Financial Supply Chain - Bottomline Technologies

23
SWIFT Business Forum London 2013 Lunchtime Information Session Rewriting the rules of financial supply chain Marcus Hughes, Director Business Development, Bottomline Technologies

Transcript of Financial Supply Chain - Bottomline Technologies

Page 1: 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

Page 2: Financial Supply Chain - Bottomline Technologies

Marcus Hughes, Business Development Director

SWIFT Business Forum, London, 30 April 2013

Page 3: Financial Supply Chain - Bottomline Technologies

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

Page 4: Financial Supply Chain - Bottomline Technologies

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

Page 5: Financial Supply Chain - Bottomline Technologies

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

Page 6: Financial Supply Chain - Bottomline Technologies

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

Page 7: Financial Supply Chain - Bottomline Technologies

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

Page 8: Financial Supply Chain - Bottomline Technologies

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

Page 9: Financial Supply Chain - Bottomline Technologies

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

Page 10: Financial Supply Chain - Bottomline Technologies

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

Page 11: Financial Supply Chain - Bottomline Technologies

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

Page 12: Financial Supply Chain - Bottomline Technologies

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

Page 13: Financial Supply Chain - Bottomline Technologies

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

Page 14: Financial Supply Chain - Bottomline Technologies

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

Page 15: Financial Supply Chain - Bottomline Technologies

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

Page 16: Financial Supply Chain - Bottomline Technologies

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

Page 17: Financial Supply Chain - Bottomline Technologies

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

Page 18: Financial Supply Chain - Bottomline Technologies

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

Page 19: Financial Supply Chain - Bottomline Technologies

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

Page 20: Financial Supply Chain - Bottomline Technologies

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

Page 21: Financial Supply Chain - Bottomline Technologies

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

Page 22: Financial Supply Chain - Bottomline Technologies

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

Page 23: Financial Supply Chain - Bottomline Technologies

Thank you

Q&A