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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 (a form of asset based lending and reverse factoring) 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 supplier finance/vendor finance programme.

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 asset based lending supply chain finance platform, Citadel SCF, streamlines the execution of a supply chain finance solution through the complete automation of the supply chain financing process, bringing cashflow benefits to both buyers and suppliers, and a simple, automated transaction management solution for financiers.

The Supply Chain Finance Structure

The reverse factoring process begins with the supplier sending an invoice to the buyer. The buyer approves the invoice and uploads it to the supply chain finance platform, thereby creating an irrevocable payment obligation. The supplier is now able to sell the invoice (i.e asset based finance) 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, thanks to supply chain financing, is able to pay the financier on day 75.

The success of a supply chain finance (payables financing) solution hinges on the real-time visibility and integrity of invoice data, to enable all participants in the structure to track invoices, advance payments and settlements. If the process were not automated, the key efficiencies of lending against eligible invoices would be lost in the costs of manual processing. The key phases of implementation of the vendor finance/supplier finance programme are outline below.

Implementation of a Supply Chain Finance Solution

We work with our clients from the initial phase of a supply chain financing solution to ensure a successful ongoing asset based lending, reverse factoring, supply chain finance programme.

Phase One – Feasibility of Supply Chain Finance

  • We analyse the payables financing history of the buyer and their trading terms with individual suppliers
  • We deliver an indication of the potential improvements and efficiencies in costs, payment terms and cash flow

 

Phase Two – Implementation of Supply Chain Finance

  • We design the optimum structure for the supply chain financing programme
  • We work with suppliers to offer advice and training on vendor finance/supplier finance
  • We test all aspects of the supply chain finance (reverse factoring) platform’s performance rigorously prior to launch

 

Phase Three – Processing of Supply Chain Finance

  • We launch the supply chain finance / asset based lending programme
  • We support the buyer and suppliers of the supplier finance / vendor finance programme
  • We add new suppliers and ensure their smooth integration into the ongoing supply chain financing 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