THE EVOLUTION OF THE FINANCIAL SUPPLY CHAIN

THE EVOLUTION OF THE

FINANCIAL SUPPLY CHAIN

WORKSHOP:

EUROPEAN SUPPLY CHAIN FORUM

The Solutions to Finance Working Capital Needs

Cash Management

Delivery Stock of Distribution

Products Production

Raw

Materials Sales

Documentary Credits Documentary Credits

Leasing Vendor Lease

Securitization Multi-Local

Factoring Factoring

Reverse Factoring

Purchase Order Management

Floor Planning

Outsourcing Credit Management

What is Factoring / Commercial Finance?

Factoring or Commercial Finance is a modern financial service, based on the assignment of receivables by a seller to a factor. In its most complete version the factor will offer the following services:

•Highly automated accounting of buyers

•Collection and Accounts Receivable Management •Legal Action, if needed

•100% Credit Risk Coverage

Commercial Finance Overview

Client (Seller) Debtors (Buyers) Goods Factor Collection Payment

Parties Involved in Case of the Two Factor System*

Export Factor Import Factor Credit Cover Importer Collection Payment Exporter Receivables Financing Credit Line Request Shipment Order

Four Main Components of Commercial Finance Products

Finance Risk Coverage Credit Management Administration Finance

Providing liquidity based on the debtor portfolio

Risk Coverage 100% risk coverage of unpaid receivables Credit Management Providing credit management services related to outstanding receivables Administration Providing administrative services related to invoicing

Factoring / Commercial Finance

And

Service Overview

•Purchase Order Management – POM (Financing)

•Reverse Factoring •Floor Planning

•Inventory Financing

•Multi-Local Commercial Finance

•Management of Accounts Receivable, Accounts Payable and e-Invoicing

Definitions – Physical & Financial Supply Chain

The Physical Supply Chain of a company consists of different departments, goods,

information and financial flows, ranging from procurement of materials to customer service.

Financial Supply Chain is defined as the part of the Overall Supply Chain relating to the

financial impact of business activity including ordering, invoicing, credit management, payment and financing. In the corporate universe, Financial Supply Chain topic is strongly correlated with working capital management ownership issues.

The Financial Supply Chain refers to the end-to-end trade processes and information that drive a company’s cash, accounts, and working capital. From a buyer’s perspective, this involves the full procurement-to-payment process. For the seller, it is the order-to-cash cycle.

Strategic Rationale

The reasons for FCI to embark upon the Financial Supply Chain are multi-fold. The most important drivers are:

1. Growing strategic importance of the Financial Supply Chain

– “The Supply Chain is where the money is. It accounts for 60% to 90% of all company costs” (Source: Supply Chain Council)

– Many opportunities to deliver value-added services to clients

• Financing and credit coverage at the corresponding points in the physical supply chain (pre-shipment, post-shipment, inventory, …)

• Processing and outsourcing services to increase efficiency, such as (e-)invoicing services, purchase order processing, accounts payable management, …

• Combinations of both to improve the working capital needs and the cash conversion cycle

Top Buyer Reasons for focusing on FSC %

Buyers Top Buyer Challenges to improve FSC

% Buyers

Pressure to lower the cost of goods sold 77% Suppliers unwilling to extend payment terms as

much as needed 49%

Manual-intensive financial processes becoming too

burdensome 55% Lack of automation for managing FSC processes 47% Opportunity to lower the overall weighted cost of

capital for our end-to-end supply chain 45%

Financial transaction processing takes too long / is

too costly 42%

Analyse Source: Aberdeen, Supply Chain Finance Benchmark

Top Seller Reasons for focusing on FSC %

Sellers Top Seller Challenges to improve FSC

% Sellers

Pressure to lower the cost of goods sold 50% Cash flow uncertainty 43% Opportunity to lower the overall weighted cost of

capital for our end-to-end supply chain 36%

Difficulty obtaining short-term financing because

cost of capital is too high 39% Shortage of funds to support production / work in

process / buyer-required inventory 32%

Lack of automation for managing FSC processes

36%

Pressure to shorted DSOs 32% Complexity of supporting multiple buyers and their

different payment and financing programs 36% Financial Supply Chain Challenges for Sellers & Buyers

