnt convti ond CoCo may inc ony cnt ong to Ti 1 capita. On a cnt Euo cii mting, G2 ad hav agd to count th CoCo, und pciic condition, a Ti 1 capita inc thi may hp ank to inca thi capita quimnt to 9% Wim, 211Hod, Pcntag a a o in Jun 211 Ba III viw. Rcnt Euo cii mting Okt. 211 th capita quimnt ha incad om 8 to 9% Jnkin, Th capita quimnt a not th am o a ank, Ba III intoduc dint minimum capita quimnt o dint ank, wh o cad Sytmaticay Impotant Bank SIB, ank with igniicant intnationa covag, wi impod high minimum capita quimnt than ma ank. 47

58 3. Lvag atio On o th atu o th inancia cii wa th uidup o on- and o-aanc ht vag, whi ti poducing good capita atio. Th vag atio i a imp, tanpant, non-ik ad atio that i caiatd to act a a cdi uppmntay mau to th ik ad capita quimnt and i th atio twn th ti 1 capita and xpou. Th initia ti 1 vag atio tt v i 3% wh it i not intndd to a inding containt in th cunt makt o mot ank. In thi atio, th xpou mau do not mak any dinc twn on- and o-aanc ht itm inc o aanc ht a a potntia ouc o igniicant vag and a tho countd o 1% intad o with a cdit convion acto CCF. A CCF ct th ikihood o an o-aanc ht poition coming an onaanc ht itm, and i ud in cacuating th ik wightd at Impact on uppy chain inanc Th iggt impact at ova ank wi poay com om th LCR, ay tudi om th Caing Hou in th US hav indicatd that th top 1 US ank wi nd an additiona $1.1 tiion US Govnmnt ond, which wa aout 6% o th outtanding US T-i in Jun 21, inc thi i aumd to th mot cu and iquid at. Howv, thi wi qui ank to tak on mo ovign ik, a cunty with Gc and Itay, th impact o thi incad dmand on makt iquidity and picing o govnmnt ond i yt unknown. Anoth iu o Ba III, which i not paticuay acting th uppy chain inanc makt, ut th who anking ytm, i dinc in gogaphica impmntation o th guidin. Ba III dgat th impmntation to nationa authoiti, o taditiona tad inanc poduct thi i poay going th Euopan Banking Authoity EBA o tting th LCR and NSFR. Tho uppy chain inanc coud kwd towad counti in which ow quimnt a t. A uth iu i th timing o th impmntation o th Ba III guidin, wh ank in gion with at impmntation wi avod. Anoth iu o Ba III i that it ony act ank, oth non-ank inancia intitution a not ujct to Ba III and hnc hav a nit ov ank poviding uppy chain inanc. Futh Ba III gad impot/xpot oan a vy oth cdit o gua ank oan. Th Committ m to hav ovookd th act that guay tho oan a coataizd y th poduct that a ing hippd and hnc povid a high cuity to th ank than a gua ank oan. Tho tho oan a chagd with high capita quimnt and cot than thi ik dmand Spinadi,

59 In th Goa Rik Tad Financ pot puihd y th ICC Banking Commiion 211 nin intnationa opating ank hav pood togth inomation on thi tad inanc tanaction, daut at, tno, covy at, o givn daut. Though tad inanc i tatd a vy oth at in Ba III, th main concuion o th pot i that daut poaiity i minima, vn duing th conomic cii w than 3, daut on 11.4 mn tanaction ov O-aanc ht inancing ha an vn ow daut poaiity 947 daut on 5.2 mn tanaction. Duing th cii o ao appad to minima 5 o ov mo than 7.5 mn tanaction. O-aanc ht at do not convt to on-aanc ht itm whn paid, inc ank immdiaty imu thmv to thi cint and a uuay haviy coataizd Impact on v actoing In gna, v actoing wi not impactd dinty than oth at on th ank aanc ht. Capita quimnt hav in ov a at, tho ao o v actoing, which mak it mo coty o ank to o v actoing, howv, inc a on aanc ht itm a impactd th am, thi i not xpctd to inunc v actoing dmand dinty than oth on aanc ht uppy chain inanc poduct. Mo o an iu i th ik which i aociatd with v actoing and th nioity o a tad caim in ca th uy daut, who ha a high nioity, a uppi caim, o a ank caim? In Dutch aw, in ca o daut, a caimhod a in pincip qua, paita cditom, and civ a popotiona pat o th vnu om iquidating th im, howv th govnmnt ditinguih twn th caim hod catgoi in which thi pincip i xcutd. Whn a caim in on catgoy a ttd, th nxt catgoy i paid. Th th catgoi a 8 : 1 Pd caimhod 2 Uncud caimhod 3 Suodinatd caimhod. Howv, o tho caimhod caim wi ttd, th cot o daut wi paid, th a cot incud duing th daut pocdu a taxation o th idua vau, aai, nt tc. At th caim a ttd, th pd caim hod gt paid, th a mpoy who a ti ntitd to civ ovdu aay, th UWV Dutch mpoy inuanc povid and th Govnmnt tax authoity. Whn a dt oigation to pd caim hod a uy paid, it th uncud caim hod thi tun to gt paid in tota o patiay dpnding on th idua vau o th im. Uncud caim hod a uppi who uppid good o vic ut do not hav inuanc o coata on tho caim, th caimhod can oth copoation and inancia intitution. Whn a caim o

