Trade and Supply Chain Finance
Trade Finance Product Suite: Case Studies
June 2014
Agenda
Case Studies
1. Receivables discounting: Agricultural and construction equipment manufacturer
3
2. Supplier financing: FMCG company
8
Receivables Discounting
This is an innovative solution that supported the management of working capital by
agricultural and construction manufacturer by providing it with an opportunity to
increase its liquidity; improve its balance sheet metrics and mitigate its supply chain
risks.
Agricultural and construction equipment manufacturer
Deal Background
Supplier: The client
The client is a leading global
manufacturer of agricultural and
construction equipment.
It has 37 manufacturing
companies with 11500
distributors in over 170 countries
providing a full range of the
products.
With a strong footprint in
Europe, North America, Latin
America and Asia, their
customer base continues to
grow.
Company
profile
Buyer: Local SA
buyers
The client had a requirement to
accelerate their cash from
receivables stemming from sales
to local South African buyers.
Improvement in the client ‘s
accounts receivable metrics
(reduction in DSO) through the
sale of their receivables on a nonrecourse basis.
Client
objectives
Underlying
commodity/goods
traded: Agricultural
equipment
Terms : Average
tenor of 120 days
Parties to
the
transaction
Non-recourse
invoice
discounting
Solution
Transaction Mechanics
Ongoing contract of purchase and sale between the supplier and the buyer.
1. The buyer places a purchase order.
Supplier
2. Pro forma invoice is sent to the buyer.
3. Goods are shipped and the invoices are presented to the buyer.
Portfolio of
Buyers
Buyer 1
Buyer...
4. The supplier
presents
receivables
schedule &
request to
discount to
Standard Bank.
Buyer n
5. The
discounted
funds are paid
to the supplier
on day 1.
6. The full value of the invoice is paid to Standard Bank at maturity date.
Transaction initiation
Discount date
Invoice maturity date
5
6
Time
1
2
3
4
R
R0
R95
A
Cost borne by the supplier
A
R100
Deal Process
Pre-transaction
Execution
•
•
•
Identification and qualification of
buyers from supplier’s debtors book.
KYC and credit review is completed
on qualifying buyers.
Post-transaction
Preparation of the following signed documents by supplier:
 Receivables schedule (existing ERP should
be downloaded for the extraction of this
schedule)
 Discounting request
•
The buyer will receive a settlement
advice from SBSA 7 days prior to the
maturity date of their invoices.
Document
preparation
Debtor due
diligence
Settlement
advice
•
•
•
•
The indicative
term sheet is
negotiated and
accepted.
The underlying
facility
agreement is
negotiated and
signed by the
buyer.
Credit process.
•
Master
agreement
•
Documents to
be submitted 3
days prior to
financing
requirement.
Submissions
sent may be
electronic via
email, with
originals
following at a
later stage.
Submissions
should be sent
to trade finance
transactors
only.
Document
submission
Settlement
by buyers
•
Payment
process
Authorised
signatory
delegation
•
•
•
Assignment and confirmation by
supplier of authorised signatories
under their board resolution
(submission of board resolution).
•
Upon receipt of documents SBSA will require 3
days for review.
Documents are vetted, instructions are verified
and signatures are confirmed.
On completion of the review & acceptance of
documentation, SBSA will advance payment to the
supplier for a discounted invoice value.
Upon the maturity dates of the various
invoices, the buyers settle SBSA for the
full value of the invoices.
Payment
process
Benefits of Receivables discounting
Risk mitigation
Non-recourse invoice discounting provided the supplier with a
method of eliminating exposure from any potential defaults by the
buyer.
Liquidity & Working capital efficiencies
The supplier was able to experience an acceleration of working
capital and an increase in cash balances, which they could use to
fund other disbursements or to overcome asymmetries between cash
collection and disbursement.
Balance sheet management
The sale of their receivables provided the supplier with the ability to
reduce their Days sales outstanding (DSO) , thereby resulting in an
improvement in their accounts receivables metrics.
Supplier Financing
The supplier finance solution was utilised to support key suppliers of the FMCG
company with cost effective liquidity and still afforded them with extended days
payables in an efficient, simple and visible process.
