Changing parameters in Supply Chain Finance

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In many discussions on Supply Chain Finance with major corporate customers during the past months, Deutsche Bank’s front-office staff identified substantial changes in key concerns and underlying strategic drivers when considering stae-of-the-art Supply Chain Finance solutions, eg supplier finance, dealer/distributor finance and inventory finance programmes.

Friedrich (Fritz) Philipps,
Deutsche Bank AG.

It occurs to us that liquidity and risk management aspects have taken centre stage for most corporates, as opposed to last year’s agenda, when many appeared to focus mainly on pricing / rate abitrage between business partners, and ‘cosmetic’ balance sheet considerations.

At Deutsche Bank, we are in constant dialogue with many large corporates on payables-based supplier finance structures; the key feature of such programmes in the current economic climate is that they tend to beneficial both for buyers and participating suppliers, by offering liquidity avantages to both types of business partners: buyers may use such programmes in the context of woca-driven extensions of payment terms, whereas participating suppliers obtain (almost) instant access to cash upon-demand at unusually attractive rates.

In other terms: buyers are offered the comfort of protecting or improving their liquidity positions, whilst selected suppliers may lay off receivables non-recourse, without the administrative hazzle and relatively high cost of factoring arrangements. Similarly, on the inventory front, we understand corporations across most industries dramatically scaled back the size of their stockpiles during the past months.

Although we expect renewed interest in inventory financing arrangements as economies will start to pick up again, financiers are unlikely to act agressively in this market segment, due to its high inherent risk profile, unless top-notch corporates are prepared to offer strong backings to inventory finance programmes. Last but not least, ever since many industry sectors (notably automotive, chemicals, technology) went into “nosedive” mode last year, supply chain risk management remains a top priority for numerous top-level executives. As supply chain finance arrangements rely on strong correlations between the performance levels of business partners and the availability of funding, pro-active risk management and stringent selection of business partners are highly relevant for successful collaboration between corporates and financial institutions in the supply chain finance space.

Friedrich (Fritz) Philipps Team Head, Supply Chain Solutions Global Transaction Banking Deutsche Bank AG Frankfurt am Main.

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