Global Supply-chain Finance - Overview

Overview

With the supply chain lengthening as a result of globalization and offshore production, many US companies have experienced a reduction of capital availability. In addition, the pressure faced by U.S. companies to improve cash flow has resulted in increased pressure on their overseas suppliers. Specifically, non-US suppliers receive pressure in the form of extended payment terms or increased working capital imposed on them by large US buyers. The general trend toward open account from letters of credit has further contributed to the problem.

As a result, there is a need for global supply chain finance (GSCF) solutions. The market opportunity for a GSCF solution is significant. The total worldwide market for receivables management is US$1.3 trillion. Payables discounting and asset-based lending add an additional US$100 billion and $340 billion, respectively . Only a small percentage of companies are currently using supply chain finance techniques, but more than half have plans or are investigating options to improve supply chain finance techniques.

While buyers are extending payment terms to their suppliers, the suppliers often have limited access to short-term financing and, therefore, a higher cost of money. This cost-shifting to suppliers results in a financially unstable and higher-risk supply base. Overall, the benchmark report showed that companies should be pursuing three key areas of improvement: GSCF financing; GSCF technology; and GSCF visibility.