60 th pd and uncud caim hod a ttd, th uodinatd caim hod gt paid. I y thn, th i ti vau t, thi i tund to th quity hod. A thi Dutch ankuptcy aw uggt, v actoing at account civa a tatd th am noma ank oan to th uy and tho a aignd th am ik wighting in cacuating th RWA. In pactic howv, it m that a uy i mo iky to daut on a gua ank oan than on a tad caim to it uppi, inc paying th uppi guaant uin continuity, wh dt can tuctud mo aiy. Tho v actoing at houd actuay tatd a having ow ik than a gua ank oan. Howv ank a acking a pop dataa on v actoing tanaction with daut and covy at to ack up thi xpinc and tho a una to chang guation Impact on o aanc ht uppy chain inanc Wh th impact on on-aanc ht itm, a v actoing, wi mainy th impact o high capita quimnt and thy high cot, wi th impact on o-aanc ht tad inanc poduct mo igoouy, o tho inttd in th Ba III guation on o-aanc ht inanc, thi can ound in Appndix C Concuion At thi tag, it i not poi to dtmin xacty how Ba III wi impact uppy chain inanc on poduct v. Mot poay it wi cau ank poduct potoio to chang, y moving poduct that a impactd th havit and dvoping poduct that it th nw giation tt. A cot o th who potoio o uppy chain inanc poduct wi inca, ank wi nd to viw thi picing and th inunc o pic chang on dmand. Futh ank nd to au thi makt ha and comptitiv poition compad to non-ank uppy chain inanc povid, inc th a not ujct to Ba III and tho hav ow capita cot. 5

61 8. Futu o uppy chain inanc Rcnt month th goa conomica outook ha wond igniicanty. At optimim ai thi ya, du to poitiv igna at th nd o 21 aout covy om th inancia cii, ik and unctainti hav incad duing th at month. Goa activity owdown, unaancd conomic pomanc ov counti, incaing dt and inancia voatiity, high unmpoymnt at in many counti and conidnc in th conomy ha dcad hapy. Th mau takn y Govnmnt o a hav not n a to cam down inancia makt and to conidnc. Duing cnt month, goa tad ha gown apid a xpctd. Dvopd conomi hav n hit pom in th ang om hinking dmand, th conqunc o natua diat, th ovign dt cii, nationa udgtay iu and cdit condition. Gowth in dvoping counti ha ao n ngativy inuncd y goa dvopmnt, a ign o ovhating in majo mging makt how. Bcau o th ign, th xpctd 211 goa gowth xpctation hav n vid om 6.5% to 5.8%, wh dvopd counti thi xpot gow y 3.7% and dvoping counti y 8.5%. Wod tad oganization, Cunty taditiona tad intumnt a tt o cdit a oing popuaity, aout 8% o goa tad i don on opn account. Though in tim o cii im tnd to tp ack to a taditiona intumnt oon, th tnd towad opn account i xpctd to pit, howv at a ow at than o. Th wod paymnt pot 211 tat that coming ya tandadization initiativ continu to impov icincy, tamin poc and duc cot. It ao povid nw oppotuniti o ank in tm o nw poduct oing, o xamp uppy chain inanc oing. Howv it ao impi that om paymnt intumnt and/o apct o th vau chain a coming commoditizd in th poc. Fo xamp th intoduction o SEPA, Sing Euopan Paymnt Aa, ha movd a tanaction on co od paymnt within Euop. Such dvopmnt mak it o ank mo diicut to dintiat thmv in th goa tanaction vic makt. A dvopmnt that o nw oppotuniti to ank i th SWIFT TSU, Tad Svic Utiity, th pond om SWIFT o th tnd towad opn account tad. Th TSU i a cntaizd matching and wokow ngin poviding timy and accuat compaion o data takn om undying copoat pucha agmnt and atd documnt, uch a commcia invoic, tanpot, inuanc 1. SWIFT i mainy ud o xchang o documnt twn ank, nw in th SWIFT TSU i th BPO, Bank Paymnt Oigation, an ivoca conditiona oigation om on ank to pay anoth ank, ujct to th pntation o compiant data in th TSU

