getting paid much earlier

getting paid much earlier Contents Understanding SCF Reverse Factoring Towards an integrated platform Alternative Business Models getting paid much earlier

Supply Chain Finance optimizes cash flow throughout value chains SCF is about managing Cash flows SCF stands for a set of solutions that: .. provides Early Payment to suppliers .. lengthens Payment Terms for buyers .. minimizes risk throughout chains Supply Chain Finance optimizes cash flow throughout value chains getting paid much earlier

getting paid much earlier Optimizing Cash Flow procurement T10 T30 T60 T60 T30 T10 sales STRESS EP LP EP LP SUPPLIERS NEED EARLY PAYMENT / BUYERS WANT LATE PAYMENT getting paid much earlier

turning unpaid invoices into cash Invoice Discounting vs Factoring turning unpaid invoices into cash Reverse Factoring Invoice Discounting Factoring the lender assumes control of payment collection from your customers. DIFFERENCES IN “RECOURSE” “LEGAL TITLE” “COLLECTION” many variations exist .. it is sometimes hard to distinguish between the two concepts getting paid much earlier

Africa accounts for 1% of the global market A global $2 trillion dollar market FACTORS CHAIN INTERNATIONAL Africa accounts for 1% of the global market getting paid much earlier

USD 2.3 trillion per year / mostly domestic getting paid much earlier

getting paid much earlier … growing very fast Growing 10%+ per year getting paid much earlier

getting paid much earlier Departure Point Distributor Farmers INV $50 /30 INV $100 /30 $50 / DAY 30 Buyer Seller $100 / DAY 30 EARLY PAYMENT vs LATE PAYMENT suppliers require EARLY PAYMENT distributors require LATE PAYMENT getting paid much earlier

Distributor Financing EARLY PAYMENT SOLUTION Supply Chain Finance means different products Supplier Distributor INV $50 /30 INV $100 /30 Buyer / Seller $47 / DAY 2 $50 / DAY 30 $53 / DAY 60 $97 / DAY 2 $100/ DAY 30 $103/ DAY 60 Supplier Financing Buyer Financing Seller Financing Distributor Financing EARLY PAYMENT SOLUTION LATE PAYMENT SOLUTION FACTORING SOLUTION LATE PAYMENT SOLUTION getting paid much earlier

getting paid much earlier In this presentation we focus on Suppliers BUYER INV $50 /30 SUPPLIERS $50 / DAY 60 getting paid much earlier

getting paid much earlier Suppliers … payment on T2 or on T60 ? BUYER INV $50 /30 SUPPLIERS BUT HOW ? $50 / DAY 30 T2 payment T60 $48 (re)payment $50 $2 interest getting paid much earlier

labour intensive process The problem with Invoice Discounting Relationship Bank will only discount invoices for established (SME) clients Verification Bank will need to assess status + standing of each BUYER Confirmation Bank will need to confirm authenticity of each invoice Value Bank will focus on larger tickets (in view of laborious process) Margin Bank will maintain a buffer margin and only advance 60-80% Recourse Bank will retain recourse on SUPPLIER (in case BUYER reneges) Buyer A Buyer B ? labour intensive process fraud sensitive supplier SME Banking client getting paid much earlier

getting paid much earlier Another way Reverse Factoring started in the 80’s when the automotive industry (Fiat) used it as a financing tool for its suppliers; Spain, lead by Banco Santander, was the market where they picked up the concept (they call it “confirming”) quickly. Today, the confirming market makes up for 5,3% of the GDP of Spain; About ten years ago, electronic platforms were introduced in order to role out reverse factoring on a large scale; Nowadays, every major bank offers reverse factoring and it is part of a broader Supply Chain Finance program; Supply Chain Finance is not just ‘another’ product …. it is totally focused Business Line getting paid much earlier

Corporate Banking client fraud significantly reduced Reverse Factoring = Buyer driven Relationship Bank will take BUYER relationship as starting point Verification BUYER pre-approves invoices … verification no longer necessary Confirmation BUYER allows Bank to make early payment on selected invoices Value Bank works off SCF platform allowing large volumes + small tickets Margin Bank will pay 100% of invoice to SUPPLIER (-/- discounted interest) Recourse Bank will not retain recourse on SUPPLIER (but insure the exposure) Buyer Corporate Banking client automated STP process fraud significantly reduced Supplier A Supplier B Supplier C getting paid much earlier

getting paid much earlier Same Product  Different Risk Both models are similar in the sense that they: deal with a commercial relationship between Buyer and Seller; provide EARLY PAYMENT to suppliers of goods or services. Invoice Discounting Reverse Factoring Seller-centric model; One supplier > many buyers; Risk is on supplier; This is often a smaller SME; Existing SME credit relationship; Lack of control re ‘performance’; Invoice discounted at margin. Buyer-centric model; One buyer > many suppliers Risk is on buyer; This is often a Corporate client; Existing CORP relationship; Performance always confirmed; Invoice discounted at face value. getting paid much earlier

