How To: Modern Supply Chain Financing in Practice

What does the optimization of working capital along the entire value chain look like in practice and what competitive advantages can companies secure with structured supply chain financing programs? We asked RBI supply chain specialists Dirk Fehring and Sebastian Kupka and gained an insight into the field.

“The clear advantage of supply chain financing, both on the receivables and payables side, is the improved liquidity; companies gain faster access to capital,” says Sebastian Kupka, Director of Supply Chain Finance at RBI. In addition, there are reduced financing costs, as the programs frequently offer more favorable conditions than traditional loans. “Not to be forgotten is also a stronger supplier relationship as a result of payables programs. Better payment terms promote trust and cooperation. In today’s world, it is no longer necessarily about achieving the best payment terms with a supplier, but about strategically securing the supply chain” he adds. The more efficient organization of receivables and payables also optimizes working capital management.

Supply chain financing programs also allow companies to respond more flexibly to changing market conditions. Dirk Fehring, Senior Director of Supply Chain Finance at RBI: “Take the Late Payment Directive, for example, which could have a significant impact on payment terms and therefore liquidity. Supply chain financing instruments such as cflox pay can cushion the effect on working capital, for instance by covering the increased working capital requirements resulting from the shortening of credit periods without incurring additional debt.”

Two practical examples:

Purchasing from many different farmers.

• Problem: (1) Payment on delivery, no credit period (2) Onboarding on online platform unthinkable
• Solution: Payables finance International sale to food retailers with strong credit ratings

• Problem: (1) long credit periods (2) buyer’s contractual rights based on market power
• Solution: multinational factoring without risk retention for the receivables seller Benefit for the customer: The customer has earlier incoming payments than with the usually long credit periods of food companies. The programs are set up legally in such way that the receivables are derecognized under the relevant legal system or the customer's contract law, which improves, say, the equity ratio. The customer also benefits from favorable pricing, as the receivables pool consists of top-quality debtors and therefore low defaults are to be expected for the bank and insurance company.

Purchasing crude steel from a few Eastern European producers with lower credit ratings

• Problem: (1) Suppliers pay more for their working capital due to their credit rating and therefore want short credit periods.
• Solution: classic reverse factoring incl. supplier onboarding

Sales: Internationally via various companies, worldwide, very low defaults in the portfolio

• Problem: (1) different jurisdictions with local peculiarities (2) long credit periods due to transportation
• Solution: multinational ABF program (asset-based finance) with risk retention for the receivables seller (seller bears part of the debtor default risk)

Benefit for the customer: The company receives a global or group-wide solution in a single contract despite integration of a wide variety of legal systems and currencies. At the same time, the customer benefits from a low deductible risk with very attractive pricing thanks to the CE policy.

“These examples show how flexible and customized such programs can be. It is important to have a partner who understands the problem in all links of the supply chain and finds a solution. A clear advantage for RBI is that we already know many companies in the CEE region, which facilitates the onboarding of suppliers for reverse factoring, for instance,” says Dirk Fehring.