REVERSE FACTORING & SUPPLY CHAIN FINANCE :
There are varying definitions for these 2 types of initiatives enabling working capital improvement; we shall try to simplify these notions.
Before defining the respective characteristics of both terms, we should refer to their financial origin, different to Logistics driven initiatives. Both these programmes are aiming to generate cash for Supplier and Buyer organisations. Due to the dematerialised management of these initiatives, operational cost reductions are also achieved. Many of these programmes are the logical extension of Purchase to Pay dematerialisation initiatives. Shared Service Centres setting up their operations or looking at better ways to manage their transactional tasks are likely to select such programmes.
Supply Chain was originally a term derived from Logistics and describes the processes from procurement to delivery between a Buyer organisation and its Suppliers.
Beyond physical Supply Chain, Financial Supply Chain entails another transaction going the opposite direction to the one used to supply goods and/or services.
Reverse Factoring :
Once invoices are being validated via existing Accounts Payable processes, the Buyer can propose an early payment facility to its suppliers. Settlement can be handled by a third party financier whom in turn can share part of its gain with the Buyer. In this instance, as the Buyer pays back the Financier on the due date, the credit risk is carried on its ‘head’ and its Suppliers are enjoying improved financial conditions terms based on the Buyer’s credit rating.
Supply Chain Finance :
The objective is similar to those in Reverse Factoring, specifically the opportunity for the Buyer to propose early payment to its Suppliers.
In this instance, Suppliers have the flexibility to declare their requirements for early payment soon after sending invoices to the Buyer. Certain programmes are granting early payment against a smaller value for invoices that have not yet been validated. This enables earlier payment opportunities for a longer term, again a benefit for all parties involved.
Main benefits for the Buyer :
Such programmes, either Reverse Factoring or Supply Chain Finance, are primarily driven by Buyers. This is because large Buyers will enjoy the most immediate benefit of such programmes as long as they use careful planning and management of these initiatives. Control over the participants, rules and also the technology used to instrument are paramount to achieve objectives.
- Streamline AP processing costs with fully dematerialised, automated entire Purchase to Pay Cycle
- Maintain Days Payables Outstanding (DPO) without damaging suppliers’s cashflow
- Online collaborative dispute management with Suppliers
- Reduction in purchasing amount by enjoying proposed Supplier discount offers and agreements against rapid payment
- Working Capital optimisation
- Independent choice between different financial partners to cater for all Supplier types
- Usage of Buyer’s own cash flow or partner financial institution’s funds for managing early payments
- Additional revenue opportunity from gain sharing schemes from Financial partners
- Enhanced and strengthened Supplier relationship by offering very early payment opportunities and improved visibility and collaboration on purchasing processes
- Additional tool to negotiate better purchasing terms against early payment service option
- Management of dematerialised Remittance Advices with suppliers
- Corporate LinX’s solution is compatible with most ERP, EDI and procurement tools enable low cost connectivity efforts
Main benefits for Suppliers :
Corporate LinX is providing suppliers with benefits going the extra mile from traditional dematerialisation programmes. Visibility over Supply Chain transactions, information regarding payment date and ability to command early invoice settlement are enhancing suppliers’ own cashflow as well as relationships with Buyer organisations.
- Reduce DSO
- Streamlined AR costs with automated online management of invoice status (receipt, validation, dispute, payment date)
- Online collaborative dispute management with Buyer as soon as invoice is being challenged
- Rapid and easy funding (48 hours)
- Guarantee paymentto be paid on a chosen date
- Competitive costs for early payment option
- Early visibility of operating capital
- Batch or unitary receivables eligible for early payment option
- Remittance advice management
- Data upload/download automation possible with most accounting packages
Main benefits for financial organisations :
The Financial organisation plays an important part in any Supply Chain Finance programme. Via the Corporate LinX SCF Portal, the Financier enjoys real time transactional information exchanged between Buyers and Suppliers. The CLeX Portal provides auditable information as well as delivery of data files to be delivered into the Financier’s own Information Systems.
The online and automated transactional processes enable reduction in transaction costs but also access to greater Supply Chain transaction volumes.
- Opportunity to partner with CLX to access Supply Chain programmes instrumented by Corporate LinX own Portal
- Reduction in transaction processing costs with enhanced efficiency
- Access to large transaction volumes
- Simplified and reduced cost of sales via access to Suppliers onbarded into Supply Chain Finance programmes