Supplier Finance Agreement
October 9, 2021 | Leave a comment
1.) Market trends relating to the global supply chain have led companies to adopt an integrated approach to the physical and financial challenges of the supply chain: a.) Buyers are looking to optimize their balance sheet by delaying inventory holding. b.) Suppliers are looking for funds earlier in the supply chain at advantageous prices because buyers want to delay stockholding. c.) SMEs are trying to monetize non-U.S.-domiciled inventory in order to increase liquidity. (d.) There is great interest in integrated supply chain financing methods. Unlike traditional factoring, where a supplier wants to finance its receivables, supply chain financing (or reverse factoring) is a method of financing initiated by the customer (the customer) to help its suppliers finance its receivables more easily and at a lower interest rate than what is normally offered. In 2011, the reverse factoring market was still very small and accounted for less than 3% of the factoring market. [Citation required] While buyers extend payment terms to their suppliers, suppliers often have limited access to short-term financing and thus to increased monetary costs. This transfer of costs to suppliers creates a financially unstable and riskier supply base. Overall, the baseline report showed that companies should follow three key areas of improvement: GSCF financing; GSCF technology; and GSCF visibility. The very concept of reverse factoring is not so original.
It was the car manufacturers who started using it. Fiat, in particular, used this type of financing process for its suppliers from the 1980s on to achieve a better margin. The principle then spread to the retail trade, as it is of interest to a sector where late payments are at the heart of any negotiation. Some of the products that could be sold under the banner of global supply chain financing are not limited to: 1.) Global Asset-based Lending (GABL) – Allows SMEs to monetize offshore or in-transit inventory. This results in an increase in liquidity for this category of borrowers, 2.) Inventory Financing – Allows companies that provide large buyers with financing for the inventory they need to hold from buyers. This leads to an improvement in the net cash conversion cycle for the buyer while providing capital at a reduced rate….