Why is multi-funding the talk of the town?
There has been a lot of discussion in the market around the benefits of open, bank independent, multi-funder supply chain finance platforms. As Trade Financing Matters emphasizes, the new ideal in supply chain finance centers around the rapid deployment of programs managed by open platform providers that supply multiple sources of funding for corporations while preserving customer standardization. Along the same lines, GTR’s Liz Salecka comments that with the increasing corporate demand for large supply chain finance programs, the need for multiple funders to participate in such financing has become paramount. She concludes that “third-party vendors have taken a lead in helping to resolve the challenges this presents by offering bank-neutral supply chain finance platforms that bring multiple banks together for large programs.” This focus comes with a deeper shift in thinking and demand around supply chain finance, particularly in terms of complex global corporations and their need for multi-funding solutions. The emphasis is now on flexibility and scalability of these different multi-funding solutions, including banking and non-banking funding sources.
Multi-funding solutions are essential for overcoming bottlenecks and potential credit inefficiencies found in the use of single bank supply chain finance programs. Diminishing balance sheets have made it harder for corporates to source funding and the retreat of some banks from supply chain finance programs have resulted in corporates setting up multiple facilities with different funders.
This raises issues of efficiency and intricacy around the implementation of different supply chain finance platforms, as well as the handling of legal documentation and the onboarding of suppliers. Therefore, it comes as no surprise that the 24,000 plus readers of Global Trade Review (GTR), in addition to the largest financial institutions in the world, selected PrimeRevenue’s bank independent multi-funder platform as the winner in the Best Supply Chain Finance Platform category – for the 5th year. What are the options for setting up supply chain finance programs, and why are many leading corporations choosing multi-funder platforms? When a corporation sets out to implement a supplier finance program, there are four general options to consider.
The buyer sets up its own supply chain finance platform and manages the liquidity with its corresponding bank.
In this situation, the buyer processes all invoices and payments as well as the onboarding of suppliers. This solution is very costly and time intensive and has been used by only a few corporates (e.g. Metro Group).
The buyer sets up a supplier finance program with one leading bank providing a proprietary platform.
While this solution can work with well-rated buyers, it does impose limitations in terms of credit appetite by the leading bank, funding currencies and jurisdictions from which the bank can purchase the receivables. With this solution, the leading bank can invite other banks to participate. However, participating banks have to follow the rules of the lead bank and participation fees are paid to that bank. Due to lack of competition, funding spreads are typically higher for such programs. Furthermore, financial institutions competing with the lead bank are not able to establish relationships with the buyer, and the buyer has little control over who is buying the assets in the secondary market. Once these kind of limitations are encountered, this solution is often replaced by a multi-funding platform.
The buyer can choose to diversify their bank independent program across multiple banking platforms so that they are not limited by one bank’s ability to offer financing to all suppliers.
This solution may reduce the dependency on one bank, however, it requires multiple ERP connections from the buyer, different platforms for the suppliers and buyer to use, different enablement and onboarding processes and different sets of legal documentation. This adds considerable complexity to the supply chain finance setup.
An increasing number of buyers use PrimeRevenue’s open multi-funder, bank independent model, which provides the best options in terms of flexibility and control.
With this solution, the buyer is not dependent on one bank’s ability to syndicate the entire supply chain program. This open platform allows the use of only one set of agreements, one ERP interface, one system, and one supplier onboarding process. The PrimeRevenue solution also allows buyers to fund some or all of the program themselves and create a better user experience for the suppliers. With this open model, funding institutions can connect directly with PrimeRevenue to fund on the platform and can also have a direct relationship with the buyer and their suppliers. Furthermore, this model solves the problems associated with closed, bank-proprietary solutions which are typically limited in scope and scale, instead giving the buyer the control and flexibility required to unlock cash trapped in their supply chains. Leading corporations such as Whirlpool, Sainsbury, Volvo, Kohl’s and Big Lots are achieving success using PrimeRevenue’s multi-funder supply chain finance platform.
Published December 29, 2014