Published: January 02, 2008
Orbian is the world’s leading provider of supply chain processing and finance solutions. It was launched in 1999 as a co-venture between Citibank and the German technology giant, SAP.
Orbian is now a privately held company with headquarters in Norwalk, Connecticut USA, and its European office, which includes the systems development, the operations centre and the entire Group Treasury operation, situated in the City of London.
Orbian offers a multi-currency financing service and capability to its current and prospective clients.
The first customers of Orbian were initially corporate customers of banks, but the demand for supply-chain finance (SCF) solutions has grown and Orbian is now successfully developing an international network of corporate clients, offering an innovative financing solution that provides attractive benefits to both ‘buyers’ and ‘suppliers’ who are mutually engaged in trade transactions.
Orbian successfully launched the first proprietary US Capital Markets funding program in 2005, providing cost-effective receivables finance benefits to its customers, and is well positioned to continue its growth. Combining the capital markets capability with traditional bank lending arrangements gives Orbian the ability to deliver a very unique bank-neutral financing capability to a broad range of clients.
Orbian has made significant investments in technology and general infrastructure, so that it now offers a multi-currency financing service and capability to its current and prospective clients, on a global basis. The organisation presently serves 29 Fortune 1000 buyer clients and thousands of supplier clients, located in more than 30 countries around the world. The equivalent of more than US$22 billion in trade flows has so far been processed through the Orbian platform without error - a remarkable achievement in itself.
Orbian combines its state-of-the-art payment and settlements platform with its innovative funding capability to deliver a mutually beneficial supply-chain finance solution to buyers and suppliers alike. Some of the benefits include, but are not limited to: improved working capital management and margins; interest cost reduction; credit exposure elimination and immediate cash-flow improvement. These are all achieved through:
Orbian offers a unique and highly effective solution to the classic challenges of managing trade payables and receivables, in the underlying payment, settlement and finance processes. There is more to this issue than the natural working capital management tension relating to the timing of payments:
Beyond this, there lies an equally profound issue, which is the impact of buyers’ and suppliers’ credit ratings on their cost of capital and their ability to raise funding. Orbian’s supply-chain finance approach serves both parties’ optimisation objectives through a process of collaboration. This collaboration creates efficiencies through an environment where buyers and suppliers engage in pro-active dialogue culminating in an agreement in which both parties share the derived financial benefits, thereby strengthening their long-term relationships.
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Benefits to buyers
The Orbian solution is based on a collaborative relationship approach between buyer and supplier, to the mutual benefit of both parties. The buyer’s fundamental advantage from this kind of relationship is the sharing of economic benefits created by more efficient supply chain finance. The increasing efficiency of today’s global commercial markets means that, as a general rule, buyers will naturally seek better trade terms with suppliers. They do this through negotiating lower and improved prices on goods purchased, and/or an extension of payment terms.
Buyers can continue to source goods cheaply whilst optimising their bottom line performance.
With the Orbian financing solution, buyers can continue to source goods cheaply whilst optimising their bottom line performance via higher margins and a reduced demand for working capital finance.
The buyer can effectively extend its DPO (Days Payables Outstanding) while simultaneously enhancing its working capital position and is therefore able to enjoy enhanced working capital benefits and financial metrics (i.e. lower Cash Conversion Cycle).
Benefits to suppliers
From the supplier’s perspective, Orbian’s solution offers the benefit of cost-effective receivables finance.
Suppliers use Orbian to increase their visibility to early payment approval, to communicate remittance information via the web, and to enjoy the benefits of straightforward, simplified and efficient cash management processes and to get paid immediately. The closer, collaborative relationship between buyers and suppliers via Orbian minimises operational risk, and can significantly reduce supplier finance costs when compared with traditional receivables financing arrangements.
The net result is that suppliers can experience access to the entire value of their receivable, generating free cash flow while reducing debt and DSO (Days Sales Outstanding). The Orbian solution enables suppliers to optimise their cash flow and working capital management, through accelerated liquidity.
The Orbian solution allows suppliers to immediately discount their receivables to cash at extremely attractive rates of finance, and in addition allows for the buyers to eliminate the suppliers’ credit exposure to themselves. This risk mitigation can free the supplier to broaden its sales relationship to the buyer without creating greater credit risk. As a result, Orbian’s service provides a direct stimulus to commercial activity, through increasing liquidity.
