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Guest Post: The 3 Platforms Fuelling Growth in Supply Chain Finance

November 6, 2013

oliver belin 2Our Guest Post today comes from Oliver Belin, an executive with PrimeRevenue (http://www.primerevenue.com/blog/), who is coauthor of the book Supply Chain Finance Solutions (Springer Verlag, 2011).

The current, global market size for Supply Chain Finance is estimated at $275 billion of annual traded volume. It is still relatively small compared to the market size of other invoice finance solutions such as factoring, which remains the largest trade finance segment and is primarily domestic in focus. There are about 200 global Supply Chain Finance programs of scale in place. These programs are run both domestically and cross-border and in multiple currencies. Still, the market potential is far from its capacity. If examining spending of large organizations, such as Lowe’ s $33 billion, it becomes apparent that Supply Chain Finance programs usually require a multi-bank platform due to the credit and capital issues associated with banks.

Supply Chain Finance practices have been in place for over a decade and 3 distinctive platforms have crystallised.

In buyer managed platforms the buying organization owns and runs the platform. Some large retailers, such as Carrefour, are using such solutions and managing the finance program, supplier onboarding, and liquidity themselves.

In bank proprietary platforms the IT solution is managed by commercial banks providing the technology platform, services and funding. This solution is used by several large buying organizations such as Carlsberg and Marks & Spencer.

The platform that has exhibited the strongest growth is represented by independent third-party supply chain finance providers offering multi-bank platforms. This solution separates the entities, a specialized service provider which manages the platform, and the funding partner, which provides liquidity and takes the credit risk. Based on the fact that funding in Supply Chain Finance is uncommitted and due to the general limitations in terms of credit risk appetite, companies such as Volvo, Lowe’s, KPN and other leading organizations have chosen this structure.

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