ONE OF THE hottest topics in transaction banking and trade finance over the past few years has been supply chain finance. International and regional banks have increasingly responded to corporate demands to increase efficiency in their financial supply chain in line with efficiency gains the companies themselves are achieving in their physical supply chain.
Supply chain finance is part of a broader concept of financial supply chain management that involves the management of creditor, country and foreign exchange risk and documentation that supports the supply chain. However, most important to corporates – because of its cost-cutting potential – is management of payments and funds across the supply chain process.
Supply chain finance is primarily associated with managing supply finance, including pre-shipment finance, in-transit finance, distribution and warehousing finance, and post-shipment finance. It is most frequently usually used as a synonym for reverse factoring or payables finance, where invoices are used to lend to suppliers at a cost closer to that of the buyer than the supplier.
Although figures are not available, anecdotal evidence suggests that supply chain finance has grown hugely in the past five years.