Supply Chain Financing workflow and Supplier Finance Program proposed, compared between local and regional existing program.

1. Supply Chain Financing

2. 1
Agenda
1 What is Supply Chain Finance
2 Supplier Finance Program

3. What is Supply Chain Finance?
Capturing the trade flows of our Principal Client
2
Suppliers
MNC / LLC
Principal
Buyers

4. Product / Programs Under SCF
3
Supplier
MNC / LLC
Principal
Buyers
Supplier Finance Program
Pre & Post Shipment
Account Receivables Finance

5. Challenges in a Typical Procurement Process
 Financial costs of Supplier based on its financial strength –
cost is passed on to Principal in sales price
 Cost incurred in LC issuance
 Advance payments eat up working capital
4
Financial
 Paper intensive process
 Transaction / Processing costs of payments
 Supplier might not always be paid on time and this impacts
the relationship & liquidity of Suppliers
Transaction
Process
 Supplier’s ability to extend credit quantum is limited by its
borrowing capacity
 Supplier has limited capabilities in extending credit period
Credit
 Suppliers have limited working capital to support Principal’s
growth
Growth Potential

6. What is Supplier Finance Program
 Supplier Finance is where Bank finance key suppliers recommended
5
by the Principal
 Financing provided to suppliers is specific to purchases made by the
Principal
 Financing can be made in both pre-shipment (against purchase
order) and / or post-shipment (against an invoice)
 Post shipment finance can be made either before or after the invoice
is accepted for payment by the Principal
 Under post shipment, Bank pays the supplier upfront and collects
from the Principal on due date
 Credit limit decisions are made on the Principal-Supplier supply
chain and not purely on financial strength of the supplier

7. Funding is Offered at Various Stages
6
Pre-shipment
financing
Post-shipment
financing
Supplier based solution
Post acceptance
financing Payables based
Payables based
solution
Post acceptance
financing Invoice based
Principal
issues a PO/ LC
to the Supplier
Supplier ships
goods and
invoices the
Principal
Principal
accepts invoice
Principal
records payables
in the
balance sheet
Principal
makes payment
at maturity
What is Supplier Finance Program
Funding Offered Under Supplier Finance Along The Supply Chain Activity
Regional Supplier Finance Program local-supplierfinance

8. Supplier Finance – Workflow
1) PO to supplier
7
7) Payment
2) Copy of PO
4) Goods and DO/BL
Principal
3) Pre-Shipment
Loan
Loan tenor based
on asset conversion
cycle
5) Copy
of DO/BL
Immediately upon shipment
of goods, supplier has to
forward copy of shipping
docs to Bank
6) Post-Shipment
Loan
Post-shipment loan is
created to extinguish
pre-shipment loan
Supplier
Bank

9. What is Supplier Finance Program
Supplier Finance – Workflow of Post-Shipment Financing
1) PO to Supplier
2) Goods and DO/BL
8
Principal
3) Copy
of DO/BL
Upon shipment of goods,
Supplier sends copy of invoice
& shipping docs to Bank for
Post Shipment finance
OR
Supplier sends the accepted
invoices for Post Acceptance
Finance
Supplier
4) Post-Shipment
Finance
5) Payment
Bank

10. How Supplier Finance Addresses your Challenges
Key Issues Current Issue Under Bank’s Solution
9
Liquidity
 Limited ability to extend credit terms due to
liquidity position of Suppliers
 Credit terms can be extended to meet
Principal’s requirements
Growth
 Supplier has limited credit facilities & is
unable to support your growing business
 Supplier finance enhances your Suppliers’
access to working capital
Processing
Costs
 Payment-related transaction costs are
incurred by you
 Payment-related transaction costs are
minimized
Procurement
Costs
 Financial costs of Suppliers are part of
working capital cost i.e. passed on to
Principal
 LCs had to be issued to enable Suppliers to
secure financing
 Principal’s involvement in the financing
solution can help reduce finance costs of
Supplier
 Suppliers no longer require LCs to secure
pre-shipment financing
Balance Sheet
Impact
 Principal might have to make advance
payments to assist Suppliers
 Any direct financing assistance to Suppliers
impacts your balance sheet
 Pre-shipment financing no longer requires
advance payments to assist Suppliers
 Financing is provided by Bank directly to
Suppliers

11. local-SupplierFinance – Generic Workflow
Supplier Finance – Workflow of Payables based solutions
Principal 1) Delivery of goods and/or services Supplier
2) Payment Obligation / Due Date
Bank
10
Ideally fully
automated
processing

12. Differences between local-Supplier Finance & Regional
SF Program
11
Regional Supplier Finance Program
 No legal/ financial obligation of Principal to
Bank
local-Supplier Finance
 Principal has a legally binding obligation to
Bank
 Requires credit lines on the Principal  Does not use Principal’s credit lines
 No Credit facility to the suppliers  Bilateral credit facility by Bank to the
suppliers
 All suppliers recommended by the
Principal are eligible
 Involves supplier evaluation by Bank – all
suppliers might not be eligible (subject to
KYC)
 Always with recourse to Principal  Always with recourse to Supplier & no
recourse to Principal
 Supplier can achieve off balance sheet  Supplier cannot achieve off balance sheet
 Full internet capability  Minimal internet capability to begin with

13. THANK YOU
12