62 and th notic o intnt to pay, which i a mag that on company intnd to pay anoth company. Th two nw atu o nw poiiiti o ank to uid nw poduct oing a p-hipmnt, pot-hipmnt, and v actoing. Wh inancia makt howd uctanc towad CDO and cuitizd poduct in th atmath o th pviou inancia cii, ank dmand o tho poduct inca again. Tho th dmand o cuitization o account civa i xpctd to inca again a w, it on a im pciic ai. Ructanc towad o-aanc ht tuctu wi main and hnc ony im pciic oution wi how gowth, ik oth uppy chain inanc oution. In a cnty puihd ach pot y Dmica , Dmica dicu th utu gowth popct o uppy chain inanc ad on a uvy amongt th top 4 Euopan ank. Dpit th conomic condition in Euop, th ank iv that gowth ppctiv o SCF main tong, though gowth popct hav ducd ighty inc at ya. Rpondnt ao anticipat annua SCF gowth at twn 1% to 3% p annum in matu makt, and 2-25% in mging makt, wh th nd o woking capita inanc i vn igg in od to cop with apid xpanion. SCF gowth wi pimaiy divn y dvopd counti makt uch a Euop and th US, aong with ag mging conomi uch a China and India Impact o cunt inancia cicumtanc Rpondnt to th Dmica ach pot 211 notd that th inancia cii duing 28/29, oowd y ow conomic covy and th pad o th ovign dt cii aco th Euozon and goay, ha givn optimizing iquidity and woking capita th hight pioity within compani. In tim o woning inancia poition, im tnd to xtnd thi paymnt piod to thi uppi. Th inancia poition o th uppi i than impactd dou a had, y dtioating dmand and incad day a outtanding. Futh ank tnd to inca cdit ationing, making it vn had o tho uppi to otain inancing. In th ituation uppy chain inanc povid th oution to ov a tho iu Cavnaghi, 211. Though dmand o uppy chain inanc inca in tim o cii, ank poici might contay to thi dvopmnt. Whn ank com capita containd duing a inancia cii, thy nd to up capita and tho mov at om thi aanc ht pciay now with th incad capita

63 quimnt y Ba III and oca authoiti. Howv, ong tm at a had to iquidat, o th mot convntiona way to up capita in th hot tm i don y cutting at on hot tm iquidating poduct, a uppy chain inanc. A in pviou ction o thi thi ha n povn, SCF i mo poita than noma ank oan, apat om xpniv IT dvopmnt, and hnc houd gt dvotd mo at intad o. Bank tho com in a pit in which a tado ha to mad twn ing up capita to compy with th capita quimnt, o invt mo mony in uppy chain inanc inc dmand o thi typ o inanc i iing. Du to th incaing dmand and tandadization o IT oution, ixd cot can covd y mo da. In cii tim th capita quimnt a gadd mo impotant y ank, udgt on uppy chain inanc wi cut on th hot tm. Howv it i xpctd that on th ong tm ank wi dvot ativy mo at to uppy chain inanc. Fit o a cau in tim o cii ank aiz th tadin o th tanaction vic, d om th iky invtmnt anking and a wiing to invt mo in th tanaction vic. Scondy cau capita can d up on ong tm oigation and invtd in th hot tm, -iquidating uppy chain inanc Tagt makt & induti Athough th gowing impotanc o domtic SCF aciiti, ank xpct that v actoing oution wi tak a nxt tp a copoat and ank a incaingy inttd in xtnding thi ucc into goa pogam Cavnaghi, 211. It ha aady n mntiond that in Dmica ach pot 211 ank idntiy dvopd makt a Euop and US a w a ag dvoping makt a China and India a thi tagt makt. Rgading th concuion dawn om th mod which ha n dvopd in thi thi, it can concudd that ank houd tagt thi v actoing pogam on makt wh thy hav ow inomation aymmti with thi cint, and on cint that hav uppi with high inomation aymmti. In gna th a, a ank tagt, th mo dvopd conomi o ag dvoping conomi wh cdit ationing i high. Th motivation to adopt a uppy chain inanc pogam di aco dvopd and dvoping counti. In dvopd counti im adopt uch pogam mainy in od to 1 optimizing woking capita and 2 minimizing uppy chain ik. In dvoping counti uppy chain inanc pogam a adoptd mainy in od to 1 gt acc to iquidity and 2 na uppi to kp pac with uy gowth. Dmica, 211 Hnc ank houd appoach th uy and uppi in th v actoing pogam dinty, y putting mo mphai on th nit mntiond aov. 53

