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Supply Chain Finance

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Supply Chain Finance Overview

There is a growing corporate demand for financially efficient supply chains, with companies and their suppliers under conflicting pressures to improve payment terms, reduce prices and improve cash flow efficiencies.

Supply chain finance (SCF) is based on the practice of selling invoices at a discount in exchange for advance cash payments from a third party. SCF is designed to create stability in the supply chain, producing working capital efficiencies for buyers and their suppliers and protecting against commercial  risks within a buyer's supply chain. SCF solutions aim to improve the financial efficiency of the supply chain, resulting in both suppliers and buyers enjoying a substantial reduction in working capital through the programme. SCF can provide credit and/or liquidity to any link in the supply chain.

Demica’s expertise in payables financing, reverse factoring structures and working capital solutions enables our clients to implement optimal supply chain finance  solutions based on the real-time reporting of asset data. Demica's web-based Citadel SCF platform is a robust infrastructure that streamlines the execution of a SCF solution through the complete automation of the process, bringing cash flow benefits to both buyers and suppliers and a simple, automated transaction management solution for financiers.

Structure

The SCF process begins with the supplier sending an invoice to the buyer. The buyer approves the invoice and uploads it to the SCF platform, thereby creating an irrevocable payment obligation. The supplier is now able to sell the invoice to the financier at an attractive rate, based on the buyer risk. The payables financing transaction is designed to be a “true sale” where the risk is transferred from the supplier to the financier. For example, in a supply chain with 75-day terms, it is possible for the supplier to receive payment on day 5, at a low cost, while the buyer is able to pay the financier on day 75.

The success of a SCF solution hinges on the real-time visibility and integrity of invoice data, enabling all participants to track invoices, advance payments and settlements. Efficient automation is the key: manual processing is much more expensive.

Feasibility, Implementation and Processing

Demica works closely with clients from the initial feasibility phase of a SCF solution through to the implementation and processing, to ensure a seamless and successful project. Typically we:

  • analyse the payables financing history of the buyer and their trading terms with individual suppliers;
  • deliver an indication of the potential improvements and efficiencies in costs, payment terms and cash flow;
  • design the optimum structure for the SCF programme;
  • work with suppliers to offer advice and training on SCF;
  • test all aspects of the SCF platform’s performance rigorously prior to launch;
  • launch the SCF programme;
  • support the buyer and suppliers of the programme;
  • add new suppliers and ensure their smooth integration into the ongoing SCF programme.
 

Citadel SCF enables any or all of the parties in supply chain financing solution to track invoices, their performance and the funding in a consistent format.

More information on the Citadel Platform