From the June Special Report issue of Treasury & Risk magazine

Supply Chain Finance Takes Off

Companies aim to give their suppliers a boost at the same time they extend payment terms.

More and more companies are signing on for supply chain finance. The financial crisis is credited with encouraging companies to find ways to balance their need to take longer to pay their bills with their suppliers’ need for cash, but the interest continues to grow even as the economy slowly picks up steam.

“One of the things we’re really seen take off over the last couple of years is supply chain finance,” said Michael Fossaceca, managing director and North America region head corporates for Citi Treasury and Trade Solutions.

Jon Richman, head of trade and financial supply chain Americas, Global Transaction Banking, Deutsche Bank, said that he expects the use of supply chain finance to continue to grow even if interest rates start to rise as these programs offer considerable value relative to other funding sources. “Supply chain finance will remain a very attractive way to improve cash flow, support growth and manage risk.”

Atkinson estimated that 60% to 70% of the funding for supply chain finance currently comes from sources other than banks. “In many cases, it is the buyers,” she said. In addition to the companies themselves, she noted that insurance companies have gotten involved in buying and selling receivables as part of their investment portfolios.

Commercial Cards

Credit cards that can be used to make purchases, called procurement cards or commercial cards, are another tool that companies can use to extend the time they take to pay bills.

Basel III as a Factor

The credit crunch is credited as one of the key factors driving the interest in supply chain finance. Bank loans have become more readily available these days, but Fossaceca said there will be a continued need for supply chain finance going forward as the Basel III capital requirements for banks make it harder for some companies, especially non-investment-grade companies, to get funding.

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