64 Induti that a gadd th havit u o SCF a tai, conum good, manuactuing, automotiv, ngining and machiny induty. Fo th utu th chmica, phamacutica and tcom induti a ivd to hav uth gowth potntia o SCF. Fom th mod it appad that o v actoing, th nit o th uppy chain i ag whn th initia paymnt piod i ag. In Ta 12 th top iv ongt day a outtanding a hown. Ta 12: Top iv ongt day a outtanding. Induti a ad on th 48 Fama Fnch induty goup ad on SIC, xcuding inancia induti uch a anking, inuanc, a tat, and tading compani 12. Not nough data i avaia on aopac and dn, uin vic, uin uppi, coa, nvionmnta conto, mauing and conto quipmnt, pona vic and toacco. DSO, DPO and DII a avag in Euop. Induty Day Sa Outtanding Day Paya Outtanding Day In Invntoy Comput Sotwa Machiny Mdica Equipmnt Pinting and Puihing Comput Hadwa Bad on thi ta, th induty with th ongt day a outtanding woud povid th mot poit potntia, in Euop, y v actoing, o comput otwa. Howv, a dicud, th poit potntia o intnationa v actoing i ag than domticay. Th uy houd ti ocatd in Euop, ut th uppi houd ocatd in o xamp Aia. It i tho tt to ook at th paymnt tm Euopan uy hav to thi Aian uppi, and tho Euopan induti with high day paya outtanding a o intt. In Ta 13 it i hown that Biotchnoogy and phamacutica hav th ongt day paya outtanding on avag in Euop, though it ha to notd that a induti a quit co

65 Ta 13: Top iv ongt day paya outtanding. Induti a ad on th 48 Fama Fnch induty goup ad on SIC, xcuding inancia induti uch a anking, inuanc, a tat, and tading compani 12. Not nough data i avaia on aopac and dn, uin vic, uin uppi, coa, nvionmnta conto, mauing and conto quipmnt, pona vic and toacco. DSO, DPO and DII a avag in Euop. Day Sa Outtanding Day Paya Outtanding Day In Invntoy Induty Biotchnoogy and phamacutica poduct Appa Comput Sotwa Ectica quipmnt Conum good High dinc can ound in day in invntoy, invntoy inanc ha mot potntia in th hom uid induty, wh avag day in invntoy a 453 day. Th compt it o woking capita mau p induti in Euop can ound in Appndix E Chang & Oppotuniti In pactic ot o dint dinition o uppy chain inanc xit. Bank o oth inancia intitution with uppy chain inanc nomay to v actoing. Copoat guay pac uppy chain inanc on a oad pctum, incuding a tad atd inancing oution. Bank aady o a ot o poduct that uppot th nti cutom uppy chain, om p hipmnt inanc to pot hipmnt inanc, ut do howv not din it a ing uppy chain inanc. Th aon o thi i th taditiona poduct ad io tuctuing o ank intna oganization. Thi tuctu pvnt ank om ing comind poduct oing and co ing o dint poduct Syvg, Akton, 211 Bank a tuctud thi way inc it o conomi o ca in th ack oic, howv thi tuctu ha tanatd into th a oc and hnc poduct a ony od paaty and cint hav many dint contact within th ank. By oing SCF vic intad o individua poduct, ank can uppot a cint uppy chain nd to nd. Accoding to Syvg & Akton 211 houd ank a to anw a cint qution a: I I nd 1 miion o a month to idg my iquidity, what a my option? Th ank houd thn a to popo dint atnativ to th cint a: You can dicount you ou Chin xpot LC, inca you actoing to 75% o u you ovdat aciity. To a to o uch oution ank houd conoidat thi a oc and chang thi KPI to uppot compt SCF vic. 55

66 To uppot uch vic, ank houd hav th ight tchnoogica patom in pac. Bank digita chann a ao dvopd upon th poduct io and tho cint hav va ogin and intac with thi ank. Accoding to Syvg & Akton 211 ank coud uid an additiona appication on top o thi cunt appication with a modua tuctu, which mak it ay to o dint poduct, o dvop nw vic ad on th od poduct. Howv thy mntion that tchnoogy i not a tictiv acto in dvoping tho conoidatd oing, ank houd mak advantag o ytm that a aady in pac. On IT oution Camini 211 tat that a ank uin i to manag mony and not IT, athough thy nd to kp pac with makt tnd and dvopmnt on th tchnoogy id. H ao mntion a tnd towad IT oution which povid cint acc to a poduct and thi own inancia tatu in on ovviw. Copoat cint a dmanding tandad IT oution that can opat with thid paty otwa oution and povid inanc om mutip ank. Bank that hav aady invtd in popitay SCF IT oution a xpctd to maintain thi own ytm and invt in nw na o coaoation and muti-ank connctivity. Bank that do not yt hav a uy intgatd uppy chain inanc vic wi adopt SCF IT oution povidd y pciaizd thid paty vndo. Camini, 211 Fo th uppy chain inanc makt to mov to th nxt pha, mo uniomity and tandadization i ndd. Uniomity in undtanding and dinition o SCF within th makt and tandadization in IT oution, without a connu on th maning o SCF tm, coaoation twn anking intitution might pov diicut Dmica, 211. Cunty a oution nd to taiod to vy ing cutom, onc o xamp -invoicing woud accptd and impmntd on a ag ca, a ag v actoing makt woud opn up. In Dmica ach pot 211 ponding ank indicat that nxt to th impmntation o th pogam and tchnoogica iu, ga and juidictiona iu i on o th top concn ank ac. 56

