Published: March 01, 2012
In early December 2011, the 5th annual Cash Management University, organised by BNP Paribas, took place at Le Pré Catelan near Paris. Over 160 corporate delegates from across the globe came together to discuss how to use cash and treasury management to improve business performance. The emphasis was on peer-based learning, particularly in the workshop sessions. On the first day of the event, a workshop on supply chain finance (SCF) captured the imagination of many.
The growth of SCF popularity among corporates has been driven in a large part by the financial crisis of 2008, as it offers a new source of external liquidity. If the image of SCF before 2008 was that it was only a source of financing for smaller corporates, the credit crisis inspired many larger corporates to examine the benefits of SCF from either a buyer or supplier perspective. The current economic situation means that corporates of all sizes are looking to SCF to boost their working capital position and unlock additional liquidity. As such, it was unsurprising that a workshop entitled ‘Exploiting the New Business Opportunities from Financing the Supply Chain’ should prove so popular with attendees of the Cash Management University.
The panellists in this workshop came together to describe the successful implementation of an SCF undertaken between the energy company EDF, a French SME active in engineering monitoring called SAM, and BNP Paribas Factor. In this case, EDF is the buyer, SAM is the supplier, and BNP Paribas Factor is the financial partner.
Following a feasibility study into SCF, EDF decided to launch a proof of concept on a SCF programme at the start of last year. The company’s goals included its desire to support its key suppliers of any size during the difficult economic environment and protect them from any treasury strain by offering them this additional service. The company planned to do this in a way that did not affect its working capital need, while at the same time such a project could anticipate Basel III and make short-term credit lines available based on EDF creditworthiness. The other major goal that EDF had was to enhance its straight-through processing (STP), from the date of receipt of the invoice, through its validation workflow and payment at maturity.
EDF set a tight deadline to create and implement its SCF programme. Analysis and preparation formed phase one of the project, which took part in Q1 and Q2 of 2011. This included the feasibility study, consultation with a wide selection of suppliers to define the strategy for the project, and an RFP process to select the financial partner. Implementation of the project was phase two, and this was scheduled for Q2 and Q3 of 2011. In this phase, EDF adopted a dedicated approach when dealing with its large corporate suppliers, while smaller suppliers received a mailing with information on the new programme. The financial partner also initiated a dedicated suppliers’ hotline, and suppliers of all sizes could enrol for the SCF programme via a dedicated website. The final phase of the implementation was the roll-out of the programme, which took place in Q4 2011. EDF set itself the goal of onboarding 500 suppliers to the programme by Q2 2012, and at the time of the Cash Management University it already had 150 suppliers signed up to the programme.[[[PAGE]]]
SAM is one such supplier, and the panel discussed how the day-to-day operational workflow actually works between SAM, EDF and BNP Paribas Factor under the SCF programme agreement. The cycle begins with SAM providing goods or services to EDF and then invoicing them. EDF then sends the validated invoices to BNP Paribas Factor electronically (SwiftNet), and SAM can then go online and select the invoices it would like to be financed. BNP Paribas Factor will then finance SAM for the selected invoices and EDF can monitor all of this via a dedicated website. Finally, EDF pays its invoices upon maturity to BNP Paribas Factor, who then settle any invoices not financed by SAM that are coming to maturity.
Discussion between the panellists in the workshop covered advice for delegates in the room who were potential buyers or suppliers. One theme that emerged was that buyers in an SCF environment need to take care in selecting suppliers for the programme. It is obviously important to select small or medium-sized companies who would benefit from such a programme, not large cash-rich companies, but the problem is that for very small companies it is not cost-effective to enrol them. It is also important for buyers to protect their suppliers by not using SCF to extend payment terms. For example, in the case study given, EDF kept their payment terms at the contractual terms.
For suppliers in an SCF programme, the main benefit, especially for small companies, is the knowledge of when they will be paid. They also have the option of whether to be paid early or how much of the invoice can be paid early - for example if they only need 50% of the invoice paid early, they can just ask for this and no more. This flexibility in the timing and amount of payment was described as a key benefit of the BNP Paribas Factor SCF solution.
When evaluating SCF solutions, suppliers were urged to study the efficiency available. The example was given that the BNP Paribas Factor platform facilitates early payment within two days of it being requested. And finally, again looking at flexibility, supplier delegates were reminded that SCF is just another financing option, and that it is important to remember that being part of an SCF programme does not block out other financing methods. In the current economic climate, innovative financing such as this is sure to be a key trend for corporates over the course of the next year.
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