getting paid much earlier Advantage Supplier Perspective Quick & Easy funding (on-demand)  Get 100% funding of invoice Control Lower Financial costs Unsecured borrowing Cash Flow transparency Alternative source of liquidity No Investments Automated, paperless solution Free up working capital and improved Financial position getting paid much earlier

getting paid much earlier Advantage Buyer Perspective Improve relationship with Suppliers  Improve Commercial Terms (discounts) Competitive advantage Cash Flow Predictability (Buyer Finance) Reduce risk in the Supply Chain (loyalty) Automated, paperless solution (costs) Control Sometimes: revenue share ! (cash) Reduced Risk in the Supply Chain getting paid much earlier

getting paid much earlier Advantage Bank Perspective Eliminate laborious verification issues  Better Control & Less Work (Fraud) Automated, paperless solution (Costs) Cross Sell Opportunities (SMEs) Strengthen Business Relationships Utilization Credit Limits (Corp) Turn-around-Time Expand client base (SMEs or Farmers) One Buyer relationship delivers hundreds of new customers getting paid much earlier

getting paid much earlier Alternative Business Models getting paid much earlier

getting paid much earlier Bank Considerations What is needed for a successful SCF roll-out A world-class scalable technology platform An effective Business Model A sensible product / risk strategy A targeted marketing / sales strategy 1st line help-desk support (for Buyers and Suppliers) 2nd and 3rd line business and technical support (for Bank) An onboarding methodology (for Suppliers & Buyers) Training … and more training getting paid much earlier

getting paid much earlier Model 1: buy the IT solution What is needed for a successful SCF roll-out A world-class scalable technology platform An effective Business Model A sensible product / risk strategy A targeted marketing/sales strategy 1st line help-desk support (for Buyers and Suppliers) 2nd and 3rd line business and technical support (for Bank) An onboarding methodology (for Suppliers & Buyers) Training … and more training getting paid much earlier

getting paid much earlier Model 2: go for a PaaS solution What is needed for a successful SCF roll-out A world-class scalable technology platform An effective Business Model A sensible product / risk strategy A targeted marketing/sales strategy 1st line help-desk support (for Buyers and Suppliers) 2nd and 3rd line business and technical support (for Buyers, Suppliers) An onboarding methodology (for Suppliers & Buyers) Training … and more training getting paid much earlier

getting paid much earlier Model 3: go for a SaaS solution What is needed for a successful SCF roll-out A world-class scalable technology platform An effective Business Model A sensible product / risk strategy A targeted marketing/sales strategy 1st line help-desk support (for Buyers and Suppliers) 2nd and 3rd line business and technical support (for Bank) An onboarding methodology (for Suppliers & Buyers) Training … and more training getting paid much earlier

getting paid much earlier Model 4: SCF partnering approach What is needed for a successful SCF roll-out A world-class scalable technology platform An effective Business Model A sensible product / risk strategy A targeted marketing/sales strategy 1st line help-desk support (for Buyers and Suppliers) 2nd and 3rd line business and technical support (for Bank) An onboarding methodology (for Suppliers & Buyers) Training … and more training getting paid much earlier

getting paid much earlier Model 5: Our Prediction …. Within 5 – 10 years Totally accepted financing method Multi-bank Trading Platforms (auction structure ?) Non-bank financial providers If you want to see the future, look at … getting paid much earlier

getting paid much earlier Tying it all together getting paid much earlier

getting paid much earlier 8 reasons to roll-out a SCF platform … REASON EXPLANATION 1 DRIVE REVENUE GROWTH 1 BUYER gives access to 10s/100s of SUPPLIERS Compete against banks who do NOT deploy a system Reverse Factoring = SME pricing @ CORP risk 2 SCALE Large volume/ Small ticket transactions can only be executed on a dedicated and automated platform Enormous expansion of potential prospect market 3 OPERATIONAL COST Straight Through Processing (STP) reduces human intervention (especially with volumes going up) System is priced on SAAS basis : no write-offs 4 TAT TAT reduced to “guaranteed next day payment” If anything, this positively contributes to client retention (loyalty factor) getting paid much earlier

getting paid much earlier 8 reasons to roll-out a SCF platform … REASON EXPLANATION 5 RISK A structured programme approach offers excellent opportunities to mitigate risk through credit portfolio insurance (on both sides of the chain). 6 FRAUD BUYER uploading approved invoices eliminates a very laborious (and costly) verification process Maker/Checker methodology applied throughout 7 INFORMATION Capturing transactions on both ends of the Supply Chain gives a true and holistic picture of client performance 8 CONTROL Bringing all product limits and sub-limits together for BUYERS + associated SELLERS gives an unparalleled sense of control getting paid much earlier

getting paid (much earlier Conclusion: it’s all about predictability “ … our biggest problem is the uncertainty, the timing of Cash Flows .. .. If we can somehow lock in predictability, we’d be happy to pay a reasonable price for that …” CEO Comcraft Group March 2015 getting paid (much earlier