67 9. Concuion & Futu ach 9.1. Concuion In thi thi a mod ha n popod to vau v actoing o th uy, uppi and ank, in oth domtic and intnationa tting. It ha n povn that, a thoy aady uggtd, v actoing do not add vau to th uppy chain in pct capita makt. In pct capita makt in might ony cau a ditiution o incom. Howv, inc away on o th th paticipant wi mak a o y changing th paymnt piod o intoducing a v actoing, th tad tm wi main th am and hnc noody wi mak a poit. By intoducing inomation aymmti into th mod, it ha n povn that, und th ight contact, a th paticipant a a to mak a poit. Bad on th dvopd mod, th oowing concuion on th poitaiity can dawn: Suppi - In od o v actoing to add vau, th uppi nd to hav; 1 high inomation aymmty with inancia makt than th v actoing chagd y th ank, coctd o th paymnt piod xtnion and 2 a igniicant nd o xtna hot tm capita. Th nit o th uppi i ag whn 1 th initia paymnt piod i ag, 2 th uppi ha mo inomation aymmty with inancia makt, 3 whn th v actoing i ma and 4 whn th paymnt piod xtnion i ma. Buy - Fo th uy v actoing add vau whn 1 th paymnt piod i xtndd. And hnc th nit om v actoing o th uy i ag whn 1 th paymnt piod xtnion i ag and 2 th uy intt at i ag indpndnt o compoition twn ik pmium and dadwight cot o capita. Bank - Fo th ank th nit om v actoing i poitiv whn 1 th v actoing pu th uy dadwight cot o capita i poitiv. Th nit o th ank i ag whn 1 th dadwight cot o capita om th uy i ag, 2 th v actoing i ag and 3 th xtndd paymnt piod i ag. Fo ank it i tho mo poita to ocu on uy o which thy hav mo inomation. Thi man th ank ha aady invtd in inomation on thi uy and tho inomation aymmty twn th ank and inancia makt on thi uy i igg, impying mo vau o th ank. Suppy chain - Fo th tota uppy chain v actoing i vau adding whn 1 a paticipation containt a mt. Tota uppy chain inanc nit i ag whn 1 dadwight cot o capita om 57

68 oth th uy and th uppi i ag and 2 initia paymnt piod i ag. Hnc v actoing add mo vau in induti wh paymnt piod a ag. By xtnding th am wok om domtic v actoing to intnationa v actoing, it ha n povn that in intnationa tting th potntia addd vau i much igg. Thi i cau intnationay dinc twn inomation aymmty and cdit ationing a much igg. Fom th nitivity anayi pomd on a a uin ca within RBS, it appad that ov tim, th vau o th pogam o th uppi can com ngativ. Tho th uppi houd nu th contact ha nough aty magin o th intt at o th uy to uctuat. Futh th uppi houd monito th pogam and quit th pogam o ngotiat th tm onc th pogam do not add vau anymo. Fo th ank om opationa iu w idntiid a w, though not om th mod ppctiv. Fo ank, impotant opationa iu a, cdit not, uy and uppi daut, too high xpou, conomic cii, high t up cot and Ba III guation. High t up cot com om th IT dvopmnt ndd to uid an automatd intac twn th uy and th ank. Though Ba III do not impact v actoing dinty than oth on-aanc ht at, it appa in pactic that th ik o a tad caim i ow than that on a gua ank oan. Dpit th upcoming conomic cii in Euop, uppy chain inanc i xpctd to gow y 1% to 3 in dvopd counti and 2% to 25% in dvoping counti. Thi gowth wi pimaiy divn y dvopd gion uch a th USA and Euop and th ag mging makt a China and India. Tagt induti o v actoing in tho counti a cunty tai, conum good, manuactuing, automotiv, ngining and machiny induty. Fo th utu th chmica, phamacutica and tcom induti a ivd to hav uth gowth potntia. In od o uppy chain inanc to tak th nxt tp om condition hav to mt. 1 Makt connu, 2 Standadization and 3 Oganizationa chang within ank. Within th uppy chain makt, dint dinition o uppy chain inanc xit. Moty uppy chain inanc i ud a ynonym o v actoing, whi y oth it i ud a a coctiv noun o a inancia poduct uppoting th nd to nd uppy chain. In od o ank and oth pay in thi makt to mov to th nxt tag n anw a gowing dmand o w-ad muti-ank oution, ank houd ag on tho dinition. Futh tandadization i ndd in od to mak uppy chain inanc oing avaia o a wid puic. Cunty SCF pogam nd high dvopmnt invtmnt, th can ony compnatd y onoading ag cint. Onc poduct and IT com mo tandadizd th 58

