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Interviews

How to start a successful supply chain finance programme

Monday 22 May 2017 | 08:47 AM CET

Tom Dunn, Orbian: Risk management is the key driver standing front and center in every decision that somebody considering a SCF programme should be thinking about

Why choosing a bank-agnostic financing model is the right option for a company starting implementation of its first SCF programme?

The reason for choosing a bank-agnostic financing model is that companies want their first programme to be successful after they have gone through the trouble of implementing. For this, a company must ensure there is always sufficient liquidity for the programme and that is not exposed to any risk of individual banks choosing to exit the programme. Moreover, it must have the instruments to manage their liquidity requirements without involving their supplier in the programme. It makes more sense to choose a bank-agnostic financing model instead of starting with a bank-dependent or single bank and then having to move to a broader base-financing model.

What are Orbian`s lessons learned and challenges in implementing a SCF programme?

The technology around it is quite simple, and understanding the corporate value proposition is very straightforward. The main challenges come in the execution phase. Executing a well-structured, well-managed SCF programme that involves multiple suppliers and multiple jurisdictions funded with multiple sources is an exercise that requires dedication and concentration to get everything right, getting the message to the suppliers right.

What are the main considerations to take into account when preparing a future-proof SCF programme?

Risk management is the key driver standing front and center in every decision that somebody considering a SCF programme should be thinking about. First, we need to ensure that there is no risk to payments that apply over the course of the programme and that it is completely remote from any individual bank or counterparty risk. Second, we need to ensure the buyer checks if the information that they are uploading to the SCF manager is secure, that there is no risk of being hacked, abused or manipulated by any parties involved in the transaction. The third aspect relates to the fact that the supplier needs to know that liquidity within the SCF programme is going to be there. They do not want to be put in a situation where they have to scramble for liquidity, because the first person they are going to call is the buyer and ask them to pay early. The next risk people want to have addressed is the fact that the programme is compliant with all requirements – KYC, AML, other regulatory approval specifications, appropriate accounting.

For a buyer that wants to future proof a SCF programme, the important thing they need to do is to make sure upfront that whoever is providing it to them is going to have the financial resources on an ongoing basis. What becomes increasingly clear over the last couple of years is that SCF is now a mature business. Businesses unable to make a good return of capital and earn a profit are certainly not sustainable future proof businesses. That does not only apply to single product SCF kind of specialist, it also applies to the bank providers of this service for whom the P&L may not be publicly disclosed because it is part of an aggregated view of the organisation. However, within the organisation, they will know whether that SCF business act as independently accounted set of businesses and if it`s profitable or not.

A first key point when choosing partners is making sure that they can execute a global programme seamlessly, from a single point of integration. A second one is checking if they are able to bring in financing sources from whatever type of resource that is around the world, without impacting individual suppliers or requiring individual supplier to enter a contract with individual sources of financing.

What holds suppliers back from successfully onboarding into SCF programmes and what can be done to address this?

Making it complicated for the suppliers, so that they do not feel as being treated as local organisation within a global construct, all these are going to hinder the success of enrollment. Having a clarity of strategy from a buyer is the most important part of getting the suppliers to enroll. In order to address this, the buyer must be clear about what it is that they want their suppliers to do and what they are going to offer them in return. If the buyer aims for working capital improvement, they need to be clear that this is what they want and that the SCF programme is designed to assist in that.

What are the key strategies and tools to tackle SCF compliance challenges in the next 2 years?

It is crucial to avoid focusing solely on compliance. At this point, there is no substitute for just having a very diligent team of people within the SCF organisation that are responsible with managing the huge array of appliance regulatory KYC, AML, and accounting challenges that exist. Outsourcing it to robots or to technology has its limitations. It has to be done by people. Indeed, technology and extra resources can assist, yet, at the end of the day, it boils down to individuals in the organisation having to take responsibility for the compliance roadmap.

For similar stories, please check out our B2B Fintech: Payments, Supply Chain Finance & E-invoicing Guide 2017 to get access to an insightful outline of the global transaction banking, B2B payments, supply chain finance & e-invoicing market.

About Tom Dunn

Thomas Dunn is Chairman of Orbian and has over 20 years’ experience in financial services including banking, insurance and private equity. Prior to joining Orbian, Tom worked for 16 years with JP Morgan in London, Melbourne, Sydney and Tokyo. His experience was most focused upon debt capital markets, corporate finance and credit markets; and he was ultimately responsible for each of these businesses for JP Morgan in Asia Pacific. Tom is also the Chairman of Raglan Capital Limited, a Bermuda-based private equity company.

About Orbian

Orbian is a global provider of development and management of supply chain finance programs. Combining its own proprietary IT system with effective funding capability, Orbian has been providing world-wide, multi-currency SCF solutions to global corporates and their suppliers for 17 years.

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