It is a statement of the obvious to describe the current economic climate as difficult.
These are unprecedented times, and many ordinarily successful companies face great uncertainty. As the economic crisis deepens, access to working capital will become more and more difficult.
But it needn’t be that way.
Supply chain finance is the obvious solution to so many of the financial strains being experienced by companies of all sizes, yet myths and misunderstandings around it mean SCF is often overlooked when it could be a corporate life saver.
At Greensill, we have always known SCF is a force for good that makes finance fairer, benefitting both suppliers and vendors.
We are not a lone voice in this debate. A new independent report backed by, among others, the International Chamber of Commerce, agrees and explains why in some detail.
The report, Ensuring Payables Finance Remains a Force for Good from The Global Supply Chain Finance Forum, states: “If correctly implemented, it is clear that payables finance [another name for SCF] is a means for buyers and sellers to optimise their working capital and strengthen their relationships with each other.”
That opening phrase — ‘if correctly implemented’ — is key and require both proper regulation and good faith on the part of finance providers, suppliers and customers.
There are a number of perceived concerns that crop up time and again in the debate about supply chain finance. The report addresses these head on and we applaud the authors for doing so.
The one that regularly grabs media attention is the “bullying” of suppliers into joining supply chain finance programmes.
There are numerous cases of companies and even governments encouraging suppliers to join SCF programmes, precisely because they are highly effective arrangements that set strict payment terms and allow buyers and sellers to forecast cashflows with much more clarity.
As the report states: “The primary aim of a payables programmes is to generate a win-win for buyer and seller in terms of working capital benefits.”
The Global Supply Chain Finance Forum report also tackles the thorny issue of how ratings agencies look at SCF programmes and the risk they are said to pose to liquidity.
The authors said: “In our view, the liabilities arising from SCF programmes do not create additional financial risk above and beyond those that already exist in trade between a buyer and a seller…Negative outcomes can be avoided by implementing strong credit analysis of a corporate’s balance sheet before engaging in a SCF programme.”
We at Greensill believe every pound owed to a supplier is no different from money owed to a financial institution. Unnecessarily extended payment terms to suppliers clearly are not working capital, and should be appropriately classified as debt on a company’s balance sheet.
At Greensill, we have developed proprietary technology that evaluates risk right across the supply chain — from the household name OEM at one end, to the family-run supplier of vital small components at the other that would struggle to secure a strong credit rating from traditional ratings agencies.
We don’t just look at a company’s accounts or their latest stock exchange filings, but use technology to assess the quality of contracts on a company’s roster and analyse expenditure, payment and other patterns.
The introduction of advanced technology leads to greater transparency, levels up the playing field between huge multinationals and tiny local suppliers and, ultimately, helps to make finance fairer.
At Greensill, our core belief is that supply chain finance enables the release of vast amounts of capital owed to suppliers that are currently locked up inefficiently in the financial system.