ANNUAL SURVEY —BEST SUPPLY CHAIN FINANCE PROVIDERS 2010
Joining The Chain Gang
By Anita Hawser
The leading players in the supply chain finance business demonstrate the benefits of innovation and commitment to a growing market.
A lot of the hype surrounding supply chain financing that existed a few years ago has died down, but those banks and non-banks that remain committed to the business have raised the stakes when it comes to investing in technology platforms and automated solutions that reduce inefficiencies and costs associated with the manual aspects of the order-to-pay process. Although payables supply chain financing still remains the most common form of financing, based on approved payables by the buyer, which suppliers are able to view with a Web browser and selectively discount, financial services providers are developing more-innovative financing solutions that extend deeper into the supply chain—including the pre-shipment stage when suppliers or their distributors often require financing so they will be able to buy or manufacture more stock.
Bank credit lines are still difficult to obtain for some companies, and supply chain financing is providing a viable alternative, although in many cases it depends on recognition by large multinational buyers that their smaller suppliers may need working capital assistance, particularly if credit terms are extended. The more-innovative forms of financing, which target the early stages of the supply chain before the invoice is issued to the buyer, require banks and other providers to have a deeper understanding of their customers' supply chains and the relationships between buyers and suppliers in those chains. Not all banks have the risk or credit appetite for this type of financing, but some are steadily moving in this direction, particularly those banks that have a strong footprint in emerging markets and good relationships with local buyers and suppliers. As small and medium-size suppliers make up the bulk of large buyers' supply chains, increasingly financing must center on suppliers rather than buyers. Those providers that are serious about the supply chain financing business also continue to invest heavily in technological and Web-based platforms that enable suppliers to join supply chain financing programs more quickly, as well as facilitating the automatic upload of approved invoices by buyers. Some providers are also developing more supplier-centric platforms that enable companies to sell their receivables.
The winners of the Global Finance Supply Chain Finance Providers Awards are those organizations that stand out as remaining committed to the business and to providing ever more effective and useful solutions for their clients. In this year's awards we particularly applaud those innovative companies that have developed platforms that enable multiple financing providers, including banks and non-banks, to participate, thereby increasing the financing options available to companies that most need it.
Best Global Supply Chain Finance Bank
With an unrivaled global footprint, including a trade presence in 80 countries, Citi used its global network and know-how to keep the wheels of global trade turning throughout the financial crisis. Paul Simpson, global head of Treasury and Trade Solutions, says Citi is committed to expanding its presence and employing local talent on the ground. "Employing local people who have grown up in these countries is important as they understand trade finance in that market," he explains. Citi has more than 600 buyers and 57,000 suppliers participating in its supply chain financing programs. It is also focused on automating the supply chain end-to-end with its Supplier Finance platform. This is part of Citi's Procure to Pay solution, which incorporates all steps in the accounts payable process from the point of purchase to electronic invoicing, dynamic discounting, which is provided by Ariba, and Citi's payments, trade finance and commercial cards offerings. In the context of the US Treasury's $5 billion Auto Supplier Support Program, Citi's automated platform enabled suppliers to view their risk exposure to automakers. "By automating the purchase order [and] invoice, and having structured processes around payables, you are completely changing the game," says Simpson.
Best Global Supply Chain Finance Provider (Non-Bank)
A consistent winner in this category, Orbian remains committed to supply chain financing at a time when other non-bank providers have exited the business or become victims of the recent financial crisis. In 2009, Orbian supported more than 40 buyer supply chain finance programs and initiated more than $4 billion in supplier funding transactions. Its client list includes such names as General Mills and Siemens. One of its distinctive selling points is its "trust-enabled funding model," which means any financier (bank or non-bank) can participate regionally or globally without cost, giving customers a wide range of financing options. "Last year was all about delivery of operational excellence and financial performance as the supply chain finance market continued to mature," says Thomas Dunn, chairman of Orbian. In 2009, Orbian launched six new programs, renewed major client contracts and delivered sustained profitability after years of significant investment. Last year was a banner year for Orbian, says Dunn. "Transaction volumes exceeded $50 billion, the company maintained its error-free transactional performance, and we celebrated our 10th year in operation," he says.
Best Supplier Support & Enrollment
To make its platform faster to operate at the supplier's end, PrimeRevenue developed automated processes to educate and enable suppliers. Suppliers can access a "custom microsite," branded by the buyer, which guides them through the registration process. No hardware or software needs to be installed as PrimeRevenue's SCF platform is delivered through a Web browser using the software-as-a-service model. The company claims that most users are able to view receivables and make trades after a 30-minute online training session. "Our dedicated Supplier Solutions team works to ensure that program deployment best fits a supplier's financing needs and pre-enrollment requirements," says Robert Kramer, vice president, Working Capital Solutions, PrimeRevenue.
