Despite this trend, companies are still expecting their banks to support them, as well as their suppliers and buyers in the trade process. Leading trade banks are helping their clients manage risk, support supply channels, automate processes, and even expand sales in new and different ways from the traditional banking models. Essentially, trade banks must now integrate themselves into their clientÆs supply chain activities, from both a technical systems perspective and a credit and risk management perspective.
CorporationsÆ drive for supply chain and working capital efficiency
The document flow in the trade process has been particularly problematic, with over 100 documents in a typical trade transaction flowing across many parties. The end result is often errors, re-work, lost time and money. Purchase orders, order confirmations, L/Cs, shipping documents, invoices, etc, all have much common data, but fragmented systems and communications in the past have translated into inefficiency.
Corporations have made significant investment in their own systems to automate these processes, and are looking for ways to leverage this investment by having their internal systems interact with those of their trading partners. It means that suppliers, buyers, logistics companies and banks are now expected to work seamlessly off their clientÆs systems.
Banks need to have standard interfaces to SAP and other leading systems used by corporates. Banking initiatives from SWIFT, and industry-level initiatives, e.g. Rosettanet now offer corporates the ability to access multiple banks with simplified system integration requirements.
For major multinationals, the goal is often ônegative working capitalö. They have eliminated the use of L/Cs, extended payables terms, pushed the inventory burden on to their suppliers, and accelerated payments from their buyers. For corporations that are achieving this, it has been a huge benefit for them, while on the other hand, a huge burden to their trading partners.
The response of banks and supply chain finance
Banks need to help clients integrate financial and physical supply chain information. For example û linking purchase orders, invoices and payments; enabling common data to be re-used across the trade process; electronically archiving documents and data; and using supply chain data to build more flexible finance models based on real-time credit related event triggers.
In order to address the changes in the market, Standard Chartered has developed a sophisticated web-based platform that helps clients automate communications and facilitate document flow across multiple parties. The platform has standard interfaces to leading corporate systems, and is enabled to offer clients access to external bank-neutral initiatives. The platform can be used by clients to exchange orders, invoices, etc with all of their trading partners, not just the bank. Moreover, they can do this in a way where they are able to re-use data (e.g. from orders to L/C applications, from invoices to payments) to reduce errors and re-work.
One of Standard CharteredÆs fastest growing product categories is supply chain finance, serving the increasingly popular area of open account trade. Using new risk management methodologies that leverage the supply chain relationship between parties, Standard Chartered is able to offer multi-national corporations the benefit of better balance sheet, improved working capital, better supported trading partners, and expanded sales capacity. Smaller trading partners of these multi-national corporates get risk protection and finance, without the added cost associated with L/C based trade.
Successful supply chain finance solutions are those that can provide a win-win scenario for the different parties. Rather than penalise the smaller trading partner, Standard CharteredÆs supply chain finance programme offers these smaller trading partners flexible financing (at amounts and rates more favourable than would normally be available), risk coverage on their buyers, and simple integration into their clientsÆ systems.
The programme is superior to stand-alone, bilateral banking arrangements as it takes into account the relationship between the smaller trading partner, and its large multi-national buyer/supplier, and the low risk nature of the underlying transaction. These programmes can be used to support either suppliers or buyers of large multi-national corporations.
Integrated financial supply chain solutions
Corporations want banking platforms that are integrated to their own systems, offering a window to multiple services that help them better manage trade documents and data, manage risk, and support themselves and their trading partners financially. Trade banks will need to integrate themselves into their client supply chain activities, to provide value-added services regardless of their clientsÆ selection of terms of trade (L/C, collection or open account), or preferred system formats and communication channels.
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