by Phillip Kerle, Chief Executive Officer, Demica
Supply Chain Finance – A Background
Although definitions of SCF tend to vary, the Aberdeen Group defines it as: “A combination of Trade Financing provided by a financial institution, a third-party vendor, or a corporation itself, and a technology platform that unites trading partners and financial institutions electronically and provides the financing triggers based on the occurrence of one or several supply chain events.”
SCF is generally viewed as the province of a commercial bank’s lending arm. Relationship banks offer a working capital management facility for their large corporate clients (product or service buyers, ‘Buyers’), while at the same time providing prompt payment facilities for their suppliers (‘Suppliers’). This is essentially the same as a closed user group factoring arrangement, the main difference being that the facility is arranged with the Buyer, who then introduces the service to its Suppliers, to the benefit of both parties. In industries where efficiencies in the physical supply chain have been refined to the utmost level, attention has now moved to the financial supply chain. The result is abundant activity around financing solutions that allow Buyers to ease payment terms while also ensuring that their Suppliers’ cash flow is improved, thus reducing or avoiding instability in the supply chain.
Insurer Aon cited ‘supply chain risk’ as one of the most critical business issues in its 2007 survey of global risk.