Supply Chain Finance programmes enable large Buyer organisations to extend their payment periods, while allowing their Suppliers to be paid more quickly. Suppliers can take advantage of the credit ratings of their debtors to secure funding priced against the debtorsâ credit profile, and are therefore able to obtain early payment services from the programme financier at highly advantageous rates of interest.
The new Demica research report also shows that key attractions of SCF programmes are: improved cash flow management; reduced risk (especially of essential supplier failure) in the supply chain; and improved transparency of transactions between suppliers and buyers. Some respondents reported that suppliers are saving 3-4 percentage points on their cost of borrowing by participating in SCF programmes.
Other findings from the report show European banks envisaging growth in the SCF market replacing the decline in letter of credit business. As a result, over 80% of top European banks are putting major marketing efforts behind their SCF offerings, with some finding that when SCF programmes are implemented with clients, these implementations also open the door for a raft of other financial products which the bank can provide.
Phillip Kerle, Demica Chief Executive, comments, âThe last few years have seen Supply Chain Finance programmes grow from a product to a market in the eyes of corporates and their tier1 banks. Our banking respondents see demand for SCF programmes coming principally from the manufacturing, retail, automotive, mechanical engineering and food production industries. However, more modest demand levels are also expected from sectors such as pharmaceuticals, technology and telecoms.
âAs the physical supply chain has run out of steam in terms of its potential for further efficiency gains, the notion of the financial supply chain has rapidly gained attention from directors and financiers. The result is that some financiers are experiencing quite phenomenal rates of growth. As the global economy builds up a new head of steam, SMEs â who make up the larger part of many essential supply chains â desperately need access to reasonably priced finance, but are currently unable to do so in their own right. By joining a supply chain finance programme, their cash flow can be eased through access to credit that is secured on their large corporate customerâs credit rating â an extremely attractive proposition in the current tight lending market. No wonder, therefore, that financiers are reporting such interest in SCF.â