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Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
Financial Supply Chain - Bottomline Technologies
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Financial Supply Chain - Bottomline Technologies

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  • 1. SWIFT Business ForumLondon 2013Lunchtime Information SessionRewriting the rules of financialsupply chainMarcus Hughes, Director BusinessDevelopment, Bottomline Technologies
  • 2. Marcus Hughes, Business Development DirectorSWIFT Business Forum, London, 30 April 2013
  • 3. Agenda• Trade finance’s evolving landscape• Cash flow challenges for buyers and suppliers• Bank Payment Obligation mitigating risk and enabling SCF• Role of International Chamber of Commerce• De-risking implementation
  • 4. Bank Payment Obligation: coming of ageDefinitionAn irrevocable undertaking, given by a bank to another bank, thatpayment will be made on a specified date, after successful electronicmatching of data, according to an industry-wide set of rules• Like an LC but faster, cheaper, data, electronic matching• Mitigates risk• Enables supply chain finance• Adoption challenges• ICC involvement
  • 5. Risks and longer credit terms in internationaltradeFinancialriskCommercialriskTransportriskEconomicriskPolitical andstability riskNeed for risk mitigation and financingLetters of creditDocumentary collectionsStandby LCsGuaranteesForfaitingReverse factoringFactoringInvoice discountingCredit insurance
  • 6. Traditional trade finance: Letter of creditSupplierBuyerSupplier BankBuyer BankHundreds of years’ usageConditional guarantee of paymentDocuments checked manuallyRule book: UCP600Risk mitigationCollateral for integrated financeBut: Slow, paper-based, labour-intensiveCostly processing / bank fees
  • 7. Increasing open account% of x-bordertrade on LCdeclining,although valuesremain steadyGlobal value ofCross-bordertrade(USD billions)0204060801001950s 1970s 1980s 1990s05,00010,00015,0002000sBanks seeking new revenue sources and lower processing costsGlobal trade will double by 2020 to USD 33 trillion (WTO)80%+ of global trade now open account
  • 8. Dominant payment term is now OpenAccountSupplierBuyerSupplier BankBuyer BankPurchase orders, invoices, likedomesticLess costly than LCsFlexible, fast, more electronicBut: No payment assuranceSMEs struggle to access creditBanks’ limited roleDis-intermediation riskPayment fees down:Regulation, competition
  • 9. Trend in cross-border trade over last 30yearsOpen AccountLCBank services• Risk mitigation• Financing• Document processing• Payments & FX• Greater automation with new MT798Bank services• Banks involved at tail end of cycle• Payments & FX• Poor visibility limits financing options
  • 10. Cash-flow challenges for sellerShipGoodsSalesInvoiceDisputeCreditControlCollectDSO• Get paid quickly• Or payment assurance• Manage / reduce Days SalesOutstanding• Buyer squeezes SME supplier toextend terms• SME bears higher borrowing costs:Sneak into higher prices for buyer• Sub-optimal use of supply chaincredit quality
  • 11. SupplierInvoiceCheckGoodsDisputeApprovePayCash-flow challenges for buyerDPO• Pay as late as possible• Increase Days PayablesOutstanding• Typically delay payment,especially to SMEs• Cash rich buyers press for earlypayment discounts• Dynamic discounting• Growth of reverse factoring• Require fast invoice approval
  • 12. Bank Payment ObligationOpen Account LCBPOCost effectivealternative to LCsRe-intermediateBest of both worlds: LC and open account• Risk mitigation and integrated finance benefits of LC• Efficiency of open account and e-invoicingPO, BL, invoicedata matching
  • 13. The BPO: Electronic data matchingMatching ofcontract dataTransferof fundsMatching ofdataBuyer Seller1) Sign contract (PO)2) PO data 3) SO data4) Match PO/SO data & confirm6) Match requested datasets & confirm5) Datasets8) Transfer funds7) Debit buyer 9) Pay sellerFINPO= Purchase Order; SO= Sales OrderTSUBank A Bank BBuyer SellerBank A Bank BTSUBuyer SellerBank A Bank BBPO is establishedBPO is dueTrade is settled5) Datasets
