Unlocking Liquidity Through Supply Chain Finance
by Ben Poole, Editorial Consultant, Ben Poole Editorial Services
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.
Growth in SCF popularity
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.