Although Supply Chain Finance (aka reverse factoring) is a well established technique, legal constraints, from both the buyer's and the seller's perspective may become roadblocks, at inception or during the life of the programme. Find out how and why !

1. Supply Chain Finance : A few legal aspects
Alexandre Clar,
Treasurer (EMEA)
Eurofinance – Budapest, Oct 2014

2. Just a few slides about …
1. Legal documentation
2. Directive 2011/7/EU
3. From the buyer’s perspective
4. From the seller’s perspective
5. Termination ?

3. 1. Legal documentation
• For the Buyer group
 Paying Agency Agreement
 Buyer and Bank document A/P data transmission and payment at
maturity
 + adherence letters for each buying entity
 Web tool Service agreement
• For the Seller group
 Master Accounts Receivables Purchase Agreement
 = no recourse factoring agreement
 At an amount = face value less discount charges
 KYC process !
• For both Buyer and Seller
 No need to open bank account(s)
 No banking fees

4. 2. Directive 2011/7/EU in a nutshell
• New Directive transposed since March 16, 2013
 fights against late payments in commercial transactions
 lays down common minimum requirements / more favorable treatment to
creditor possible on a country basis
• Business to Business payment terms
 The period for payment fixed in the contract does not exceed 60 calendar
days, unless otherwise expressly agreed in the contract and provided it is not
grossly unfair to the creditor
 Late payment interest at ref rate + 8% + recovery costs (min 40€) + legal fees
and debt collection agency costs
 If term is not fixed: payment latest 30d from receipt of invoice

5. From the Buyer’s perspective
• Principle
 Directive aims at REDUCING payment terms.
 Save for FR & ES, payment terms still remain subject to negotiation.
 Possible to apply >60 days PT if expressly agreed and not grossly
unfair (based on circumstances, including commercial practice,
dependence of supplier, objective reason to deviate).
 Supplier may object that existing terms are a) binding & cannot be
changed save against price increases, b) are industry practice, c) are
hence fair.
• Strategy
 Case by case analysis for key suppliers by volume (contract?
applicable law? commercial practice in the segment?)
 Determine purchasing entity to minimize impact of Directive,
 Purchasing in country X a good from country X is High risk situation.

6. From the Seller’s perspective
• Principle:
 Directive does not force / automate PT reduction. No magic
tool. 90d remains 90d.
 Shortening terms = negotiation: payment terms can be
negotiated down to 30d by leveraging local law. Expect
pushback from dependent customers (not grossly unfair).
 Contract: amendment required / PO: change in terms. If
rejection … negotiation
• Strategy
 Ad hoc analysis (written contract or not? applicable law?
commercial practice? Duration of relationship? Existing terms?).
 Monitor upcoming regulations in application of the directive –
where possible, leverage national laws imposing mandatory terms
favorable to Seller (France, Spain). Change selling entity ? Charge
late interest ?

7. What about termination of a SCF program?
• Frequent termination clauses
 Agreement on PT extension may have a fixed term, then back to
legacy
 60d notice if SCF has adverse consequences to Seller
 a) with PT’s unchanged or b) back to legacy PT’s
 Back to legacy PT’s, if and when SCF program is terminated by Buyer
 SCF program will terminate if agreed volumes are not met after two
years
• Less frequent termination clauses
 Commercial agreement with revised PT’s subject to Libor ratchet

8. QUESTIONS ?
• PPG SCF main features (EMEA)
 Single sponsor bank : BNP Paribas (no exclusivity)
 €150 MM oustanding receivables
 €40 MM working capital reduction (delivered)
 Up to €300 MM outstanding discounted receivables
 EUR, GBP, USD, PLN, CZK, HUF
 One discount rate across the board
 New payment terms = quarter end + xxx days
 No centralized payment on behalf of the buying entities, so far