Financial Supply Chain - Bottomline Technologies
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Transcript of Financial Supply Chain - Bottomline Technologies
SWIFT Business Forum
London 2013
Lunchtime Information Session
Rewriting the rules of financial
supply chain
Marcus Hughes, Director Business
Development, Bottomline Technologies
Marcus Hughes, Business Development Director
SWIFT Business Forum, London, 30 April 2013
Agenda
• Trade finance’s evolving landscape
• Cash flow challenges for buyers and suppliers
• Bank Payment Obligation mitigating risk and enabling SCF
• Role of International Chamber of Commerce
• De-risking implementation
Bank Payment Obligation: coming of age
Definition
An irrevocable undertaking, given by a bank to another bank, that payment will be made on a specified date, after successful electronic matching of data, according to an industry-wide set of rules
• Like an LC but faster, cheaper, data, electronic matching
• Mitigates risk
• Enables supply chain finance
• Adoption challenges
• ICC involvement
Risks and longer credit terms in international
trade
Financial risk
Commercial risk
Transport risk
Economic risk
Political and stability risk
Need for risk mitigation and financing
Letters of credit
Documentary collections
Standby LCs
Guarantees
Forfaiting
Reverse factoring
Factoring
Invoice discounting
Credit insurance
Traditional trade finance: Letter of credit
Supplier
Buyer
Supplier Bank
Buyer Bank Hundreds of years’ usage
Conditional guarantee of payment
Documents checked manually
Rule book: UCP600
Risk mitigation
Collateral for integrated finance
But: Slow, paper-based, labour-
intensive
Costly processing / bank fees
Increasing open account
% of x-border
trade on LC
declining,
although values
remain steady
Global value of
Cross-border
trade
(USD billions)
0
20
40
60
80
100
1950s 1970s 1980s 1990s
0
5,000
10,000
15,000
2000s
Banks seeking new revenue sources and lower processing costs
Global trade will double by 2020 to USD 33 trillion (WTO)
80%+ of global trade now open account
Dominant payment term is now Open
Account
Supplier Buyer
Supplier Bank Buyer Bank
Purchase orders, invoices, like
domestic
Less costly than LCs
Flexible, fast, more electronic
But: No payment assurance
SMEs struggle to access credit
Banks’ limited role
Dis-intermediation risk
Payment fees down:
Regulation, competition
Trend in cross-border trade over last 30
years
Open Account LC
Bank services
• Risk mitigation
• Financing
• Document processing
• Payments & FX
• Greater automation with new MT798
Bank services
• Banks involved at tail end of cycle
• Payments & FX
• Poor visibility limits financing options
Cash-flow challenges for seller
Ship Goods
Sales Invoice
Dispute Credit
Control
Collect
DSO
• Get paid quickly
• Or payment assurance
• Manage / reduce Days Sales
Outstanding
• Buyer squeezes SME supplier to
extend terms
• SME bears higher borrowing costs:
Sneak into higher prices for buyer
• Sub-optimal use of supply chain
credit quality
Supplier Invoice
Check Goods
Dispute Approve
Pay
Cash-flow challenges for buyer
DPO
• Pay as late as possible
• Increase Days Payables
Outstanding
• Typically delay payment,
especially to SMEs
• Cash rich buyers press for early
payment discounts
• Dynamic discounting
• Growth of reverse factoring
• Require fast invoice approval
Bank Payment Obligation
Open Account LC
BPO
Cost effective
alternative to LCs
Re-intermediate
Best of both worlds: LC and open account
• Risk mitigation and integrated finance benefits of LC
• Efficiency of open account and e-invoicing
PO, BL, invoice
data matching
The BPO: Electronic data matching
Matching of
contract data
Transfer
of funds
Matching of
data
Buyer Seller
1) Sign contract (PO)
2) PO data 3) SO data
4) Match PO/SO data & confirm
6) Match requested datasets & confirm
5) Datasets
8) Transfer funds
7) Debit buyer 9) Pay seller FIN
PO= Purchase Order; SO= Sales Order
TSU
Bank A Bank B
Buyer Seller
Bank A Bank B
TSU
Buyer Seller
Bank A Bank B
BPO is established
BPO is due
Trade is settled
5) Datasets
Case 1
Payment assurance for seller
I need to offer payment
assurance to my supplier
and confirm purchase order
