how to manage finance risk in supply network

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How to manage finance risks in supply network?LOGY hankintapäivä 1.9.2016

1.9.2016

InternalInternal Logy Hankinapäivä 1.9.2016 / Unhola & Lehtimäki2

Tuomas UnholaHead of Financing Product Line

Juhana LehtimäkiSourcing Consultant

1.9.2016

OpusCapita today - three focused businesses

3

Business Ecosystem ProductsGlobal

Document and Transaction ProcessingFinland, Sweden and Norway

Finance and Accounting OutsourcingNorthern Europe

• Purchasing and Catalogue Management

• Invoice Automation • Cash Management • Supply Chain Financing• Trading and Messaging

Network • Sell Side Solutions

• Multichannel Invoice Sending• Debt Collection• Digitizing and Customized Print• E-archiving and Document

Management

• Full FAO incl. General Ledger and Record-to-Report

• Payroll Outsourcing incl. Travel and Expenses

• Account payables and accounts receivables outsourcing

• Robotic Process Automation service (RPA)

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Finance Risks

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Market Risk

Credit RiskOperational Risk

Liquidity/Cash Flow Risk

Interest Rate Risk

Internal

Working Capital

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Cash

CreditorsDebtors

Inventory

Working Capital Cycle

Internal

”Rahaa on tarjolla, mutta hinta on kova””Lyhyttä rahaa runsaasti tarjolla, mutta vuosikorot ovat 18-36 prosenttia.” ”Löysä maksukuri ajaa yrityksiä

nurin Suomessa”

”Alihankkijayritykset kärsivät venyvistä maksuajoista”

Blogi: ”Saatavarahoitusta, eli laskusaatavien muuttamista rahaksi käytti vain kolme prosenttia. Kyselyn tuloksena voidaankin todeta, että monella yrityksellä olisi hyödyntämättömiä mahdollisuuksia kassavirran parantamiseen.’’


Internal

Different ways to finance your Working Capital needs

Tool Type Flexibility Collateral Price

Account overdraft facility Loan Yes Needed Depends on Credit rating

Factoring Loan No Sales invoices High

Cash discount Early payment Can’t influence No High

Dynamic Discounting Early payment Yes No Moderate

Reverse Factoring Sale of receivables Yes No Low


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Supply Chain Finance (SCF)

“Supply chain finance is a buyer-led initiative that facilitates favorable financing for the supplier in order to achieve mutual benefits for both trading partners, through the use of a technology platform and a third-party financial institution or otherwise.”

Internal

SCF in Brief

• Supply Chain Finance programs are most often financed by a financial institution, e.g. a bank (=Reverse Factoring “RF”)

• The alternative approach is that the Buyer finances the Accounts Receivables of its Suppliers (=Dynamic Discounting “DD”)

FundingEarly paymentrequests

Funding

Invoices

Invoices

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Early paymentrequests

SCF Operator

SCF Operator

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How SCF works in practice?

1. Supplier delivers the productand sends an invoice to the buyer.

2. Accepted invoices are transferred to SCF trading platform

3. Supplier requests the invoice to be financed

4. Bank (RF) or Buyer (DD) pays the discounted amount to the supplier after acceptance.

5. Buyer pays (RF) the invoice according to payment term

Reverse Factoring

Dynamic Discounting

Trading process

Supplier

Bank

Buyer

SCFOperator

Internal

Reverse Factoring vs. Dynamic Discounting

Reverse Factoring Dynamic Discounting

Extended payment terms, while offering early payment to suppliers

Opportunity for buyer’s to offer early cash discounts to suppliers

Cash flow, working capital, impact on balance sheet

Margins, impact on profit & loss statement

Approximately 1-4% per annum

Approximately 5-35% per annum

Third party funder (banks, non-bank funders)

Buyer’s balance sheet

Large and medium enterprises Small and medium enterprises (SME’s)

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CORPORATE GOAL

CORPORATE TARGET

AVERAGE DISCOUNT

FUNDING SOURCE

SUPPLIER FOCUS

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Internal

Why Procurement should be interested in managing finance risks?


Internal

A win-win situation


Reduce supplier financial risk

Improve supplier relationships

Take costs out of supply chain

Improve working capital and cash flow

Options to provide income stream

BUYER BENEFITS

Low cost, on-demand financing

Improves cash flow without increasing debt Cash flow visibility

Reduce credit and FX risk

No IT investmentNo need of new bank

account

SUPPLIER BENEFITS

Internal

Buyer Benefits







Connect your key suppliers to your company – build “preferred buyer” status Reduce risk in case of limited availability of goods and services Provide competitive funding for your supplier base Support for new comers and start-up’s Pro-active recognition of financial risks in supply network - analytics Improved competence level in procurement organization

Internal

Buyer Benefits







Use of dynamic discounting to benefit early payment discounts Powerful tool for contract negotiations: improved commercial terms Cost avoiding Working Capital part of procurement KPI’s Automation in P2P process: Increased eProcurement Purchasing channel optimization Control points defined and followed

Internal

Supplier Benefits


Reduced cost of finance: benefit of buyers credit rate Fast payment based on approved invoices– ‘use when needed’ Increased certainty of timing of payment Mutual interest for improved P2P processes Become part of buyer’s ecosystem as ‘preferred supplier’

Low cost, on-demand financing

Improves cash flow without increasing debt Cash flow visibility

Reduce credit and FX risk

No IT investmentNo need of new bank

account

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Interested to know more? Don’t hesitate to contact us for further information:

Tuomas Unhola, [email protected]. +358 50 563 7044Head of Financing Product LineOpusCapita

Juhana Lehtimä[email protected]. +358 40 700 7698Sourcing ConsultantOpusCapita

1.9.2016

how to manage finance risk in supply network

Economy & Finance