  • 14. Case 1Payment assurance for sellerI need to offer paymentassurance to my supplierand confirm purchase ordervia my bankI will substitute for thecreditworthiness of my customerand guarantee the futurepayment to seller’s bank (BPO)for a feeI want to be certainthat I will be paid ontimeBased on the BPO issuedby buyer’s bank , I canguarantee payment to mycustomer23 41SellerBuyerURBPO &ISO 20022on TSUBPO ObligorBankBPO RecipientBank
  • 15. Case 2Pre-shipment finance for supplierI want my supplier toincrease its financialresilience and willconfirm the POI want to access cost-effective financing tocover mymanufacturingexpenditure sBased on BPO issuedby buyer’s bank, I willoffer pre-shipmentfinance to mycustomerI will guarantee futurepayment to the seller’sbank upon the confirmedpurchase order3412Financing servicesURBPO &ISO 20022on TSUSellerBuyer BPO ObligorBankBPO RecipientBank
  • 16. Case 3Post-shipment finance for supplierwhen invoice issued (before approval by buyer)I want my supplier toincrease its financialresilience and will issuea BPO to facilitate post-shipment finance by theseller’s bankI want to be paid asearly as possibleafter the shipment tothe buyerI will guarantee the futurepayment to the seller’s bankbased on the submission ofcompliant transport andinvoice dataBased on the BPO issued bythe buyer’s bank, I will offerearlier payment to mycustomer123 4Financing servicesURBPO &ISO 20022on TSUSellerBuyer BPO ObligorBankBPO RecipientBank
  • 17. Case 4Import finance for buyerPost-shipment finance for supplierI accept the goodsdelivered by myseller but wouldlike to pay at alater dateI will guarantee the payment (BPO)to the seller’s bank and will offerthe extended payment terms to mycustomerBased on the BPO issued bythe buyer’s bank, I can alsofinance the receivables of mycustomer before buyerapproves the invoiceI shipped the goodsto the buyer and Iwant to be paid ontime, or optionally inadvance123 4Financing servicesURBPO &ISO 20022on TSUSellerBuyer BPO ObligorBankBPO RecipientBank
  • 18. The BPO enables SCF to start earlierThe UR BPO and ISO 20022 standards enable banks to extend SCF offeringsto risk mitigation and pre / post-shipment financingOrdering Production Delivery Invoicing Payment &cash mgmtInvoiceIssuancePurchaseOrder (PO)TransportDocumentsInvoiceApprovalCertificates PaymentGoodsAcceptancePayment risk mitigationPre-shipment financePost-shipmentfinanceReceivablesFinancePaymentProcessingTransforming open account paymentsinto SCF opportunitiesHigh-risk zonePayment assurance & financing servicesNo/Low-risk zone(Early) Payment services
  • 19. The BPO extends range of SCF modelsTradeServicesUtilityBuyer’s BankSupplierBuyer BuyerSupplier3 corner supplier finance 4 corner model• Reverse factoring / approved payables finance• Suppliers managed by buyer’s bank• Issues: On-boarding, documentation, KYC• No standards• Multiple proprietary platforms• Flexible finance options (pre / post shipment)• Suppliers managed by local banks• Supports partnership banking reach• Common standards and rules• Greater reach and scalabilityBuyer’s BankSupplier’s BankBPO
  • 20. The BPO is backed by ICC rulesNew trade instrument offering payment assurance,risk mitigation and financing, based on standard structured data,industry rules and electronic matchingICC Uniform Rules forBank PaymentObligations
  • 21. Why now ? Drivers for adoption of the BPO• Open account growing: Needs integrated finance, payment assurance• BPO: Cost effective alternative to LC• ICC commitment: Rules for BPO and Model Sale Contract• Complements supplier finance with pre and post-shipment finance• Faster processing and cost savings• Bottomline’s cost effective, low risk approach to adoption
  • 22. De-risking BPO implementationTradeServicesUtility(TSU)fscLIVEObligor Bank Recipient BankSupplierBuyerAutomating data translation and message flowsDifferentiators• Hosted• Removes complexity and cost• Links PO, invoice, BL, BPO• Data transformation• On-boarding, connectivity• Hosted bank BICs• Low risk• Subscription based• Catalyst for adoption• Early adopter pricingISO 20022Simple to get started
  • 23. Thank youQ&A

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