Best Payables-Supplier Financing Solution
Payables supplier financing is the most common form of supply chain financing and is typically based on approved payables or invoices from the buyer. The strategy facilitates early payment or payment on maturity date to the supplier. This year Standard Chartered wins this category for its innovativeness, particularly when it comes to implementing wide-ranging supply chain financing solutions for suppliers situated across a swath of emerging markets. For a major sports apparel retailer that wanted to extend credit terms with its vendors, Standard Chartered developed a vendor financing program that enables vendors to access funding despite the extended credit terms. This involves onboarding vendors across a range of markets spanning Asia, Africa and South America and making the Know Your Customer and credit approval processes less onerous for vendors. Vendors are nominated by the retailer, and funding is provided on a post-shipment, post-approval basis. A similar solution has also been put in place for other leading retailers.
Best Pre-Shipment Financing Solution
In line with its truly innovative approach to assessing not only the credit quality of buyers and suppliers but also the strength of their commercial relationships, Standard Chartered is making substantial inroads in the pre-shipment financing space, where there is no pre-approved invoice triggering payment or financing. Working with a scooter manufacturer in India, the bank was able to provide its dealers, who typically had problems accessing cost-effective financing, with pre-shipment financing. As the dealers were more readily able to access funds, such financing reduced balance sheet risks for the manufacturer. The deal is 100% covered by insurance, which means the cost of financing for the dealers is reduced as they are not required to pledge collateral or security to the bank.
Best Customer Implementation of Supply Chain Financing Solution
Royal Bank of Scotland and Saab
Swedish defense and aerospace company Saab does business with some of the largest and wealthiest sovereigns and corporates in the world. So when it wanted to maximize its working capital, Royal Bank of Scotland structured a receivables purchasing solution that enabled Saab to transfer the credit risk of its receivables portfolio to the bank. The solution provides an off-balance-sheet structure. Saab gets paid from day one, thereby freeing up liquid assets that can be invested in new projects. Key ratios improve as indebtedness is reduced and return on equity improves. As Lars Granlöf, Saab's CFO, explains: "Currently the defense market is subject to significant changes, which are affecting Saab, and therefore we want to strengthen our financial position. The cash generated through this program will primarily be used to pay down existing debt and is another step to improve our cash flow and working capital."
According to RBS, the receivables purchase program is the first of its kind to be enacted in the Nordic countries. The structure is flexible, so Saab can react quickly to any changes in its liquidity requirements by increasing or decreasing the liquidity created by the program almost immediately. A further strength of the program is that it leaves Saab's existing payment arrangements with clients untouched. "While it is obviously very important to structure a transaction that is legally sound and that achieves the desired accounting treatment for our client, we strive to create solutions that go beyond fulfilling the minimum requirements," states Anil Walia, head of global trade and supply chain advisory at RBS. "A satisfied client is our biggest reward."
Best Web-Based Supply Chain Financing Solution
PrimeRevenue's SCF platform is provided on a software-as-a-service basis, which reduces the up-front investment required to get started. "PrimeRevenue prides itself on being the leading open, multi-bank supply chain finance provider, managing the world's largest SCF programs with industry-leading technology and services," says Robert Kramer, vice president, Working Capital Solutions, PrimeRevenue. PrimeRevenue also provides automated supplier education and enablement.
Citi has trade experts situated in a number of key US markets, including New York, Washington DC, Los Angeles, San Francisco, Chicago, Miami and Tampa. As the US government acknowledged the need to get trade finance back on an even keel in the wake of the crisis, Citi was the participating bank in the US Treasury's $5 billion Auto-Supplier Support Program in 2009 and onboarded 1,000 suppliers in a short time frame. "Supply chain financing has been a two-to-three-year evolution for us in terms of helping our clients support their ecosystems," says Paul Simpson, global head, Treasury & Trade Solutions, Citi. Citi also worked closely with export agencies like Export Development Canada to facilitate short-term trade finance for exporters.
Royal Bank of Scotland
Competition among supply chain finance providers within Europe is increasing as a handful of transaction banks focus on the short-term working capital needs of buyers and their suppliers. Yet, while there are an increasing number of contenders, Royal Bank of Scotland continues to have the edge. As of December 2009, more than 600 suppliers were using its MaxTrad platform to sell their receivables to RBS. The bank says it discounts more than £100 million ($147 million) in supplier invoices each month, a 377% increase over 2009. Recent innovations include reducing the documentation required to onboard suppliers from 16 pages to three pages. It has also modified its MaxTrad platform to ease the onboarding of suppliers and provides multibank solutions for multinational buyers. "Innovation in legal documentation, flexibility in processing structures and a broad set of technical solutions encompassing bank-owned and third-party-owned systems have been the hallmark of our supply chain business over the past year," says Adnan Ghani, head of global trade finance at RBS. "Clients recognize this, increasing our commitment to perform even better."
