Transcription
Unlocking off-balance sheet benefits for buyers and suppliers/April 2018UnderstandingSupply Chain Finance (SCF)Why SCF ?Working Capital optimisationSupplier liquidity needsSCFpurposesSupplier relationship improvementSupply chain stability improvementOthers Additional revenues, cost reductions, EBITimprovement Cash surplus utilisation to fuel operation Corporate finance optimization (incl.Asset financing)https://www.pwc.com/vn
Understanding SCFThe current economic climate is forcing many companies to better manage liquidity. Supply chainfinance can be an attractive way for companies to improve their working capital position whilst alsohaving a positive impact on EBITKey conceptPurchase orders1SCFrequirestheSupplierBuyerinvolvement of a SCF2platformandanGoods/servicesexternalfinanceand invoicesprovider who settlessupplier invoices inDiscountedRequestConfirmation/advance of the invoice4 for discount36 Invoicefinance 5approvalpaymentmaturity date, for a providedfacilityof invoiceslower financing costthan the suppliers’ ownFinancialsource of funds. Thisinstitutionbenefit is then sharedamong the parties.Process flowOrderingfromsupplierSupplier fulfilsorder, invoices thebuyerBuyer pays financialinstitution as agreedat maturity ofinvoiceBuyer approves the invoices,confirms to financial institutionof payment at maturitySupplier receivesthe funds rightawaySupplier sells (atpredetermined discountrate) to financial institutionBenefitsThe key idea behind SCF is to provide suppliers with access to advantageous financingfacilities by leveraging the buyer’s stronger credit ratingThe BuyerThe Supplier Longer supplier payment terms withouthaving to ‘trade off’ against higher prices - 3050% Trade Payables increase Lower Trade Receivables and increase incash position Off-balance sheet financing and generalimprovement of the balance sheet Faster access to cash at advantageous rates Reap early settlement discounts whichflow directly into profits while still paying atinvoice maturity Stronger cooperation with the buyingcompany creates a competitive advantage Improved process capability in InvoiceReceipting, Approving, Electronic Invoicingand overall Procurement Quicker cash conversion cycle fromdelivery to cash
Implementing SCFBased on our experience, to maximise the working capital potential of an SCF programme, it should bepart of an integrated Procure to Pay (P2P) strategy and approach. It is applicable to any industry havingsignificant supplier spend and has been successfully implemented by many major global MNCsEmbedding as part of P2P processInvoicePostingApprovalInvoice dueTargeted Payment TermPayment termenhancement (categoryand supplier termsalignment, PTP cashstrategy)Invoice Processoptimisation(timing, confirmation,discrepancies) Funding provider – Local vs Regional Platform – In-House Vs 3rd Party Vs BanksEnablerKeyconsiderationImpactAreasInitial Payment TermTargeted due Payment dueSupplier payment cycles ( Paymentruns, alignment to terms, DPO Vsactual paid days, integrated system) Accounting considerations Prioritization and roll out strategyOrganization, Policies, Metrics, Reporting and KPIsKey Success factorsMain stepsProgrammeconceptualizationSelectionof fundingand techpartnersDevelop tnerManagementSupplierLiquidity andrefinancingstructureKey PartnerManagementSupplierreceivableportfolio andrelationshipwith buyerSCF activities on global scalePlatformOrganizationPlatform Provider /ProductFunding ProviderBankPlatformNestleSupplier FinanceCitiUnileverConfirmingSantanderThird PartyPlatformSainsbury’sPrime RevenueRBSCoopDemica IFACSantader, BNP Paribas, UnibancoMetro GroupMIAG VendorDiscounting (MVD)Deutsche Bank
Our experiences in implementingSupplier Finance programmeWe will share our insights from both side of the aisle to ensure a successfulimplementation catering to various stakeholders across the Procure-to-Pay process withinthe organizationExample of previous engagements in selected industriesA UK based FMCG company identified 1-3% in scope spend of cashbenefits, improved 30 days supplier credit term, and facilitatedbetter planning through centralised purchasing modelFMCG Completed Gap analysis, design, Conducted User Acceptance Testand implement supplier on(UAT) coupled with buyer andboarding plan for central suppliersaccounts payable staff training Monitored the roll out for supplieron boarding and create overallimplementation status reportA leading bank in the Kingdom of Saudi Arabia (KSA) boostedrevenue by USD 10 mil without impacting asset quality, with 165%IRR, and 800 new suppliers expected to sign up in the first 