Streamline Your Supply Chain Finance Request for Proposal (Part 3)

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This is a continuation of last weeks post which discussed factors in a Request for Proposal for Supply Chain Finance

Another key consideration in evaluating service provider proposals is your geographic scope.  I mean if you are looking to roll-out a program in North America or Europe that is one thing, but what about India, Brazil or China?  The ability to have the geographic reach – local onboarding, local currency, local understanding of cultures and practices, etc. to deploy programs where the best bang for your buck is going to be (ie, emerging markets that are struggling for access to capital) is critical.  For example if a program is self-contained in Brazil or China to support a subsidiary of a Fortune 500 company, can your providers help find local real or renminbi finance?  Ultimately entering into Receivables Purchase Agreements with suppliers who elect to participate in the SCF program in different jurisdictions is not a trivial exercise.  More on this in a future post around Execution, which is supplier onboarding.

Of course platform functionality and the level of compatibility between your ERP and date warehouse is important. Procurement and Treasury professionals generally commented that an effective platform must take in invoices, provide dispute management, credit notes, audit trails, etc, that are visible to all or relevant parties.  The key is how the SCF platform works with a company’s existing legacy Payables and Third party provider platforms (Ariba, OB10), particularly if purchase orders are being uploaded through these systems.

Are there perceived significant differences amongst the bank and non bank platform choices?  For sure.  Does it matter?  It depends on a gap functionality, ease of portal use and how important bells and whistles are.  They can all do the basics like take  approved payable/invoice information i.e.:  direct EDI, file transfer, CPU to CPU, flat-file upload, cvs, etc.

Things like reporting flexibility and reporting capabilities to meet current and future requirements can be a particular issue for some companies that want to see customized reporting.  Of course disaster recovery (DR) issues is always on the IT list – ability to move over a back-up site in an expedient manner in order to ensure continuity of service and to make sure DR plans are in place and tested frequently.

The final issue I will bring up is pricing.  Funding has grown more sophisticated, driving costs down in many cases (see my post on Mispriced Credit? – Thin pricing around Supply Chain Finance structures.    The continues to be a big issue as margins continue to drop.

There are several interesting issues around pricing:

  • How are platform costs embedded in pricing? What about third party platforms?  Managed services?
  • If Syndication models are being used to create more capacity for buyers, how does that model impact pricing?
  • If new funding players are participating in the market, Hedge Funds, Insurance Companies, and European and Asian Banks, is that money going to be there if credit cycles take a turn for the worse?

Pricing to suppliers is being priced closer to the buyer risk and the buyer’s short term borrowing. Funding is typically bench marked off of Prime or Libor and will fluctuate monthly based on increases or decreases of those indexes.

If you are interested in comparing notes or plan to issue an RFP, please contact me at dgustin at tradefinancingmatters.com to chat further.

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