69 oing wi ao com avaia to th SME makt. Finay ank nd to chang thi intna tuctu om a poduct ad io tuctu to a hoitic tuctu that i a to und dint inancia poduct and uppot th nd to nd uppy chain Futu ach & Rcommndation Th mod that i dvopd in thi thi i a ing piod mod, in which it i aumd that th invoic i dicountd immdiaty and that th tota invoic amount in known upont. Though in aity, a v actoing pogam i taihd o mutip ya and hnc utu intt at and invoic amount a unknown. To invtigat th ct o vaia intt at th nitivity anayi i pomd in Chapt 5, though mo ach i ndd on thi topic. It i xpctd y pactition that th hot tm intt at nomay do not tnd to uctuat much and hnc th vau o th pogam i quit ta ov va ya. Howv thi ing nd to conimd y utu ach. Nxt to intt at ao th utu invoic amount i unctain. Though th impact o tochatic nd o hot tm inancing i invtigatd in Appndix A and y Rindop & Taniv, 211, mo ach i ndd on impoving cunt ocating mod. Epciay o ank thi i impotant inc thy nd to mak high initia invtmnt in th pogam to uid th IT patom. In Chapt 5.2. th cot o th pogam a timatd and it ha n hown that a conida amount o invoic nd to dicountd to outwigh tho cot. Th mthod to timat tho cot houd ao ind y RBS. Fo thi anayi th input o Tad Advio, who timatd th tim that pop pnd on va activiti, i ud. To mak a tt timat o th cot, mo input on th handing tim i ndd. Thi can don y diving dp into th poc and go to th pop actuay poming th activiti, though Tad Advio a invovd in mot activiti and hav a ptty good ova viw o th poc th might xit om miconcption ading to onou timat o pogam cot. Though in thi thi th Ba III guation ha n addd, it i yt too ay to povid th impact on a poduct v. Wi du to incad cot and capita quimnt poduct oing kw to pciic poduct? At thi momnt it i xpctd that a on-aanc ht itm wi impact th am, though thi houd invtigatd mo thooughy whn th guation od out and impmntd y ank. Ova ank nd to a th picing o thi poduct potoio and au thi makt ha and comptitiv poition compad to non-ank SCF povid, inc th a not impactd y Ba III. 59

70 Athough acadmic puication on v actoing a acking hind on th mo pagmatic itatu, th nti id o v actoing ha n xpod quit w. In od to aow ank and oth pay in th uppy chain inanc makt to tak a hoitic appoach to SCF and o nd to nd oution to uppot th nti uppy chain, mo ach houd don on oth individua SCF poduct and hoitic SCF oution. In thi thi invntoy inanc, pucha od inanc, civa cuitization and th ank paymnt oigation a aady addd iy, mo ach i ndd. 6

71 61

72 Biiogaphy Akton, M., & Syvg, M. 211, Augut 3. Suppy Chain Financ Oppotuniti and Chang: Fom a Bank' Ppctiv. gtnw. An & Ovy. 28. Rguatoy Capita, An & Ovy Biing Pap No. 4, Intna Rating Bad Appoach to Cdit Rik In Th Bnking Book. An & Ovy. Ahy, S. 211, Octo 3. Th Ba III chang and goa ank om. Financia Tim. Bank o intnationa ttmnt. d. Hitoy o th Ba Committ and it Mmhip. Opgopn op 211, van Ba Committ on Bankin Supviion. Dcm 21 v Jun 211. Ba III: a goa guatoy amwok o mo iint ank and anking ytm. Ba: Bank o Intnationa Sttmnt. Ba Committ on Bankin Supviion Tatmnt o tad inanc und th Ba capita amwok. Ba: Bank o Intnationa Sttmnt. Bk, J., & DMazo, P. 27. Copoat Financ Intnationa Edition d.. Paon. Batt, J., & Katz, A. 28. Funding though th U o Tad Rciva Scuitization. In F. Faozzi, Handook o Financ pp John Wiy & Son, Inc. Booz & Co. d. Woking Capita Poi. Opgopn op Dcm 211, van Camini, E. 29. Suppy chain inanc. Jouna o Paymnt Statgy & Sytm, 3 2, Camini, E Suppy Chain Financ IT Soution Povid. Ait. Capgmini, Th Roya Bank o Scotand, Ema Wod Paymnt Rpot 211. Cavnaghi, E. 211, Augut 3. Suppy Chain Financ: A Too o Managing Suppi' Countpaty Rik. gtn. Cavnaghi, E. 211, Juy 12. th Evoution o Suppy Chain Financ: Muti-domtic Soution. gtn. Cot, J. 27, Januay 3. Suppy chain inanc utiid to av mony inancia vic. Financia Tim, p. 18. DEMICA Intnationa Link? DEMICA. Dijk, B. v. 211, Octo 13. Schudncii ij Chin middn- n kindij. Ht Financi Dagad. 62

