McKinsey&Company wrote, “Traditionally dominated by banks, the market has more recently been entered by fintechs: specialist financial technology companies that provide platforms and software-based services to support SCF operations. These challengers are changing how buyers and suppliers think about the market, disrupting incumbent financial systems and providers, and starting to command a sizeable proportion of value pools.” in their report on Payments in 2015. They identified that the revenue potential of supply chain finance was huge and largely untapped:

Source & Copyright©2017 - Capital IQ and McKinsey&Company 

This forecast really has come to pass with new players and surveys showing the huge potential almost every month. Here are some interesting examples.

Export finance: A guide for importers

TXF’s guide on Export Finance reviews the basics as to what is export finance, the role of ECAs, the costs and the typical arrangements. How much can be financed and the advantages/disadvantages, and what medium/long term cover ECAs offer in buyer credit and supplier credit.

At the end of the report there are a series of questions “you should ask yourself, to work out if export finance is an option for you. Only proceed to the next stage if the answer to each of these questions is Yes”.

PrimaDollar - exploiting global credit arbitrage

To enable factories in emerging countries to raise working capital. PRIMADOLLAR take credit risk only on the factories large mid Customers in OECD countries. They use credit risk mitigation on the customer, such as credit insurance, to reduce their risk further. 

The PrimaDollar model addresses working capital needs that have resulted from shifts in global supply chains. Chinese garment export growth is flat while the rest of the world is growing primarily due to the much lower-cost in countries like Bangladesh. 

However, these low-cost suppliers lack working capital because they are poorly banked, and OECD buyers will not assist with upfront payments on orders, and payment guarantees, etc. Both parties need someone else to provide the working capital. the problem is that financial supply chain finance provides money too late (30 days or more after shipment) and local banks are not ready or able to step in to fill the gap.

PrimaDollar solves the problem by providing working capital to factories and giving buyers deferred payment terms: 

Source & Copyright©2017 PrimaDollar 

They bridge the typical 180 day cash programme from order to payment by:

• before shipment, they give the factory payment guarantee (so local bank can lend funds)
• after shipment, they factor invoice due from the buyer (so the factory can repay bank) and they collect from the buyer after, say 90 days.

Note that PrimaDollar takes no risk on the factory because they:

• never pay money to a manufacturer without first obtaining an enforceable, English law claim for payment from the buyer
• always have credit insurance from the buyer or another form of third party credit risk mitigation.

Already, PrimaDollar is already employed in over 20 factories. An international buyer and PrimaDollar client, currently importing over USD50 million from Bangladesh for delivery to major European and Middle Eastern retailers, recently commented, “It is significantly better, quicker and cheaper to use than the traditional trade finance.”

PrimaDollar are already in detailed talks with many other factories and 50 sourcing agents as well as adding new functionality to their offering.

The future is bright for PrimaDollar model because factories in many emerging markets will need working capital. However, using profitable cross-market arbitrage, requires great knowledge and understanding of local market conditions and banking arrangements. Also it is difficult to see how banks can compete with this sort of arrangement.

Integrating SCF functionality

One of the first to add supply chain finance to their e-invoicing service offering was Tungsten(OB10) in early 2014. One of latest is business lender FastPay who is integrating its financing offering with an accounts payable feature for its users in a move that aims to accelerate the movement of money down the supply chain for digital media businesses.

FastPay revealed the launch of COMPLETE, a portal through which companies can access receivables financing so they can more quickly pay their own vendors. The solution was developed for advertisers and agencies, the company said, and provides faster supplier payment capabilities.

“Having processed nearly $2 billion in payment advances, we’ve seen firsthand the friction of collecting from buyers and disbursing to vendors throughout the media supply chain,” the firm’s President and COO Secil Baysal said in a statement. “We believe offering advanced payment solutions paired with lending is a strong value proposition to our client base and will dramatically improve efficiency within the media supply chain.”

In addition, for payments made with cards, FastPay is collaborating with Comdata to integrate virtual card payment capabilities. Meanwhile, the company noted, it is leveraging its existing partnership with AFEX to disburse funds to vendors in various currencies across borders.

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CTMfile take: There is now a myriad of different ways to finance the supply chain. The key is going to be how easy it is to integrate the service into each company’s business model.