via my bank
I will substitute for the
creditworthiness of my customer
and guarantee the future
payment to seller’s bank (BPO)
for a fee
I want to be certain
that I will be paid on
time
Based on the BPO issued
by buyer’s bank , I can
guarantee payment to my
customer
2
3 4
1
Seller Buyer
URBPO &
ISO 20022
on TSU BPO Obligor
Bank BPO Recipient
Bank
Case 2
Pre-shipment finance for supplier
I want my supplier to
increase its financial
resilience and will
confirm the PO
I want to access cost-
effective financing to
cover my
manufacturing
expenditure s
Based on BPO issued
by buyer’s bank, I will
offer pre-shipment
finance to my
customer
I will guarantee future
payment to the seller’s
bank upon the confirmed
purchase order
3 4
1 2
Financing services
URBPO &
ISO 20022
on TSU Seller Buyer BPO Obligor
Bank BPO Recipient
Bank
Case 3
Post-shipment finance for supplier
when invoice issued (before approval by buyer)
I want my supplier to
increase its financial
resilience and will issue
a BPO to facilitate post-
shipment finance by the
seller’s bank
I want to be paid as
early as possible
after the shipment to
the buyer
I will guarantee the future
payment to the seller’s bank
based on the submission of
compliant transport and
invoice data
Based on the BPO issued by
the buyer’s bank, I will offer
earlier payment to my
customer
1
2
3 4
Financing services
URBPO &
ISO 20022
on TSU Seller Buyer BPO Obligor
Bank BPO Recipient
Bank
Case 4
Import finance for buyer
Post-shipment finance for supplier
I accept the goods
delivered by my
seller but would
like to pay at a
later date
I will guarantee the payment (BPO)
to the seller’s bank and will offer
the extended payment terms to my
customer
Based on the BPO issued by
the buyer’s bank, I can also
finance the receivables of my
customer before buyer
approves the invoice
I shipped the goods
to the buyer and I
want to be paid on
time, or optionally in
advance
1 2
3 4
Financing services
URBPO &
ISO 20022
on TSU Seller Buyer BPO Obligor
Bank BPO Recipient
Bank
The BPO enables SCF to start earlier
The UR BPO and ISO 20022 standards enable banks to extend SCF offerings
to risk mitigation and pre / post-shipment financing
Ordering Production Delivery Invoicing Payment & cash mgmt
Invoice Issuance
Purchase Order (PO)
Transport Documents
Invoice Approval
Certificates Payment
Goods Acceptance
Payment risk mitigation Pre-shipment finance
Post-shipment finance
Receivables Finance
Payment Processing
Transforming open account payments
into SCF opportunities
High-risk zone
Payment assurance & financing services
No/Low-risk zone
(Early) Payment services
The BPO extends range of SCF models
Trade
Services
Utility
Buyer’s Bank
Supplier
Buyer Buyer
Supplier
3 corner supplier finance 4 corner model
• Reverse factoring / approved payables finance
• Suppliers managed by buyer’s bank
• Issues: On-boarding, documentation, KYC
• No standards
• Multiple proprietary platforms
• Flexible finance options (pre / post shipment)
• Suppliers managed by local banks
• Supports partnership banking reach
• Common standards and rules
• Greater reach and scalability
Buyer’s Bank
Supplier’s Bank
BPO
The BPO is backed by ICC rules
New trade instrument offering payment assurance,
risk mitigation and financing, based on standard structured data,
industry rules and electronic matching
ICC Uniform Rules for
Bank Payment
Obligations
Why now ? Drivers for adoption of the BPO
• Open account growing: Needs integrated finance, payment assurance
• BPO: Cost effective alternative to LC
• ICC commitment: Rules for BPO and Model Sale Contract
• Complements supplier finance with pre and post-shipment finance
• Faster processing and cost savings
• Bottomline’s cost effective, low risk approach to adoption
De-risking BPO implementation
Trade
Services
Utility
(TSU)
fscLIVE
Obligor Bank Recipient Bank
Supplier Buyer
Automating data translation and message flows
Differentiators
• Hosted
• Removes complexity and cost
• Links PO, invoice, BL, BPO
• Data transformation
• On-boarding, connectivity
• Hosted bank BICs
• Low risk
• Subscription based
• Catalyst for adoption
• Early adopter pricing
ISO 20022
Simple to get started
Thank you
Q&A