73 Dun & Badtt. 211, Augutu 29. Ndand dijvn tan kningn n dan and EU-Landn. Opgopn op Januay 17, 212, van Dun & Badtt: EOS EOS Tn Nation Suvy 211 Euopan Paymnt Pactic. EOS. Fnmo, E Pucha-od inancing. Th Scud Lnd. Fnmo, E. 24. Making Pucha-Od Financing Wok o You. Th Scud Lnd, Homann, E. 25. Suppy Chain Financ: om concptua inight. St. Gan: Univität St. Gan. Homann, E., & Bin, O Suppy Chain Financ Soution. Hidg: Sping. Hod, C. d. 211, Novm 2. Buoigati kijgt niuw kan dankzij uitkomt Euop top. Ht Financi Dagad. Hu, J. C. 29. Option, Futu, and oth Divativ. Paon. Hutz, N. 21. Suppy chain inanc: Fom myth to aity. McKiny on Paymnt. McKiny. ICC Banking Commiion Goa Rik - Tad Financ 211. Intnationa Cham o Commc. Jnkin, P. 211, Octo 11. Euop' ank ac 9% capita u. Th Finnancia Tim. King, E Gowth in a Down Makt: Pucha Od Financ Gow Compani. Th Scud Lnd, Kapp, L. 26. Th o o actoing o inancing ma and mdium ntpi. Jouna o Banking & Financ, Mai, J. 2. Uing pucha od inancing to compmnt nio nding. Commcia Lnding Rviw. Modigiani, F., & Mi, M. H Th cot o capita, copoation inanc and th thoy o invtmnt. Th Amican Economic Rviw, Poh, H.-C., & Gomm, M. 29. Suppy chain inanc: optimizing inancia ow in uppy chain. Logitic ach, Rindop, M., & Taniv, F Vau o Rv actoing in Muti - tag Suppy Chain Woking pap. Sidman. 24. Woking capita inanc. In Sidman, Th aic o uin inanc pp Si, R. W., & Sit, D. 29, Octo. Suppy chain inanc - What' it woth? IMD Ppctiv o manag. 63

74 Sopanztti, B Th Economic o Factoing. Jouna o Economic and Buin, Spinadi, J.-L. 211, May 17. Tad Financ and Ba III: Whn Rguation Bcom Countpoductiv. gtnw. Stigitz, J. E., & Wi, A Cdit Rationing in Makt with Impct Inomation. Th Amican Economic Rviw, 71 3, Summ, B., & Wion, N. 2. Tad Cdit Manangmnt and th Dciion to U Factoing: An Empiica Study. Jouna o Buin Financ & Accounting, SWIFT. d. Tad Svic Utiity. Opgopn op , van Vaicu, L. g. 21. Factoing - inancing atnativ o SME. Univity o Caiova, Romania, Facuty o Economy and Buin Adminitation. Wim, M Waak voo t v optimim ondom uoigati. Ht Financi Dagad. Wod Tad Oganization Ovviw o Dvopmnt in th Intnationa Tading Envionmnt. Wod Tad Oganization. 64

75 Appndic 65

76 66 Appndix A Stochatic hot tm oan in impct capita makt In th mod in pio chapt th hot tm oan th uppi nd at tim = t wa aumd to dtminitic, what wi happn to th nit om th uppi and th ank whn thi hot tm oan i mad tochatic. By making th hot tm oan tochatic, th nit to th uy do not chang, inc thi nit i not dpndnt on th uppi oan, th nit o a uy who do not nd hot tm inancing tay: n β β π = Fit th hot tm oan i aumd to ik nuta uniomy ditiutd on M L, wh in it intanc M i aumd to ma than th maximum amount that can dicountd y making u o v actoing, o M β. = M M dl L L E n n 1 ] [ β β π [ ] M M n n L L L L E ] [ β β π = n n M M E ] [ β β π = Tayo i appoximation: ] [ 2 1 n n M E β β π Rv actoing add vau in thi ituation whn: n n L β β Th poaiity o v actoing ing vau adding hy com: 1 1 n n n n n n M L P L P = < = β β β β β β Th ik nuta nit o th ank in thi ituation i givn y: = M M dl L E 1 1 ] [ π

77 67 [ ] M M L E ] [ = π 1 ] [ 2 1 = M E π Whn th hot tm oan i again aumd to ik nuta uniomy ditiutd and again M L, ut now M β, th xpctd nit om v actoing in a non autodicounting ituation com. = n M dl L L E 1 ] [ β β π M M n n dl 1 β β M M E n n n n ] [ = π = M M M dl dl L E ] [ β β β π [ ] [ ] M M M L L E ] [ = β β β π 1 ] [ M M E = β β π Howv, th omua o th poaiity o v actoing adding vau main th am.

