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Supplier Finance Program Workflow

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

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Supplier Finance Program Workflow

  1. 1. Supply Chain Financing
  2. 2. 1 Agenda 1 What is Supply Chain Finance 2 Supplier Finance Program
  3. 3. What is Supply Chain Finance? Capturing the trade flows of our Principal Client 2 Suppliers MNC / LLC Principal Buyers
  4. 4. Product / Programs Under SCF 3 Supplier MNC / LLC Principal Buyers Supplier Finance Program Pre & Post Shipment Account Receivables Finance
  5. 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. 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. 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. 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. 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. 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. 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. 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. 13. THANK YOU 12

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