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In Focus Commercial Credit


Supply-chain finance – the answer to cashflow problems?


‘Reverse factoring’ has become an ever more prevalent aspect of business life, but how can it help you?


Alan Church Credit supervisor, European Treasury, Phillips 66


Alan.Church@p66.com


With businesses, especially in export markets, under increasing pressure to manage cash more efficiently, many credit managers are being introduced to the concept of supply- chain finance (SCF). A growing shadow of Brexit has prompted


exporters to consider wider geographical markets, with longer delivery times, leading Sales management to lobby for granting longer payment terms to customers. Meanwhile, Treasurers are regularly


contacted by banks offering SCF as the ‘panacea to all cashflow ills’. Purchasing managers can demand longer


payment terms with the ‘sweetener’ that their seller can get paid upon usual terms with an adjustment to the margin. The objective of SCF, also known as


‘reverse factoring’, is to optimise cashflow by allowing businesses to enjoy longer payment terms from their suppliers, while providing the option for their large and


Purchasing managers can demand longer payment terms with the ‘sweetener’ that their seller can get paid upon usual terms with an adjustment to the margin


SME suppliers to get paid early. This is done by leveraging the buyer’s stronger credit rating. The main benefit for the suppliers is access


to accelerated cashflow at a preferential interest rate. Essentially, SCF operates as follows:


l The buyer introduces the supplier to their bank, which provides the SCF facility, and terms of business are agreed. l Credit terms are agreed between buyer and seller, usually for a longer term than the buyer currently enjoys. l The buyer approves the seller’s invoices and confirms that it will pay their bank for these at a fixed future date. l The seller sells (discounts) the invoices to the bank at an agreed discount rate and receives the funds before payment due date, sometimes straight away. l The buyer pays the seller upon the agreed contractual due date.


14


www.CCRMagazine.co.uk


June 2017


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