FMCG company
Deal Background
Supplier: Various
local suppliers
A multinational FMCG (fast
moving consumer goods)
company. (FMCG)
It manufactures and markets food
and beverage products, including
convenient meals, refreshment
beverages and coffee, chocolate,
cheese and other grocery
products across various regions
and countries around the world.
Buyer: FMCG
The FMCG procures most of its
raw materials from local suppliers
with a few purchases coming from
cross border suppliers.
Company
profile
As part of its international
procurement policy, all the
subsidiaries of this FMCG
had to move their days
payable metric to 120 days.
In extending the payables
term, the company also
required the balance sheet
benefit by maintaining
financial transactions as a
trade payables.
Client
objectives
Underlying
commodity/goods
traded: Various
products
Terms : Various
tenors (30,60,90)
Parties to
the
transaction
Supplier
financing
Solution
Transaction Mechanics
Ongoing contract of purchase and sale between buyer and suppliers
1. Purchase order raised.
2. Supplier delivers goods and presents invoices.
Portfolio of
Suppliers
Buyer
3. Supplier sends discounting request to buyer for acceptance.
Supplier 1
4. Buyer provides accepted discounting request to supplier.
Supplier ...
Supplier n
5. Supplier presents
invoice schedule and
discounting request to
Standard Bank.
7. Settlement by
buyer at invoice
maturity date for full
invoice value .
6. Standard Bank pays suppliers discounted invoice value on day 1.
Procurement
initiation
Discount date
Invoice maturity date
Time
3 4 5
2
1
6
7
R
R0
A
Interest cost borne by supplier
R95
A
R100
Deal Process
Pre-transaction
Execution
•
•
Identification and qualification of suppliers
from the buyer’s creditor book.
KYC completed on qualifying suppliers.
Suppliers are then on-boarded onto the
supplier financing programme.
•
•
Preparation of the following signed documents by the
buyer:
 Invoice schedule (existing ERP should be
downloaded for the extraction of this
schedule)
 Financing request
 Payment undertaking
Supplier
due
diligence
•
•
•
The indicative
term sheet is
negotiated and
accepted.
The underlying
supplier
financing
agreement is
negotiated and
signed.
Credit process.
•
•
Documents to be
submitted 3 days
prior to financing
requirement.
Submissions sent
may be electronic
via email, with
originals following
at a later stage.
Submissions
should be sent to
trade finance
transactors only.
Assignment and confirmation by
the buyer of authorised
signatories under their board
resolution (submission of board
resolution).
Document
submission
Settlement
•
Payment
process
•
•
•
Upon receipt of documents SBSA will require 3 days
for review.
Documents are vetted, instructions are verified and
signatures are confirmed.
On completion of the review process and acceptance
of documentation, SBSA will advance payment to the
suppliers for the discounted value of the invoices.
The buyer will receive a settlement advice
from SBSA 7 days prior to the settlement
date.
Settlement
advice
•
Authorised
signatory
delegation
•
•
Document
preparation
•
Supplier
finance
agreement
Post-transaction
The authorised signatories confirmed by the
buyer and accepted by SBSA will complete
and sign a settlement instruction, which gives
SBSA authority to debit any of the buyer’s
accounts held with SBSA.
SBSA will undertake to debit the full principal
invoice value.
Payment
process
Benefits of Supplier Financing
Working Capital optimization via payments and receipts matching
The extension of the payment terms also provided the buyer with the ability to
optimize their working capital by matching the receipt of funds with their payment
obligations.
Extension of days payable outstanding
The buyer was able to extend its credit repayment terms to 120 days as per their
requirement , thereby meeting their primary objective..
Liquidity & Working capital efficiencies
The suppliers were able to experience an acceleration of working capital and an increase
in cash balances, which they could use to fund other disbursements. Therefore
improving their accounts receivable metrics and overall working capital cycle.
Cheaper funding
The suppliers were able to get better funding rates on the strength of the buyer
company's balance sheet.
End
“Best Trade Finance Bank in Africa 2013.”
“A vote of confidence in our Trade Finance Exchange capabilities.”
“Standard Bank has been voted best Trade Finance Bank in South Africa and the rest of Africa at the Global
Finance Awards 2013”
“This award is another testament to Standard Bank’s expertise in Trade Finance across Africa and further
demonstrates our commitment to the African continent and its international trading partners.”
Thank you