Source: Aberdeen, Supply Chain Finance Benchmark

Purchase Order Management (POM): Closing the Value Gap

Inventory Finance

Post-shipment Finance, Receivables Finance & Factoring

Credit Cover

Purchase Order

Produce

Goods Ship Receive

Buyer’s

Inventory Sell

Purchase Order Management (POM): Product Definition

The FCI Purchase Order Management (POM) product protects, as part of a factoring contract, exporters of goods against the buyer’s failure to fulfill

its obligation due to financial inability to pay during the period from purchase order approval till shipment

Overview of the Build Option

Credit Cover Purchase Order Produce Goods Ship Buyer’s Inventory Sell

Financial Supply Chain

5 Request for Credit Cover 4 Pricing Information

3 Preliminary Credit Response 2 Preliminary Credit Request 1 Seller's Information

Edifactoring.com Messages

Receive

13 Payment Under Guarantee 12 Indirect Payment

11 Payment

10 Adjustment of Invoice & Credit Note 9 Invoices & Credit Notes

New Messages

Credit Cover Purchase Order Produce Goods Ship Buyer’s Inventory Sell

Financial Supply Chain

66 Change PO Amount 65 PO Verification Answer 64 PO Verification Request 59 PO 56 PO Credit Answer 55 PO Credit Request Edifactoring.com Messages Receive

Purchase Order Manageemnt

Importer $$$ C ol lect ion / P ay m ent Exporter P ur chase O rder C opy Pa y m e n t / PUG Purchase Order Payment / PUG Credit Cover Purchase Order Produce

Goods Ship Receive

Buyer’s

Reverse Factoring

Buyer

Factor Confirmation

Payment

Supplier 1

• Allows large buyers to reinforce their purchase strategy vis-à-vis their suppliers

• Financing of Accounts Payable

• Without impact on their liabilities

• Interesting terms and conditions for the suppliers

Floor Planning

Credit Terms 90 Days

• Floor planning offers to finance goods put at the disposal of a distribution network

• Allows dealers to finance the inventory, present in their showroom • Ideal solution for the automobile industry

Manufacturer or

Importer

Dealer End User

Extended Payments Terms allowed by the factor

Inventory Financing

• Financing based on the value of the inventory, mostly finished goods,

owned by the buyer and easily to be resold

• Systematically linked to a Factoring Agreement mostly by respecting a

Multi-Local Commercial Finance

• In case the Commercial Finance Company has a large geographical

coverage

• Allows to harmonize terms and conditions over the Seller’s Group

• Financing and Management of Receivables is done locally, with

coordination on the level of the Seller’s Headquarters

Client X Subsidiary UK Subsidiary DE Subsidiary FR Parent Company NL (HQ) Factor NL Sponsor

Management of A/R, A/P and e-Invoicing

• Finodis offers solutions related to the total management

of receivables

• White label option

• Large geographic and language coverage Finodis Credit Checking & Rating Management & Collections Payment Allocation and Accounting Training & Audit of Credit Management e-Invoicing e-Payment

THANKS!

Dirk E. Driessens Managing Director

General Trade & Advice BVBA Hoogboomsteenweg 164

2930 Brasschaat Belgium

Resume

Dirk E. Driessens holds a Master Degree in Applied Economics

(University of Antwerp) and an MBA from Flanders Business School / Northwestern University (Kellogg) Evanston, Illinois.

Followed the Global Senior Management Programme of IE University of Chicago / Barcelona.

During his professional career Dirk Driessens has been Managing

Director of Belgo-Factors, CEO of Fortis Commercial Finance Holding, CEO of Fortis Trade Finance, Supply Chain and Cash Management and Member of the Merchant Bank Board of Fortis. He is now Managing

Director of General Trade & Advice.

Dirk Driessens has been Chairman of Factors Chain International from 2003 till 2005 and Member of the Executive Committee of FCI from 2001 till 2013.

He is author of a large series of articles on Asset Based Lending and guest lecturer at a number of Universities.