Chapter 4 Integrating cash and trade
from the European Banking Association
suggest a paper invoice costs between
EUR 4 and EUR 70 to process. This can be
cut significantly through electronic invoicing
to an average processing cost of less than
EUR 1. Electronic invoicing is offered by
both banks and specialist electronic invoicing
providers. It works by linking the data
submitted by a company’s suppliers or sent to
its customers into the company’s accounting
or ERP platform, with manual intervention
only necessary on the relatively few invoices
which need to be queried. Ultimately, this
interaction also means information provided
by other parties can be used by the company
to improve other aspects, such as the
management of inventory.
The next stage is for companies to
exchange documents on a third-party
platform. The Bolero Trusted Trade Platform,
for example, allows for the electronic
exchange of trade documents between
parties. It is most commonly used in certain
industry sectors, such as automobiles,
where a practice of interaction has
developed. SWIFT’s Trade Services Utility
is a service which allows banks to exchange
trade-related data using XML standard
messages, and then to match documents
on behalf of their customers. Its new
Bank Payment Obligation (BPO) is a bank
guarantee of payment made by the buyer’s
bank for a specific amount to a specific
bank (the seller’s bank) on a specific date.
The BPO was developed by SWIFT as a
partial extension to the TSU. (There is more
information on these technologies in the
next chapter.)
The final stage is for companies to
share information with each other on the
status of invoices and other trade-related
documents. Banks and specialist providers
have developed services that allow suppliers
to view the status of invoices submitted
to their customers. By doing so, supplierscan, at the very least, know when to expect
payment from their customers, reducing their
need to arrange precautionary finance. This
technology is also used by banks to manage
supply chain financing programmes, where
they may allow a participating company to
raise funds on the strength of an approved
invoice. The sharing of information between
companies is crucial, in that it builds trust
between the entities and thus allows
financing programmes to work.Techniques to finance the supply
chain
The principle behind supply chain finance is
to use the strongest credit within the chain as
the guarantor of finance to other participants.
This is appropriate when suppliers or
customers only have access to funding at
much higher rates than the strongest credit
can access, or when they have difficulty in
arranging any form of financing at all. These
techniques work equally well for domestic
and international transactions, although
international financing structures will be more
complex to arrange. (Exchange controls may
make such a structure effectively impossible
to implement in some locations.)
Below, there are two case studies which
illustrate how supply chain finance can work.
The company acting as the guarantor of the
programme must ensure it meets at least
one of the core objectives outlined above.
Before participating, a supplier or customer
must consider whether the programme is
appropriate. In particular it must identify
whether the risk of further integration
with its counterparty is outweighed by the
relationship benefit and lower cost of funds
the programme affords.
This first case study shows how a
company used a supply chain finance solution
to improve its working capital position. It also
shows how automating existing processes
helped to improve efficiency.