Supply Chain Financing

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Agenda

What is Supply Chain Finance1

Supplier Finance Program2

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What is Supply Chain Finance?

Capturing the trade flows of our Principal Client

Suppliers MNC / LLC Principal

Buyers

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Product / Programs Under SCF

Supplier MNC / LLC Principal

Buyers

Supplier Finance ProgramPre & Post Shipment

Account Receivables Finance

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Challenges in a Typical Procurement Process

Financial costs of Supplier based on its financial strength – cost is passed on to Principal in sales price

Cost incurred in LC issuance Advance payments eat up working capital

Financial

Paper intensive process Transaction / Processing costs of payments Supplier might not always be paid on time and this impacts

the relationship & liquidity of Suppliers

Transaction Process

Supplier’s ability to extend credit quantum is limited by its borrowing capacity

Supplier has limited capabilities in extending credit periodCredit

Suppliers have limited working capital to support Principal’s growthGrowth Potential

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What is Supplier Finance Program

Supplier Finance is where Bank finance key suppliers recommended by the Principal

Financing provided to suppliers is specific to purchases made by the Principal

Financing can be made in both pre-shipment (against purchase order) and / or post-shipment (against an invoice)

Post shipment finance can be made either before or after the invoice is accepted for payment by the Principal

Under post shipment, Bank pays the supplier upfront and collects from the Principal on due date

Credit limit decisions are made on the Principal-Supplier supply chain and not purely on financial strength of the supplier

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Funding is Offered at Various Stages

Pre-shipment financing

Post-shipment financing

Supplier based solution Payables based

solution

Post acceptance financing Payables based

Post acceptance financing Invoice based

Principalissues a PO/ LC to the Supplier

Supplier ships goods and

invoices the Principal

Principal accepts invoice

Principal records payables

in the balance sheet

Principal makes payment

at maturity

What is Supplier Finance Program

Funding Offered Under Supplier Finance Along The Supply Chain Activity

Regional Supplier Finance Program local-supplierfinance

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7) Payment

Supplier Finance – Workflow

1) PO to supplier

2) Copy of PO

4) Goods and DO/BL

Principal

3) Pre-Shipment Loan

Loan tenor based on asset conversion cycle

5) Copy of DO/BL

Immediately upon shipment of goods, supplier has to forward copy of shipping docs to Bank

6) Post-Shipment Loan

Post-shipment loan is created to extinguish pre-shipment loan

Supplier

Bank

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Supplier Finance – Workflow of Post-Shipment Financing

What is Supplier Finance Program

1) PO to Supplier

2) Goods and DO/BL

Principal

3) Copy of DO/BL

Upon shipment of goods, Supplier sends copy of invoice & shipping docs to Bank for Post Shipment finance

OR

Supplier sends the accepted invoices for Post Acceptance Finance

4) Post-Shipment Finance

Supplier

5) Payment

Bank

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How Supplier Finance Addresses your Challenges

Key Issues Current Issue Under Bank’s Solution

Liquidity Limited ability to extend credit terms due to

liquidity position of Suppliers Credit terms can be extended to meet

Principal’s requirements

Growth Supplier has limited credit facilities & is

unable to support your growing business Supplier finance enhances your Suppliers’

access to working capital

Processing Costs

Payment-related transaction costs are incurred by you

Payment-related transaction costs are minimized

Procurement Costs

Financial costs of Suppliers are part of working capital cost i.e. passed on to Principal

LCs had to be issued to enable Suppliers to secure financing

Principal’s involvement in the financing solution can help reduce finance costs of Supplier

Suppliers no longer require LCs to secure pre-shipment financing

Balance Sheet Impact

Principal might have to make advance payments to assist Suppliers

Any direct financing assistance to Suppliers impacts your balance sheet

Pre-shipment financing no longer requires advance payments to assist Suppliers

Financing is provided by Bank directly to Suppliers

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Supplier Finance – Workflow of Payables based solutions

local-SupplierFinance – Generic Workflow

7) T

ransf

er o

f non-d

isco

unted

acco

unts re

ceiv

able

on d

ue dat

e

Principal Supplier1) Delivery of goods and/or services

2) Payment Obligation / Due Date3) Payables Information

4) D

isco

unting In

vita

tion

7) Debit of operating account on

due date5)

Acc

epta

nce

6) T

ransf

er o

f dis

counte

d pro

ceed

s

Bank

Ideally fully automated processing

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Regional Supplier Finance Program

No legal/ financial obligation of Principal to Bank

local-Supplier Finance

Principal has a legally binding obligation to Bank

Differences between local-Supplier Finance & Regional SF Program

Requires credit lines on the Principal Does not use Principal’s credit lines

No Credit facility to the suppliers Bilateral credit facility by Bank to the suppliers

All suppliers recommended by the Principal are eligible

Involves supplier evaluation by Bank – all suppliers might not be eligible (subject to KYC)

Always with recourse to Principal Always with recourse to Supplier & no recourse to Principal

Supplier can achieve off balance sheet Supplier cannot achieve off balance sheet

Minimal internet capability to begin with Full internet capability

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THANK YOU