Introduction In a globalized economy, industrial value chains are becoming more complex, spanning more countries and more companies than ever before. Yet, while flows of goods in the supply chain are increasingly integrated and optimized, the same cannot be said of the financial supply chain, where the credit crisis revealed structural weaknesses. The cost of finance is rising, while suppliers, especially SMEs and those located in developing countries, have difficulties obtaining the credit they need to grow. To address these issues, which bring with them the risk of disrupted supply chains, large buyers are starting to manage the financial supply chain with the same integrated approach they apply to the physical supply chain.
SCF Instruments Supply Chain Finance (SCF) covers a range of approaches and instruments that optimize the transactions, working capital and costs of those extended supply chains. New instruments significantly improve access to finance or reduce the need to finance by unlocking potential funding from within supply chains instead of relying on external creditors. The most common forms of SCF in use today Reverse Factoring (RF) and Dynamic Discounting (DD). RF and DD are forms of post-shipment financing with a growing market presence. However, the liquidity needs of suppliers often arise before good are shipped, so pre-shipment financing instruments, like raw material financing and purchase order financing, are gaining importance.
Developments More and more big buyers not only want to include their largest, tier 1 suppliers in SCF solutions, but also their tier 2, 3 and 4 suppliers. They are looking for solutions that reach deeper into the supply chain. This space between buyers and suppliers is fertile ground for new solution providers. Fintec firms are automating payment processes and supporting the “onboarding” process for suppliers, while many logistic service providers are helping to reduce transaction and financing costs in the supply chain by offering inventory financing and providing the bank with detailed information about the flow of goods.