In recent years Standard Chartered has invested heavily in its supply chain financing business and, as an emerging-markets bank that has forged relationships with local buyers and suppliers, it is well placed to understand their needs, particularly those of small and medium-size suppliers, which make up the bulk of the supply chain. This understanding has helped it develop a wide range of financing solutions covering pre- and post-shipment as well as distributor financing. Standard Chartered has also adopted a different, more holistic approach to assessing the credit quality of buyers and suppliers. The bank looks at the strength of the commercial relationship between the buyer and its suppliers rather than focusing just on the balance sheet or financial strength. Standard Chartered maintains that this enables it to better meet the needs of buyers and suppliers, particularly in emerging markets, and to provide financing much deeper into the supply chain.
As an early adopter, Santander has provided supply chain financing, or global confirming, as Santander calls it, to its Latin American customers for more than two decades. Last year the bank's supply chain platform channeled €43 billion ($53 billion) in payments to suppliers in more than 40 countries. The bank takes this business seriously, not only extending financing but also providing automated solutions and other support services, including supplier workshops and e-invoicing. The bank remains committed to growing and enhancing its supply chain financing business. Its board has approved a double-digit percentage increase in resources for the development of working capital solutions. Technology enhancements include supporting the new ISO 20022 XML standards, broadening the languages supported within its contact centers and building a new payment hub that will enable the bank to process, receive and send a wider range of payment types from any location.
Central & Eastern Europe
With a presence in 19 countries across Central and Eastern Europe, UniCredit is well placed to service the financing needs of local buyers and suppliers. Its global trade management business incorporates a wide range of services and solutions from i-Faber, its tender/auction marketplace, to pre- and post-shipment as well as vendor financing. The bank's highly automated trade purchase platform enables buyers to upload approved invoices, which are then bundled by maturity date. The supplier is presented with a proposal for discounting invoices, which it can accept wholly or in part, selecting invoices individually for discounting. In specific CEE markets, UniCredit has developed bespoke solutions. In Poland, for example, CEE subsidiary Bank Pekao offers a trade support system that upholds a wide range of trade receivables financing solutions, including invoice discounting, supply chain finance, distributor finance and end-to-end channel financing. UniCredit is also working on a bulk-receivables purchase platform that will enable suppliers to upload receivables for purchase.
SEB claims to have a 70% share of the Nordic supply chain finance market. SEB takes a broad-brush approach to the financial supply chain, incorporating not only working capital but risk management and overall efficiency. To help companies achieve greater efficiencies in their financial supply chains, SEB uses a corporate financial value-chain methodology which measures the degree of sophistication and benchmarks it against industry best practice to elicit greater enhancements. Recognizing the need to intervene as early as possible in the supply chain, SEB recently launched an inventory financing solution, which finances the suppliers' inventory of finished goods. As a result, they are able to continue producing goods even during periods of subdued demand. Where the approach really stands out is in its demonstrated ability to combine supply chain financing with other solutions in the cash management, trade finance and logistics spaces.
With a strong foothold in 14 countries within the region, HSBC is well placed to serve the needs of local buyers and suppliers and has clearly demonstrated that it has the risk appetite and the balance sheet to support an array of financing options for SMEs, middle-market companies and large corporates. Its market penetration of the SME segment is particularly noteworthy as this is often where the greatest financing need is. Typically, large buyers want to extend days payable outstanding, which affects the working capital of suppliers. Like most major trade finance banks, HSBC has invested heavily in platforms that facilitate electronic document exchange, eliminating paper where possible.
A presence in 13 key African markets counts for a lot when you are trying to meet the needs of local buyers and suppliers. Leveraging its distinctive credit evaluation approach, which looks not only at the balance sheets of potential customers but also at the strength of the relationship between buyers and suppliers, Standard Chartered maintains it is well placed to devise innovative financing solutions to meet the needs of buyers and suppliers in emerging markets. In Africa the bank offers a wide range of financing solutions, including a portfolio receivables service whereby financing is provided against a portfolio of receivables based on the quality of the receivables, the management profile and the underlying goods and services. It also offers pre- and post-shipment financing, as well as distributor financing, a service that enables distributors of certain goods and services to procure more goods from a company. Some of the solutions Standard Chartered has provided in the region include helping African mining companies finance their smaller business partners and vendor financing solutions for large multinationals.