5 yearsFinancial Created a full Supplier Financingservice(Reverse Factoring) product andcredit program Planned additional processes toensure a successful execution of theSupplier Finance program Trained RMs, product teams, &relevant stakeholders across KSA onselling and servicing the programA tier 1 automotive supplier improved USD 200 mil in workingcapital within 6 months, shortened 7 days invoice approvaltimeline, and released personnel bandwidth with ease of trackingand transactionsManufacturing Developed of negotiation approach and strategy for the top 150 globalsuppliers with harmonized paymentterms across suppliers, categoriesLocally set up the interface betweenclient (SAP) and bank (SupplierFinance Portal) and joint testing offunctionality Recommended and built GlobalPayment Terms for relevantsuppliers, leveraging economies ofscale and ensuring standardisedapproach on supplier level withinlocal legal requirements
Detailed Approach and TeamPwC follow a holistic yet tailored approach based on client’s objectives and requirements to deliver bothcash and cost benefits. Our team has delivered SCF implementation across all major markets globallyand look forward to implementing the same in VietnamKey Drivers of Success for SCF programmeTechnology Platform &Financing Partner selections SCF has been around for decades,resulting in multiple technologyapproaches that offer different levels offlexibility and integration with your ERPsystem – selecting the right one is keyfor long term success Cutting-edge Fintech allows you to tapinto global finance markets. The offbalance sheet nature of SCF allows toadd financing providers despite possiblerestrictions from debt covenants.Cross-functionalapproach Despite the name containing“Finance”, SCF programmes cannotbe successfully rolled out only withthe involvement of the Treasury orFinance function – Procurementand Accounts Payable are equallyimportant Successful SCF programmes bridgethe functional gaps and align theorganisation to a common Procureto-Pay strategyIntegration into a comprehensive Procure-to-Pay InitiativeOur specialistCapabilities Dedicated working capital expertteam Industry related experience Tailored best practicemethodology Proven change managementcapabilities Hands on mentality andcollaborative mindset Focus on knowledge transfer Minimise invoice approval times, maximise use of e-invoicing, self-billing andcooperation with suppliers; Payment term and payment run enhancement Differentiated terms strategy with aligned payment runs; consideration of smallbusiness suppliers; be economic with corporates – nurture small businessesHow PwC assists in implementing SCFSCF Feasibility Review &Opportunity Estimation Quantitative analysis of spend datato estimate SCF opportunities (Cash& EBIT)Procure-to-PayOpportunity Assessment Quantification of benefits fromavoiding early/late payments, andterms structures, optimised paymentchannels improvements Supplier-industry specific termsbenchmark Performance assessment Opportunities of invoice scanning, EDIin invoice processing and approvalinterfaces, robotics and AP automationprice Optimised use of ERP resources, better Assessment of electronic invoicingcontrolling & governancepenetration, non-PO spendContacts:Johnathan OoiPartnerT: 84 8 3823 0796, ext. 1605M: 84 978 945 199E: johnathan.sl.ooi@pwc.comMohammad MudasserAssociate DirectorT: 84 28 3823 0796, ext. 3322M: 84 0 902717062E: mohammad.mudasser@pwc.comHoang Thu TrangManagerT: 84 28 3823 0796, ext. 1648M: 84 98 966 12 90E: hoang.thu.trang@pwc.comWorking Capital Project Management Office Establishment of PMO to drive change through the organisation Performance Dashboards with drill-down capability, with executive andoperational KPIs and performance reporting Action plan development and monitoring of progressHuynh Phan Chau AnhDeputy ManagerT: 84 28 3823 0796, ext. 1645M: 84 966 951 701E: huynh.phan.chau.anh@pwc.com Build-up of a Working Capital Centre of Excellence for the client 2018 PwC (Vietnam) Limited. All rights reserved. PwC refers to the Vietnam member firm, and may sometimes refer to the PwC network. Each member firm is aseparate legal entity. Please see www.pwc.com/structure for further details.
Supply chain stability improvement Others Additional revenues, cost reductions, EBIT improvement Cash surplus utilisation to fuel operation Corporate finance optimization (incl. Asset financing) Why SCF ? SCF purposes. Understanding SCF The current economic climate is forcing many companies to better manage liquidity. Supply chain finance can be an attractive way for companies to .
