Global Supply Chain Finance

Global supply-chain finance refers to the set of solutions available for financing specific goods and/or products as they move from origin to destination along the supply chain. It is related to a quickly growing use of a battery of technologies and financial business practices that allow for discounting of Accounts Receivable and financing of companies' confirmed Accounts Payable.

A global supply chain refers to the network created among different worldwide companies producing, handling, and distributing specific goods and/or products.

With the supply chain lengthening as a result of globalization and offshore production, many companies have experienced a reduction of capital availability. In addition, the pressure faced by companies to improve cash flow has resulted in increased pressure on their overseas suppliers. Specifically, suppliers receive pressure in the form of extended payment terms or increased working capital imposed on them by large buyers. The general trend toward open account from letters of credit has further contributed to the problem.

As a result, there is a need for global supply chain finance (GSCF) solutions. The market opportunity for a GSCF solution is significant. The total worldwide market for receivables management is US$1.3 trillion. Payables discounting and asset-based lending add an additional US$100 billion and $340 billion, respectively . Only a small percentage of companies are currently using supply chain finance techniques, but more than half have plans or are investigating options to improve supply chain finance techniques.

While buyers are extending payment terms to their suppliers, the suppliers often have limited access to short-term financing and, therefore, a higher cost of money. This cost-shifting to suppliers results in a financially unstable and higher-risk supply base. Overall, the benchmark report showed that companies should be pursuing three key areas of improvement: GSCF financing; GSCF technology; and GSCF visibility.

The role of GSCF is to optimize both the availability and cost of capital within a given buyer-supplier supply chain. It does this by aggregating, packaging, and utilizing information generated during supply chain activities and matching this information with the physical control of goods. The coupling of information and physical control enables lenders to mitigate financial risk within the supply chain. The mitigation of risk allows more capital to be raised, capital to be accessed sooner or capital to be raised at lower rates.

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