by Dennis B. Dubois, Global Treasury Solutions, Latin America and the Caribbean Trade & Supply Chain, Bank of America Merrill Lynch
A number of different trends and influences are defining the way in which supply chain finance is developing within Latin America – and these do not necessarily mirror the trends in Europe and the US.
In recent years, supply chain finance has become an increasingly mainstream product with a simple goal, which is to enable companies to improve their working capital. The concept is straightforward: the purchasing company can extend the payment terms to suppliers, while suppliers receive early payment from the bank providing the programme. Supply chain finance is differentiated from other receivables financing solutions because it is initiated by the purchasing company rather than by the supplier. As such, suppliers can benefit from a lower cost of finance based on the credit rating of their typically larger and financially stronger customers as well as tapping into an alternative or supplemental source of liquidity.
Although the market for supply chain finance is reasonably well-established in Latin America, this is still widely regarded as a ‘new’ solution, and many companies, especially suppliers, are only just beginning to understand the benefits of a product that is driven by a bank’s relationship with a buyer versus a classical factoring solution. Nevertheless, supply chain finance is a hot topic in the region and there is significant and growing interest in this area.