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How to manage finance risks in supply network?LOGY hankintapäivä 1.9.2016
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InternalInternal Logy Hankinapäivä 1.9.2016 / Unhola & Lehtimäki2
Tuomas UnholaHead of Financing Product Line
Juhana LehtimäkiSourcing Consultant
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OpusCapita today - three focused businesses
3
Business Ecosystem ProductsGlobal
Document and Transaction ProcessingFinland, Sweden and Norway
Finance and Accounting OutsourcingNorthern Europe
• Purchasing and Catalogue Management
• Invoice Automation • Cash Management • Supply Chain Financing• Trading and Messaging
Network • Sell Side Solutions
• Multichannel Invoice Sending• Debt Collection• Digitizing and Customized Print• E-archiving and Document
Management
• Full FAO incl. General Ledger and Record-to-Report
• Payroll Outsourcing incl. Travel and Expenses
• Account payables and accounts receivables outsourcing
• Robotic Process Automation service (RPA)
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Finance Risks
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Market Risk
Credit RiskOperational Risk
Liquidity/Cash Flow Risk
Interest Rate Risk
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Working Capital
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Cash
CreditorsDebtors
Inventory
Working Capital Cycle
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”Rahaa on tarjolla, mutta hinta on kova””Lyhyttä rahaa runsaasti tarjolla, mutta vuosikorot ovat 18-36 prosenttia.” ”Löysä maksukuri ajaa yrityksiä
nurin Suomessa”
”Alihankkijayritykset kärsivät venyvistä maksuajoista”
Blogi: ”Saatavarahoitusta, eli laskusaatavien muuttamista rahaksi käytti vain kolme prosenttia. Kyselyn tuloksena voidaankin todeta, että monella yrityksellä olisi hyödyntämättömiä mahdollisuuksia kassavirran parantamiseen.’’
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Different ways to finance your Working Capital needs
Tool Type Flexibility Collateral Price
Account overdraft facility Loan Yes Needed Depends on Credit rating
Factoring Loan No Sales invoices High
Cash discount Early payment Can’t influence No High
Dynamic Discounting Early payment Yes No Moderate
Reverse Factoring Sale of receivables Yes No Low
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Supply Chain Finance (SCF)
“Supply chain finance is a buyer-led initiative that facilitates favorable financing for the supplier in order to achieve mutual benefits for both trading partners, through the use of a technology platform and a third-party financial institution or otherwise.”
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SCF in Brief
• Supply Chain Finance programs are most often financed by a financial institution, e.g. a bank (=Reverse Factoring “RF”)
• The alternative approach is that the Buyer finances the Accounts Receivables of its Suppliers (=Dynamic Discounting “DD”)
FundingEarly paymentrequests
Funding
Invoices
Invoices
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Early paymentrequests
SCF Operator
SCF Operator
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How SCF works in practice?
1. Supplier delivers the productand sends an invoice to the buyer.
2. Accepted invoices are transferred to SCF trading platform
3. Supplier requests the invoice to be financed
4. Bank (RF) or Buyer (DD) pays the discounted amount to the supplier after acceptance.
5. Buyer pays (RF) the invoice according to payment term
Reverse Factoring
Dynamic Discounting
Trading process
Supplier
Bank
Buyer
SCFOperator
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Reverse Factoring vs. Dynamic Discounting
Reverse Factoring Dynamic Discounting
Extended payment terms, while offering early payment to suppliers
Opportunity for buyer’s to offer early cash discounts to suppliers
Cash flow, working capital, impact on balance sheet
Margins, impact on profit & loss statement
Approximately 1-4% per annum
Approximately 5-35% per annum
Third party funder (banks, non-bank funders)
Buyer’s balance sheet
Large and medium enterprises Small and medium enterprises (SME’s)
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CORPORATE GOAL
CORPORATE TARGET
AVERAGE DISCOUNT
FUNDING SOURCE
SUPPLIER FOCUS
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Why Procurement should be interested in managing finance risks?
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A win-win situation
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Reduce supplier financial risk
Improve supplier relationships
Take costs out of supply chain
Improve working capital and cash flow
Options to provide income stream
BUYER BENEFITS
Low cost, on-demand financing
Improves cash flow without increasing debt Cash flow visibility
Reduce credit and FX risk
No IT investmentNo need of new bank
account
SUPPLIER BENEFITS
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Buyer Benefits
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Reduce supplier financial risk
Improve supplier relationships
Take costs out of supply chain
Improve working capital and cash flow
Options to provide income stream
Connect your key suppliers to your company – build “preferred buyer” status Reduce risk in case of limited availability of goods and services Provide competitive funding for your supplier base Support for new comers and start-up’s Pro-active recognition of financial risks in supply network - analytics Improved competence level in procurement organization
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Buyer Benefits
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Reduce supplier financial risk
Improve supplier relationships
Take costs out of supply chain
Improve working capital and cash flow
Options to provide income stream
Use of dynamic discounting to benefit early payment discounts Powerful tool for contract negotiations: improved commercial terms Cost avoiding Working Capital part of procurement KPI’s Automation in P2P process: Increased eProcurement Purchasing channel optimization Control points defined and followed
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Supplier Benefits
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Reduced cost of finance: benefit of buyers credit rate Fast payment based on approved invoices– ‘use when needed’ Increased certainty of timing of payment Mutual interest for improved P2P processes Become part of buyer’s ecosystem as ‘preferred supplier’
Low cost, on-demand financing
Improves cash flow without increasing debt Cash flow visibility
Reduce credit and FX risk
No IT investmentNo need of new bank
account
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Interested to know more? Don’t hesitate to contact us for further information:
Tuomas Unhola, [email protected]. +358 50 563 7044Head of Financing Product LineOpusCapita
Juhana Lehtimä[email protected]. +358 40 700 7698Sourcing ConsultantOpusCapita
1.9.2016