getting paid much earlier

What is Supply Chain Finance

Invoice discounting vs Factoring

How big is the market

Another way: reverse factoring

Same product … different risk

All parties gain

How we work

Key Points

Contents

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Supply chain finance is a set of solutions that:

optimizes cash flow by allowing businesses tolengthen their payment terms to their suppliers,

while also providing an alternative option to theirsuppliers to get paid early.

This results in

- optimized working capital for the BUYER and

- enhanced cash flow for the SUPPLIER,

… while minimizing risk throughout the supply chain.

What is Supply Chain Finance ?

Broadly speaking, it refers to tools, techniques and products that help businessesoptimize their cash flow by managing payments to suppliers and receipts fromcustomers.

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ReverseFactoring

Invoice Discounting vs Factoring

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turning unpaid invoices into cash

Invoice Discounting

Factoring

the lender assumes control of payment collection from your

customers.

Many variations exist .. it is hard to distinguish between the two concepts

A global $ 2 trillion market ...

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... mostly domestic

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... growing very fast

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supplier

BuyerA

BuyerB ?

BANK has an existing SME (credit) relationship with the SUPPLIER;

Supplier asks BANK to discount one or more invoices;

BANK will do this under the following conditions:

- it will (usually) only discount invoices of acceptable BUYERS;

- it will typically NOT advance 100% of the face value of the invoice (apply a margin);

- repayment obligation remains with its SME client …. the SUPPLIER

Problem: lack of control did supplier perform, are there issues with buyer ?

SME Bankingclient

Invoice Discounting ( Factoring)

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Another Way

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Reverse Factoring started in the 80’s when theautomotive industry (Fiat) used it as a financingtool for its suppliers;

Spain, lead by Banco Santander, was the marketwhere they picked up the concept (they call it“confirming”) quickly. Today, the confirmingmarket makes up for 5,3% of the GDP of Spain;

About ten years ago, electronic platforms wereintroduced in order to role out reverse factoringon a large scale;

Nowadays, every major bank offers reversefactoring and it is part of a broader Supply ChainFinance program;

Supply Chain Finance is not just ‘another’product …. it is totally focused Business Line

SupplierB

BANK (often) already has an existing credit relationship with the BUYER (Chain Captain);

BUYER agrees that BANK may make early payment (= discount) on selected invoices

BANK will do this under the following conditions:

- it will only discount invoices of SUPPLIERS that are pre-approved by the BUYER;

- it will (but does not have to) advance 100% of the face value of the invoice;

- repayment obligation is on the BUYER.

Control: no delivery issues ... performance has taken place !

Corporate Bankingclient

SupplierA

SupplierC

Reverse Factoring

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Buyer

Traditional Factoring Reverse Factoring

Seller-centric model;

One supplier > many buyers;

Risk is on supplier;

This is often a smaller SME;

Existing SME credit relationship;

Lack of control re ‘performance’;

Invoice discounted at margin.

Buyer-centric model;

One buyer > many suppliers

Risk is on buyer;

This is often a Corporate client;

Existing Corporate credit relationship;

Performance has been confirmed;

Invoice discounted at face value.

Both models are similar in the sense that they:

- deal with a commercial relationship between Buyer and Seller;

- provide EARLY PAYMENT to suppliers of goods or services.

Same Product Different Risk

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SUPPLIER (SMEs)

Access to liquidity;

Non-recourse working capital

financing, not affecting SME’s

borrowing base;

Cheaper funding (through

lower arrangements and

monitoring

costs for banks);

Very fast TAT;

Better + easier admin.

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BUYER (Corporates)

Stronger supplier network;

Standardized payment

processing;

Possibility to stretch payment

terms (w/h affecting suppliers);

Deleveraging balance sheet;

Better + easier administration;

Negotating ever better payment

terms (with suppliers).

BANK

Building new SME and (mid-tier)

Corporate relationships;

Cross-sell existing

relationships;

Utilization Corp credit lines;

Strongly reduced SME credit

risk;

Lower operating costs;

Higher interest + fee income;

Early mover advantage.

--------------------------------

Defensive strategy:

competition preparing SCF

initiatives as well.

All parties gain ...

Getting Paid (much) earlier

How we work with Banks

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Through our eBiashara (Africa) venture we offer financial institutions :

• A state-of-the-art SCF platform allowing large volume and highly automated:

• Early Payment solutions Invoice Discounting or Reverse Factoring;

• Late Payment solutions Distributor Finance;

• Platform can be run on an outsourced SAAS basis, allowing banks to avoid highupfront investment costs;

• We assist Buyers, Suppliers and Banks with:

• Training and onboarding services;

• 1st, 2nd and 3rd level helpdesk support;

• Targeted marketing efforts;

BANKS CONCETRATE ON WHAT THEY DO BEST: CREDIT AND PAYMENTS. WE DO THE REST !

All working off the same IT system

buyersuppliers

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Key points

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proven track record (also in Kenya)

implementation subsidized through F4A

we help with training + marketing

low upfront investment (pay-as-you-go)

no complex core banking integration

can expand to Distributor Finance

up and running in 3-4 months

Conclusion

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We view Supply Chain Finance as a critical solution to unlock the Access to Finance challenges of the growing

economies of Africa.

Reverse Factoring is the single biggest commercial breakthrough to shift the risk perceptions of financial institutions and very rapidly improve liquidity to SMEs

across many different sectors.

What others say ….

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The East African, Oct 4th 2014