Best Supply Chain Finance Providers - Global Finance Magazine

Supply Chain Finance In Growing Demand

The credit crunch has demonstrated which banks are truly committed to developing supply chain finance solutions.

By Anita Hawser

Few market segments within financial services have emerged unscathed from the recent credit crisis, and supply chain financing is no exception. Twelve to 18 months ago banks were eager to talk about their investments in technology that enabled them to provide early payment to suppliers based on approved payables from the buyer. Since the credit crisis, however, a number of banks have gone quiet on supply chain as they no longer have the risk appetite or the capital to invest in solutions. The number of banks bidding for supply chain financing deals is estimated to have gone from double to single figures.

However, now more than ever, companies-particularly small and medium-size enterprises (SMEs) or those that are unable to obtain affordable financing from traditional channels-are in need of supply chain financing. The winners of the Global Finance Best Supply Chain Finance Providers awards are those organizations that stand out as remaining committed to the business and to providing ever more effective and useful solutions for their clients.

Supply chain financing is gradually evolving as the products on offer expand from covering payables and receivables to encompass other parts of the supply chain, such as inventory. However, supply chain financing is not just about selling a product. In order to understand the financing needs of both buyers and suppliers, technology is important in terms of gaining greater visibility across the entire order-to-pay process. Some of the key innovations in this space are coming from third parties that are leveraging the latest in web-based technologies to provide buyers and suppliers with a wider range of innovative financing options. While the majority of banks are still focused on providing post-shipment financing, pre-shipment and inventory financing is an area that requires much greater focus, particularly in the current economic climate.

Best Global Supply Chain Finance Bank

HSBC

It has been a tumultuous year for most global cash management banks. While affected by the crisis, HSBC still has a relatively strong balance sheet and appears to remain committed to the supply chain financing business. Globally its trade and supply chain finance offerings cover just over 60 countries and territories, and it claims to have achieved strong supplier uptake in key markets, particularly in Asia-Pacific and, to some extent, the Middle East. It provides an array of electronic platforms for automating and matching trade documentation including letters of credit, purchase orders and invoices. It has the risk appetite to encompass a broad range of supply chain and trade finance solutions including pre-shipment financing.

Best Global Supply Chain Finance Provider (Non-Bank)

Orbian

Last year’s winner retains its crown this year, and as one of the longest-running providers in the non-bank space it remains committed to the business while others that entered the space more recently have fallen by the wayside due to financial problems of their own. Orbian has provided electronic payables services since the late 1990s. It commenced operations as a joint venture between enterprise application software provider SAP and Citi but was later spun out as a separate company. In 2008 Orbian saw its transaction volume increase by just over 20% and supplier funding transactions increase by 15% to $4 billion. Orbian gained more than 400 new clients last year, bringing the total number of clients to 2,322. It has more than 30 active buyer programs and more than 2,280 suppliers that are using its platform to actively discount invoices. Orbian operates in 44 countries.

Best Supplier Support & Enrollment

Ariba

Ariba continues to boast the largest supplier network, with more than 180,000 “e-enabled” suppliers across 115 countries on its supplier network. It has a strong supplier enrollment program and an enthusiastic following among suppliers. Its spend management solutions are also attractive, particularly during challenging economic times when buyers are looking to save on procurement costs. It has also launched a supplier discovery tool to enable buyers to search for quality suppliers.

Best Payables Supplier Financing Solution
HSBC

HSBC provides automated solutions that enable buyers and suppliers to load and approve invoices electronically. Single invoices can also be presented by suppliers across multiple purchase orders, thereby reducing transaction fees. On the payables side HSBC has helped a number of companies, including a major grain trading company looking to enter the Kazakhstan market. A local Kazakhstan supplier expressed interest in receiving financing; however, the grain trading company was unable to support the financial exposure itself. HSBC France provided a one-year $20 million limited-recourse funding facility to the trading company, which enabled it to pay the local supplier in advance. The advance payments were linked to the export contract and strengthened the relationship between the buyer and supplier. HSBC structured the solution in such a way that it was able to support combined corporate, country and crop risk.

Best Pre-Shipment Financing Solution

Standard Chartered

Standard Chartered has the on-the-ground knowledge and relationships to understand the unique needs of local companies. It developed a pre-shipment financing solution for a Malaysian telecom company that works with a number of downstream suppliers, including SMEs. Standard Chartered provided the company’s suppliers with a banking facility for pre- and post-shipment financing, which means that suppliers have access to financing much earlier on, ensuring that they supply the telecom company’s vendors with goods on time. Standard Chartered provided the financing facility based on contracts and purchase orders and structured the deal according to Islamic banking principles.

Best Customer Implementation of Supply Chain Financing Solution

Capital Tool / World Bank / Government of Peru

Capital Tool Company, which provides tools for valuing receivables portfolios, in conjunction with the World Bank and the Peruvian government, set up a pilot involving micro financing of receivables for a range of small shopkeepers in Peru. Most of these shops do not have a credit rating and would not be able to obtain funding through normal banking channels as more than 90% of them are unbanked. The project claims to have reduced funding costs for these “mom and pop shops” by 8% to 10% and has enabled suppliers to these shops to double the amount of credit available. Financing for the pilot was provided by the Peruvian government and international financial institutions.

