Unlocking off-balance sheet benefits for buyers and

suppliers/July 2017

Understanding
Supply Chain Finance

The current economic climate is forcing many companies to better manage liquidity and strengthen their
balance sheet. Supply chain finance (often referred to as SCF/Supplier Finance/Reverse factoring) can be an
attractive way for companies to improve their working capital position.

The key concept behind SCF is to provide suppliers with access to advantageous financing facilities
by leveraging the buyer’s stronger credit rating.

Benefits for the Buyer Benefits for the Supplier

Longer supplier payment terms without Reduction of Trade Receivables and increase
having to ‘trade off’ with price – 30-50% in cash position
Trade Payables increase
Off-balance sheet finance and general Faster access to cash at advantageous rates
improvement of the balance sheet
Reap early settlement discounts while still Strong cooperation with the buying company
paying at invoice maturity creates a competitive advantage
Improved process capability in Invoice Faster cash conversion cycle from delivery
Receipting, Approving, Electronic Invoicing to cash
and overall Procurement

www.pwc.com.au
The mechanics of Supply
Chain Finance
SCF requires the involvement of a SCF
Purchase orders
platform and an external finance provider
who settles supplier invoices in advance of 1
the invoice maturity date, for a lower Supplier Buyer
financing cost than the suppliers’ own
2
source of funds. This benefit is then shared
Goods/services
among the parties.
and invoices

After ordering from the Supplier (1), the

supplier then fulfils the order and invoices
the buyer (2). The buyer then approves the Discounted Request Confirmation/
Invoice
supplier’s invoices and confirms that it will
finance 5 4 for discount approval 3 6 payment
provided facility of invoices
pay the financial institution for these at
invoice maturity (3). The supplier sells
(discounts) the invoices to the financial
institution at a predetermined discount rate
(4) and receives the funds straight away (5). Financial
institution
The buyer pays the financial institution as
agreed at maturity of the invoice (6).

In parallel to the SCF facility, the buyer is

typically able to negotiate better payment
terms and/or prices with the supplier.

Why do companies implement Supply Chain Finance?

Companies implement SCF for far more reasons than just cash release

Implementation reasons between SCF practition aspirants are quite similar

SCF in place
Working Capital optimisation 42%

Supplier liquidity needs 18%

Principal
reasons for
implementing Supplier relationship improvement 18%
an SCF
program
Supply chain stability improvement 12%

Other 10%
• Additional revenues, cost reductions
• Utilise cash surplus
• Optimize corporate finance (incl. Asset financing)
Key success drivers for Supply
Chain Finance programmes
To maximise the working capital potential of a SCF programme it should be part of an integrated Procure to Pay
(P2P) strategy and approach – follow the lead of many global companies that have already implemented SCF.

Key Drivers of Success for Supply Chain Finance Programmes

Selection of the right Cross-functional approach Integration into a

Technology Platform and comprehensive
Financing Partner Procure-to-Pay Initiative

• SCF has been around for decades, • Despite the name containing • Minimise invoice approval times,
resulting in multiple technology “Finance”, SCF programmes maximise use of e-invoicing,
approaches that offer different cannot be successfully rolled out self-billing and cooperation with
levels of flexibility and integration only with the involvement of the suppliers
with your ERP system – selecting Treasury or Finance function – • Payment term and payment run
the right one is key for long term Procurement and Accounts enhancement; Differentiated
success Payable are equally important terms strategy with aligned
• Cutting-edge Fintech allows you • Successful SCF programmes payment runs
to tap into global finance markets. bridge the functional gaps and • Consideration of small business
The off-balance sheet nature of align the organisation to a suppliers; be economic with
SCF allows to add financing common Procure-to-Pay strategy corporates – nurture small
providers despite possible businesses
restrictions from debt covenants.

What does the Research Say?

SCF is not industry specific…
Respondents with SCF in place

Only Consumer Goods

65% 7% Automotive
Communications & IT
Energy, Utilities & Mining
of European companies with of Australian large companies Industrial Manufacturing
revenues larger $750m revenues have implemented a supply Transport & Logistics
run a supply chain finance program chain finance program so far Professional Services
Other

Up to 14%
21%
+4% 7%
EPS

7%
Increase in Earnings-per-Share 14%
(EPS) through Working Capital
Management with SCF 11%

11% 14%
How can PwC assist you
PwC’s dedicated Working Capital Management team combines global best practice experience with industry
knowledge to provide our clients with expert advice and implementation assistance to maximise benefits.

Supply Chain Finance Procure-to-Pay Opportunity

Feasibility Review & Assessment
Opportunity Estimation

• Quantitative analysis of spend • Review of end-to-end process Our specialist

data to estimate SCF capability in Cash-Cost-Service capabilities
opportunities (Cash & EBIT) performance • Dedicated working capital
• Supplier-industry specific • Quantification of benefits from expert team
terms benchmark Performance avoiding early/late payments, • Industry experience
assessment in invoice improved terms structures • Tailored best practice
processing and approval price (end-of-month terms, settlement methodology
discounts), optimised payment • Proven change management
• Assessment of electronic
channels (PCards, SCF, EFT, etc) capabilities
invoicing penetration,
non-PO spend • Opportunities of invoice • Hands on mentality and
scanning, EDI interfaces, collaborative mindset
robotics and AP automation • Focus on knowledge transfer
• Optimised use of ERP resources,
better controlling & governance
PwC contacts

Working Capital Project Total Working Capital

Management Office Programmes

• Establishment of global PMO • Total Programme from Jonas Schofer

to drive change through the Analysis over Implementation
Director (National)
organisation Sustainability activities
M: + 61 402 271 564
• Performance Dashboards with • Roadmap development, action E: jonas.schofer@pwc.com
drill-down capability planning and delivery of best
practice processes, tools and IP
• Executive and operational
KPIs and performance • Cooperative approach with
reporting client resources for upskilling
and sustainability
• Action plan development and
monitoring of progress • Measurable impact within
James Fowler
2-6 months, payback while we
• Build-up of a Working Capital Manager
are still working with you
Centre of Excellence for M: + 61 420 571 253
the client • Contingent fee arrangements E: james.a.fowler@pwc.com

© 2017 PricewaterhouseCoopers. All rights reserved.

PwC refers to the Australia member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity.
Please see www.pwc.com/structure for further details.
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
Liability limited by a scheme approved under Professional Standards Legislation.
At PwC Australia our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than
223,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by
visiting us at www.pwc.com.au.
127051591