World Trade - February 2009 - (Page 17)

Supply chain finance and logistics are converging onto a single management platform that aligns transportation of goods with payments. BY RICHARD BAROVICK T rust lies at the center of all trade ﬁnance transactions, but these days, with the credit crunch putting a dent in global commerce, safe harbors are in short supply. Exporters offering payment terms to foreign buyers are more cautious, and banks that support cross-border sales are more stringent in managing the credit risks involved. Working capital and receivables ﬁnance, inevitably, are more expensive and less available. That’s one reason why supply chain ﬁnance (SCF) programs are increasingly popular. These strategies, which combine Internet platforms, software and programs, have been brought to trading operations over the past decade by a handful of large, global banks and a cluster of independent technology companies. SCF has demonstrated a capacity to mitigate risks and build trust, particularly in the huge Asia-U.S. and Asia-Europe trade routes on which it has been heavily focused. It may be a critical, strategic moment for these banks and technology groups to expand their presence in the larger global trade arena. Some leading players in the ﬁeld seem to think so. In New York, Kurt Cavano, head of TradeCard, a technology pioneer, says the SCF automation of transactions and its related “visibility” is making “a huge difference in trust among buyers and sellers.” The complete view of transaction events along the chain “makes it possible to support better cash management for both sides.” In Oakland, California, Greg Johnsen, Executive Vice President Marketing at GT Nexus, a technology group whose platform supports both physical and ﬁnancial ﬂows, is equally sanguine. “The credit crunch is a catalyst encouraging traders to examine the opportunities for improving their credit use and cost structures. “It’s the perfect time to look at supply chain ﬁnance to manage cash and reduce risks.” And also in New York, at HSBC Bank USA, Simon Constantinides, Senior Vice President and Head of Sales, Trade & Supply Chain USA, stresses that his institution is helping to manage liquidity and the underlying ﬁnancial risks of complex supply chains by “working with both buyers and their network of suppliers, leveraging our ability to service clients locally across our extensive international franchise.” How it works, helps Beneﬁts that ﬂow from supply chain ﬁnance programs keep getting more numerous. That reﬂects the dynamism of the electronic world, but also the accumulation of experience that helps ﬁne-tune the services that customers require. The selling points, or at least their pecking order, not surprisingly, keep changing. Still, four activities and their cluster of advantages have been shaping the ﬁeld for some time. These include: making automatic payments, supporting supplier dis- counts and buyer early payments, injecting credit into key points along the chain (pre-shipment, post-shipment, inventories), and a catch-all effort, “integrating” the ﬂows of goods, funds, and information. For starters, the basic building block has been the electronic creation and exchange of commercial, ﬁnancial, and logistics documents by suppliers and buyers, and their transport and ﬁnancial institutions. Here, SCF has been built on the earlier success of physical supply chain management. Beneﬁts include speed, accuracy, and reduced processing costs. Technology now automatically matches and reconciles the buyer’s purchase orders and the supplier’s commercial invoices, approving and achieving payment. Standard forms are employed. At TradeCard, a standard commercial invoice form is used by the suppliers in its global SCF network. Technology ﬁrm Ariba Inc. (Sunnyvale, California) uses an invoice conversion program that delivers the beneﬁts of electronic commerce to small suppliers that still use paper and fax. The SCF technology has been a key resource in the gradual replacement of letters of credit (LC) by open account payments practices in U.S. trade. The LC, centuries old, offered the assurance of a bank obligation, but was costly, and sometimes cumbersome and slow. Open account (in which the importer pays after receiving an invoice) is now estimated to be used in 80 percent of U.S. transactions, but is more risky. Supply chain ﬁnance creates trust and limits risk in varying ways. The “visibility” of the entire transaction process (purchase order, fabrication, inspection, transport, customs, and the like) on the Web portal lets banks know where the merchandise is. “The two big questions are: ‘where are the goods?’ and ‘where is the money?’” says Kurt Cavano at TradeCard. And “automation and visibility make them known.” Moreover, information platforms with data on buyers and sellers trim, or eliminate, the risk proﬁle. Ariba Inc., which combines sourcing and ﬁnancial services, has a network comprising 160,000 suppliers and over 500 buyers worldwide. “The risk assessment is based on the history of the payer, which comes right off the platform, notes Drew Hoﬂer, Senior Manager for Financial Solutions. TradeCard, on the other hand, operates as a “club,” with all buyers and sellers (both are clients) in its network underwritten on risk up front, and the data and assessments continually updated. Discounts, early payment The SCF portals, networks, and data also support suppliers offering discounts to buyers that pay early. Many technology ﬁrms have made this strategy a priority service, and a key sales point. With an automatic payment capability, these programs offer the option of discounting all invoices or some of them. WWW.WORLDTRADEMAG.COM 17 http://WWW.WORLDTRADEMAG.COM

Table of Contents Feed for the Digital Edition of World Trade - February 2009

World Trade - February 2009 Contents Taking Stock in America Confronting Corruption in Latin America Supply Chain Watch Tradewinds Where's the Goods? Where's the Money? Hope on the Horizon Managing Fleets in Turbulent Times The Impact of China's Economic Slowdown on U.S. Supply Chains The Fuel Volatile Supply Chain Getting the Most from On-the-Fly Transactions Managing Supply Chain Risk by Managing China Sourcing Capacity OECD Global Economic Outlook for 2009 'Natural' Agricultural Monopolies No More

World Trade - February 2009

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