Best Web-Based Supply Chain Financing Solution

The Receivables Exchange

There is considerable analyst buzz around this New Orleans-based exchange, which purports to be “the world’s first electronic marketplace for trading accounts receivable.” The Receivables Exchange enables companies of all sizes to sell their receivables or invoices online to a range of competing lenders or bidders including hedge funds, private individuals and other supply chain financing providers. This is an important new source of capital for suppliers, particularly given that banks are more reluctant to extend financing to SMEs and those companies in countries that may be deemed high risk. According to one analyst firm, those that still have cash to invest, such as hedge funds, are looking for places to invest money, and the Receivables Exchange could benefit from this.

REGIONAL WINNERS

North America

Citi

Net income in Citi’s North American Treasury & Trade Solutions group grew by 46% year-on-year in 2008, and 2009 looks set to be another strong year, with first-quarter revenues in treasury and trade increasing by 40% year over year and net income increasing by 75%. Citi has worked with leading international names to help them realize cost savings in their supply chain and extend payables terms without harming suppliers via the provision of post-shipment financing. North American customers benefit from Citi’s on-the-ground network spanning multiple countries. In times when credit is scarce, Citi has demonstrated its commitment to the business by partnering with export credit agencies and multilateral finance institutions to help in the provision of short-term financing.

Western Europe

RBS

Following the acquisition of ABN AMRO, RBS acquired a wide range of trade and supply chain finance expertise as well as web-based tools that provide both buyers and suppliers with increased visibility into the order-to-pay process. It also recently announced that it would fund UK supermarket chain Sainsbury’s Trading Finance Platform, which provides early payment to the UK supermarket’s network of suppliers. RBS’s participation means that suppliers will be able to sell invoices to the bank in order to receive early payment. RBS says it is running more than 200 structured receivables and supply chain finance programs in 30 countries, with more than £3.5 billion of approved facilities in its supply chain portfolio.

Nordic Region

SEB

Having been an early proponent of supply chain financing and investing in its own proprietary web-based technology in order to service the market, SEB claims to be the leader in the Nordic region, with a 70% market share. The bank says supply chain financing volumes have grown by more than 100% annually for the past four years, and it anticipates that 2009 will be just as promising. As well as covering the four main Nordic markets, SEB’s network spans Western Europe and Central and Eastern Europe, including the Baltic countries, as well as Russia and Ukraine. Suppliers can manually select the invoices they wish to finance via the bank’s web portal, or they can fully automate the process.

Central & Eastern Europe

UniCredit

With operations in 19 Central and Eastern European countries, UniCredit has the local knowledge and expertise to service the needs of buyers and suppliers in the region, as well as a substantial network throughout Europe and globally. The bank provides a wide range of trade finance and supply chain management as well as structured trade and export finance solutions, which are supported by a variety of web-based tools for bundling buyer-approved invoices in order to seek discounting from suppliers. The purchase of receivables is also facilitated online. UniCredit Global Trade Management provides an assortment of trade finance and processing services, including pre-export and post-shipment financing and distributor and inventory financing, as well as electronic platforms for processing letters of credit, documentary credits and purchase orders. UniCredit’s i-Faber tender/auctioning platform for identifying and selecting suppliers is also highly regarded by analysts.

Asia

Standard Chartered

Having emerged relatively unscathed from the credit crisis, Standard Chartered appears to have the risk appetite and the balance sheet for expanding its offerings in the supply chain financing space. It has invested $40 million in a new transaction processing engine for open account financing, which it is rolling out in 50 countries. Its supply chain financing business handles transaction volumes of $13 billion to $15 billion annually. In an effort to differentiate itself, Standard Chartered says it focuses more on “end-to-end supply chain financing” and uses proprietary credit models to evaluate the relationships between its clients and their suppliers and buyers, rather than standalone risk evaluation focused on the financial strength of buyers/suppliers. Currently the bank is servicing more than 300 clients connected to more than 4,000 suppliers and buyers across 24 countries and a wide range of industry sectors.

Latin America

Banco Santander

With a longstanding presence and track record in the region, Santander is one of the earliest proponents of “confirming.” Confirming enables suppliers to get paid earlier based on approved payables from the buyer. It is now the most common form of supply chain financing offered by banks, but Santander has been doing it for over two decades, particularly in the Latin American region, where it has evolved into a web-based trade payables-backed financing solution. The bank is also looking to deepen its involvement in the supply chain via the provision of e-invoicing solutions.

Middle East
HSBC

HSBC’s supply chain offering is supported by specialist regional teams in key locations in Asia, Europe and the Middle East. Its supply chain network in the Middle East spans 13 countries in the region. Customers can use the bank’s Internet platform, HSBCnet, to initiate a wide range of trade and cash management-related transactions. Its Internet Trade Services system provides real-time visibility into transactions as well as the ability to exchange information.

Africa

Standard Chartered

Standard Chartered is taking a different approach than its competitors by looking more closely at the complex relationships between its clients and their network of buyers and suppliers. This is an important element in emerging markets, where SMEs may find it difficult to obtain financing at competitive rates given their low credit standing. Standard Chartered’s supply chain financing program encompasses buyers and suppliers in 24 countries, including 10 locations in Africa, and includes supplier and buyer finance as well as pre- and post-shipment financing.