Supply chain finance is revolutionising the way companies buy and sell, but its full potential has yet to be realised.
The amount of cross-border SCF conducted today is just a tenth of what could be done say European banks. One reason is the complexity of SCF. However innovations in both developed and emerging economies promise to change that modest uptake in the coming years.
Making SCF easier to use and understand is essential if it is to become the norm in financing global trade. Several trends should speed that process:
1. SCF is becoming widely accepted in cross border trade
Bankers expect the European and US crossborder markets to grow 10-20 per cent a year for the rest of this decade. Already some banks have seen annual growth of 30-40 per cent andin the UK and Germany that figure is closer to 70 per cent, according to Demica.
2. More buyers are financing their suppliers
SCF has traditionally focused more on the relationship between suppliers and their banks. This is changing. New technology is helping buyers use SCF to help their strategic suppliers at better rates than they might find elsewhere, thanks to often higher credit ratings.
3. Non-bank players are emerging as an alternative source of SCF
New entrants, including peer-to-peer lenders, dynamic discounters and early payment marketplaces help buyers and suppliers exchange purchase orders, invoices and accelerate cash transfers. Private investors, financial institutions or even buyers provide funding for these new solutions to invest in their own payables.
4. Providers unite to offer a global service
Fragmented banks are recognising the need to partner logistics companies, local banks, export credit agencies and other transaction banks to offer corporates solutions across the supply chain. That is a change from the more fragmented approach until now.
5. Technology is replacing the paperwork
Electronic documentation is playing an ever greater role in international trade business as corporates automate trade supply chains toimprove speed and efficiency. That means corporates who use a number of banks require them to deliver electronic solutions on a common platform.
6. Countries are getting involved
Governments around the globe are paying more attention to supply chain finance. The UK for instance has initiated an SCF programme with some of Britain’s leading companies and banks. In the US, the Treasury’s Invoice Processing Platform uses electronic invoicing to ensure that suppliers are paid on time or even early.
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