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The key to Orbian’s unique financing techniques lie in its broad, flexible financing alternatives, the most efficient of which involves direct access to the international capital markets.
The innovative capital markets structure (which is only one of several financing alternatives that Orbian offers its clients) took much time and effort developing but is unique and has put Orbian at the leading edge of the supply-chain finance arena. Not only does Orbian have the technology to support the supply-chain management processes but the capital markets solution can offer virtually unlimited funding capacity (unlike single financial institutions who usually have a limited appetite and available credit lines).
Each financing program is 'tailormade' to needs of its clients.
Each financing program is ‘tailor-made’ to the needs of its clients and can have either a short- or long-dated maturity profile, but in most cases shorter than 365 days. The special characteristic of the capital markets debt instruments (known as money market notes) is that they carry each client-buyer’s credit quality and are viewed by investors as having the same credit characteristics as the debt of the buyer.
One interesting and important consequence of Orbian's approach to note issuance is that the paper generally attracts a different investor community compared with the traditional investors in direct commercial paper offerings. Orbian’s money market note programs do not, therefore, have an adverse impact on the levels at which the buyer’s commercial paper is placed, nor on the buyer’s borrowing capacity.
Once financing has been raised, the discounted proceeds of the money market note issuance are used to provide accelerated finance to the suppliers, and at maturity the buyer provides the redemption funds for the notes.
The Orbian finance and settlement process is illustrated in Figure 1. This is a high level schematic that summarises the key process steps in the interaction between the buyer, the supplier and Orbian. [[[PAGE]]]
It was clear to Orbian that the successful expansion of their service depended on their making an appropriate level of investment in the supporting technology, to manage their interactions with the buyers and suppliers. The key business issues that Orbian addressed included:
Orbian’s technology implementation is summarised in Figure 2. It involves the integration and use of the Orbian Platform, the IT2 Treasury Management System and the SAP ERP system.
The Orbian Platform is an in-house developed mainframe system that manages Orbian’s communications with buyers and suppliers. It is a mission-specific system that is designed to handle large volumes of trade transaction invoices, and to perform the discounting operations. The unique Orbian business model demanded that a custom designed solution be developed to fulfil these key business requirements. A pre-requisite was that the solution be ‘future proof’, and should adapt with the business as the business model itself evolved, and client numbers and transaction volumes expanded.
With the financing function in mind, Orbian selected and implemented IT2 Treasury Solutions’ IT2 system to manage their cash, treasury and risk management operations in support of their funding operations (capital markets related or otherwise), as described above. The IT2 system manages the key interactions between Orbian’s lead banks (Citibank and Deutsche Bank), the core system and the SAP ERP system, and acts as the control hub for this financing operation.
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The main elements of the process described in Figure 2 are:
1. Accounts payable process
2. Accounts payable/receivable data
3. Buyers’ discount analysis data import
4. Nominal ledger export to SAP from IT2 and General ledger import from SAP to IT2
5. Market data import to IT2
6. EFT of treasury and non-treasury payments and Bank account import
7. EFT to suppliers
8. EFT of issue and maturity proceeds of money market notes
9. Accounts receivable process
Orbian is a privately held company, but has chosen to follow the disciplines and standards of Sarbanes-Oxley, even though it is not compelled to do so. SOX compliance provides an independent and powerful statement of the quality, security and transparency of Orbian’s critical operations. IT2’s risk management and operating reports are useful tools for SOX compliant treasury operations. The use of IT2’s unique best practice process maps is a key feature in Orbian’s Treasury policy and operations, and they are instrumental in supporting SOX compliance. The IT2 process maps enable Orbian to define, document and direct their Treasury work flows transparently and efficiently, helping to achieve SOX compliance in a straightforward way.
Orbian has provided the supply-chain finance marketplace with a new and radically different approach. This helps to optimise participants’ cost of capital, and liberates commercial liquidity at an accelerated rate compared with other approaches. Orbian’s solution therefore provides an important support and stimulus to its clients at both ends of the supply chain. Underpinning this solution is the essential collaboration between key business needs, in-house and IT2 software development; this partnership ensures that the solution evolves flexibly and robustly as Orbian’s business changes and grows.
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