78 Appndix B Cot o impmntation Conidntia 68

79 Appndix C Impact o Ba III on o-aanc ht itm In Chapt 7 th gna outin o Ba III and it impact on on-aanc ht uppy chain inanc and in paticua uppy chain inanc hav n dicud. In thi chapt th impact o Ba III on oaanc ht tad inanc wi dicud. In Ba III o-aanc ht itm, a tt o cdit, a ujct to th am mau a oth at, capita quimnt, iquidity atio and vag atio. Capita quimnt a cacuatd ad on a 2% cdit convion acto CCF und oth intna ating ad IRB cdit ik vauation mthod. In Foundation IRB FIRB and Advancd IRB AIRB th ank povid thi guato with thi timat o th poaiity o daut PD o thi cdit xpou. In FIRB th oth mau Lo Givn Daut LGD, Expou At Daut EAD and th ctiv matuity o xpou M a povidd y th guato. In AIRB ank cacuat a tho ik mau with thi intna mod An Ovy, 211. Th 2% CCF xp th poaiity o th o-aanc ht poition coming on-aanc ht, it i not atd to th ik o th countpaty which i xpd y th PD. Bank woud ik to hav a CCF ow than 2% and th ICC Banking Commiion ackd thi up with data on tad inanc daut and o, pood om nin intnationa activ ank. Th Ba Committ and th ICC Banking Commiion did howv concud that th CCF i mo than uicint, th Ba Committ addd that th data pntd wa mo vant on th poaiity o daut than on th oaanc ht at coming on-aanc ht and hnc did not ow th CCF a. A aady mntiond, und th AIRB, ank a quid to mau th ctiv matuity o ach aciity in cacuating th ik wightd at. Howv, thi matuity i ujct to a on-ya matuity oo. Som xcption to thi u xit o tanaction which a hot-tm -iquidating. It ha n agud that thi on ya matuity oo i ao inappopiat o hot tm -iquidating tad tanaction du to thi hot tno w ow on ya. Thi i ao ackd y th ICC Banking Commiion 211, thy tat that th avag tno o a tad poduct in thi data t i 147 day, o o-aanc ht poduct i 13 day. Th Ba Committ ha agd with thi and hnc ik wightd at on tho tanaction can cacuatd with th ctiv matuity ow on ya BIS, 211. Tad inanc ha an impotant unction in ow incom counti in timuating tad. Epciay conimd tt o cdit, wh a oca ank o a paty xpoting to a ow incom county tak ov th ik o oign ank y coniming th tt o cdit o thi ank. Nomay a cdit caim to a ank in a ow incom county i ujct to a ik wighting o 5% o vn 2% o hot tm caim th month o. Howv Ba guation tat that th ik on a inancia intitution can nv ow 69

80 than th ovign in which th ank i ocatd, nomay 1% in tho ow incom counti. Thi woud mak tad inanc xta coty in tho counti o woud vn ock tho counti out o tad inanc. Tho th committ ha dcidd to mov th ovign oo on hot-tm -iquidating tt o cdit BIS, 211. Though at a o-aanc ht, thy a tatd with a CCF o 1% in cacuating th vag atio. Athough it coud man high capita quimnt, it do not ncaiy man that man that ank nd to hod mo capita. It coud ony man that thi capita compoition houd chang, y hoding mo iquid at. Bank t thi 1% CCF wa too high o hot-tm -iquidating tad inanc, howv th Committ did not chang it guation accodingy. Th vag atio ha n dignd to imp and not ad on any dintia ik wighting, hnc y giving th om o tad inanc a dint tatmnt th Committ woud dviat om th ojctiv o thi atio BIS,

81 Appndix D Ba II capita quimnt Ta 14: Ba III capita quimnt in pcntag ouc: Ba III Common Equity Ti 1 Ti 1 Capita Tota Capita Minimum Convation u 2.5 Minimum pu convation u Countcycica u ang

82 Appndix E Woking capita mau p induty Ta 15: Woking capita mau p induty in Euop Induti a ad on th 48 Fama Fnch induty goup ad on SIC, xcuding inancia induti uch a anking, inuanc, a tat, and tading compani 12. Not nough data i avaia on aopac and dn, uin vic, uin uppi, coa, nvionmnta conto, mauing and conto quipmnt, pona vic and toacco. DSO, DPO and DII a avag in Euop. Induty Day Sa Outtanding Day Paya Outtanding Day In Invntoy Aopac and dn Appa Auto & Tuck Bvag Biotchnoogy and phamacutica poduct Buin vic Buin uppi Chmica Coa Comput Hadwa Comput Sotwa Contuction and uiding matia Conum good Diviid Manuactuing Ectica quipmnt Ectonic quipmnt Enttainmnt Envionmnta Conto Food Poduct Hathca Hom Buid Machiny Mauing and Conto Equipmnt Mdica Equipmnt Mining and Mta Oi and Ga Oi and Ga Svic Packaging and Contain Pap and Pup Pona Svic Pinting and Puihing Rcation Rtauant and Hot/Mot Rtai St Wok Tcommunication Toacco Tanpotation Utiiti Whoa

83 73