The Treasurer’s Guide to Trade Finance

Chapter 7 Trade financing techniques

Once the invoices from suppliers in the

SCF appear on the bank’s trade platform,

suppliers have the option of selling them

to the bank to accelerate cash receipt.

If the supplier chooses a discounted

payment, the bank pays on a next-day

basis. The bank then collects payment

from the company’s cash management

account on the invoice due date.

If the supplier does not discount

the invoice, payment information

is uploaded to the bank’s cash

management system. This then initiates

payment from the company’s account

to the supplier on the invoice due

date. Invoices relating to suppliers not

participating in the SCF programme are

paid via the bank’s cash management

system as normal. From the company’s

perspective, only one file is uploaded

to the bank, which then manages the

entire payables process, including those

suppliers participating in the SCF. This

reduces the company’s workload and

minimises the touch points between

bank and corporate.

The bank’s cash management system

generates a series of reports back to the

company, giving the latter visibility on all

the flows it requires. Once the system has

executed the payment run on behalf of the

company, all payments are automatically

reconciled, whether the supplier is part of

the SCF programme or not.

As a result of implementing the SCF

programme, the company strengthened its

relationships with its strategic suppliers,

all of which were able to participate. With

the bank placing the credit risk on the

company when financing its suppliers,

the company was able to reduce the risk

of supplier default. At the same time, this

supply-chain financing element allowed

the division to mitigate the impact on

suppliers from extending days payable

outstanding (DPO) by up to 90 days

(thereby improving its working capital).

Finally, the automated solutions and

the reduction in the number of bank

relationships have given the regional

treasury much greater visibility and control

over the group’s European operations.

Cash management and accounts payable process with supply chain finance

COMPANY

ERP accounts

payable process

Match invoice to PO

Match invoice to goods

receipt

Obtain authorisation

Release for payment

Prepare/review payment

proposal

Execute payment run

SCF invoice file

SCF payments

Non-SCF invoice file

Regular

payments

Bank statement

SUPPLIER

Select invoices for

financing (can be

automated)

Discounted

payment

Non-discounted

payment

Regular payment

BANK

Trade finance

platform

Electronic

banking

system

Paymentupdate Non-discountedinvoices