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Over the past decades, banks significantly increased their efforts to implement adequate frameworks for managing interest rate risk in the banking book (IRRBB). These efforts typically focus
Find out moreVendor Supply Chain Finance (SCF) constitutes the transfer of a (trade) payable position towards the SCF underwriter (i.e. the bank). The beneficiary of the payment can then decide either to receive an invoice payment on due date or to receive the funds before, at the cost of a pre-determined fee.
The Vendor SCF construction can be depicted as:
There are multiple business rationales behind Supply Chain Finance. Why would a corporate want to setup an SCF scheme with its suppliers? The most prominent rationales are:
SCF is typically considered a tool to improve the working capital position of a company, specifically to decrease the cash conversion cycle by increasing the payment terms with its suppliers without weakening the supply chain.
Typically, a set-up and onboarding process consists of the following steps. First a financing for SCF is obtained from, for example, a bank. In addition, an SCF provider must be selected and contracted. Most major banks have their own solutions but there are many third parties, for example fintechs, that provide solutions as well. Consequently, the SCF terms are negotiated, and the suppliers are onboarded to the SCF process. Lastly, your system should of course be able to process/register it. Therefore, the ERP accounts payable module needs to be adjusted, such that the AP positions eligible for SCF are interfaced into the SCF platform. Besides, your ERP system needs to be adjusted to be able to reconcile the SCF reports and bank statements.
In the picture below we provide a high-level example of how a basic SCF process can work using basic modules in SAP. Note that, based on the design considerations and capabilities of the SCF provider, the picture may look a bit different. For each of the steps denoted by a number, we provide an explanation below the figure, going a little deeper into some of the possible considerations on which a decision must be made.
If the appropriate SCF provider is selected and the process design and implementation in SAP is sound, the benefits of SCF can be achieved without introducing new processes and therefore creating a burden on the existing accounts payable team. It is fully possible to integrate the SCF processes with the regular accounts payable payments processes without adding additional manual process steps or cumbersome workarounds.
For more information, contact Ivo Postma at +31 88 991 02 00.
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