The Treasurer’s Guide to Trade Finance

A Reference Guide to Trade Finance Techniques

As part of the process of implementing
a supply chain financing structure,
companies will also have the opportunity
to improve their own internal operations.
A key component of many such structures
is the ability to share information between
companies along the same supply chain.
Giving the supplier an opportunity to review
a submitted invoice online allows that
supplier, first, to know when to expect to
receive funds (whether through a financing

arrangement or simply as a straightforward

payment), and second, to review the

recorded invoice for accuracy. It allows

dispute resolution to take place much

earlier in the process, resulting in a more

efficient accounts payable department on the

customer side and faster cash collection on

the supplier side. The following case study

shows how one company has been able

to incorporate these benefits into a wider

supply chain financing solution.

These case studies show how larger
companies can benefit from supply chain
finance solutions. There are other examples
in this book showing how smaller companies,
especially SMEs, without as much access to
finance solutions can also benefit from supply
chain finance solutions. As with any financing

structure, there are operational risks which all

parties need to consider before deciding to

participate. However, it does seem likely that

uncertainty in the banking sector, combined

with technological improvements, will result in

a greater use of supply chain finance.

Case study

Mexican household goods manufacturer

A Mexican household goods manufacturer wanted to improve its balance sheet

management and working capital position through a reduction in days sales

outstanding (DSO), whilst simultaneously expanding its overseas sales. Its

sales outside its home market are mainly concentrated in the Americas and are

managed through a network of subsidiary companies.

The company opted for an approximate
MXN 900 million revolving receivables
purchase programme, in which all
receivables are sold on a non-recourse
basis. Eligible receivables are investment
grade debtors (with a minimum credit rating
of BBB –). To be considered as eligible
for purchasing under the programme, the
tenor of any receivable cannot be more
than 120 days.

Under the programme, the company
sells eligible receivables to the bank at a
discount to the face value. The company
then collects payment from its debtors,
via a centralised bank account, which it
then uses to credit the bank on the agreed
payment date. This project has enabled

the company to improve its DSO via a 90%

utilisation rate. This has also allowed the

company to meet its balance sheet and

working capital objectives.

The bank has also been able to provide a

USD 100 million supplier finance solution.

So far, the company has introduced

more than 60 of its core suppliers (from

different countries around the globe) who

are able to view purchase orders and

invoices online via the bank’s electronic

trade platform. This has improved the

efficiency of the accounts payable side

by reducing errors and delays, whilst

simultaneously building trust with the

company’s core suppliers and extending

its DPO.