Market strives to take supply chain finance beyond DPO extension

Rebecca Spong

date: November 19, 2020

Rebecca Spong summarizes the DPO-related points of the SCF Global Forum 2020.

Momentum is growing behind new applications of supply chain finance (SCF) that will take the technique far beyond only looking to extend the days payable outstanding (DPO) metric.

Panellists at this year’s SCF Forum Global outlined their efforts to explore new frontiers in SCF including the development of purchase order financing, sustainability-linked supplier finance, inventory financing and the use of receivables trading via a marketplace.

Martin Schlageter, head of treasury operations at healthcare company Roche said the corporate was working with a couple of banks on the new Trade Information Network [a multi-bank platform set up by six founding banks last year] which would allow banks to look at the purchase orders to suppliers and assess their appetite to prefinance those orders.

By offering purchase ordering, a corporate buyer can “offer the full cycle of supplier support,” said Schlageter. He remarked that banks had a “big appetite” for this new opportunity, but they had to get comfortable with how to finance and assess the risk of the purchase order.

Roche is currently liaising with the German manufacturer Knorr-Bremse on how to work with the new multi-bank platform.

He added that there are many ‘unknowns’ with new applications of SCF but added that this is the “beauty of piloting something”.

“You are doing something for the good…that will be beneficial for the suppliers,” he said.

Fellow panellist Fabio Manca, director, working capital solutions at Arviem outlined the company’s efforts to develop the use of inventory financing, using examples of inbound to manufacturing financing and finished products financing involving the purchase of finished products from the manufacturing company to then export and sell to country distributors.

He said that the challenge of pushing at the frontiers of SCF financing is the continued silos within companies between departments.

“If we are able to integrate different players to look holistically…all these solutions are easily accessible,” he said.

Frederic Lelieur, operations controller, working capital optimisation, at Nestle outlined the global food and drink company’s efforts to expand the use of SCF, noting how the company started in the mid-2000s with SCF solutions led by an individual bank, with different platforms operating in different countries.

By 2016 Nestle collaborated with CRX Markets, a receivables marketplace which works as a “central engine” from which the company can scale up its regular supply chain finance offering as well as explore other solutions such as inventory financing and purchase order financing.

This year Lelieur said Nestle has pushed the boundaries of SCF even further by adding sustainability-linked financing to its offering.

Invoices from suppliers that have met certain environmental, social and corporate responsibility (ESG) standards will be able to be uploaded to the platform and secure preferential financing from investors or banks looking specifically for this type of receivable.

The technology employed by the new solution ensures the invoices are traceable to ensure their ESG compliancy and can be segregated from other invoices on the platform.

Lelieur noted that the product is only as good as what you can certify throughout the supply chain.

Looking to the future, he agreed with other panellists that differing priorities of stakeholders could hold back progress with different applications for SCF solutions.

Rebecca Spong

Rebecca Spong is an experienced freelance journalist with a demonstrated history of working in the writing and editing industry. Skilled in journalism for online and print publications. Rebecca is interested in finance, business and Middle East-focused stories. She has a Post-Graduate Diploma in Broadcast Journalism from City University.