InsightsTransforming Supply Chain Finance

19.01.2021| Articles

Before we can appreciate the transformation of Supply Chain Finance, it’s essential to look back to where it all began and just how far we have come. Supply Chain Finance can be considered as direct descendant from Factoring, and unsurprisingly many people still refer to Supply Chain Finance as ‘Reverse Factoring’. Despite an increase in its popularity over the last ten years, this relatively new financing solution is not as original as you may think.

How Did We Get Here?

The origins of Supply Chain Finance can be traced back to Spain in the late eighties which was a period famous for high-interest rates and inflation. Challenges around working capital, high cost of funding, and difficulty in accessing finance resulted in the creation of ‘Confirming’, also known as Confirming Bancario, which is a sub-solution of Supply Chain Finance. 

By the late eighties, the solution was further developed by the automotive industry with manufacturers such as Fiat that led the way by providing financing to their suppliers. However, it wasn’t until the nineties, that the term Supply Chain Finance started to become more widely used by companies. Businesses embarked on a quest to further improve efficiencies and find ways to improve their working capital. 

From the automotive sector the baton was passed to the retail industry in the early nineties with the German Metro Group and its in-house financing entity, MIAG in Switzerland and French retailer, Carrefour and its global Supply Chain Finance program.  

Why retail? Unlike manufacturing, retailers do not produce any goods and are highly depended on their suppliers and efficient supply chains. Another critical reason is the fact that especially in the retail sector, payment delays are at the heart of every negotiation and very important for trade relationship between suppliers and buying organizations. 

During the last decade, Supply Chain Finance has really taken off and has been adopted in almost all sectors. There was also a vast expansion in terms of geography. The concept and lessons learned from Supply Chain Finance in the US came quickly back to Europe with numerous program implementations and thousands of suppliers benefiting from early payments and expanded later to Asia, South America, Middle East and Africa.

What is Supply Chain Finance?

If we look under the hood, Supply Chain Finance is a working capital finance solution offered through a buyer-led program. This facility provides the Suppliers in the buyer’s supply chain have the option to access finance by selling their receivables for early payment of their outstanding invoices before their actual due date. By getting paid earlier, the supplier can reduce its receivable position, and thus optimize its working capital.

Typically, the financing costs which are deducted as discount from the early payment to the supplier, are based on the risk profile of the buyer. By implementing a Supply Chain Finance program, the buying organization can extend its payment terms and optimize its working capital, while improving stability of its supply chain.

The Marco Polo Supply Chain Finance Solution

In today’s market, working capital has become one of the most critical financial metrics for a corporation and its supply chain. Solutions such as Supply Chain Finance help improve working capital, reduce risk of supply disruptions and increase the competitiveness of a corporate’s supply chain.

However, with the growing popularity of Supply Chain Finance, the cost and complexity of managing such financing programs have grown. Working with numerous funders as well as technology systems and platform have considerably increased costs, resources, and time required to set up and run these solutions efficiently, often outweigh the benefits.

However, try to imagine a level of integration and program management that allows you to set up Supply Chain Finance programs with your suppliers and banks in record time. Just a few simple steps without needing complex and customized integration into various siloed legacy systems and numerous manual processes.

The Marco Polo Network is driving this paradigm shift in Supply Chain Finance by integrating supplier invoicing, purchase order matching and multi-bank financing options on an open and distributed network leveraging the Corda blockchain technology. The network connects corporate systems of record directly to bank financing systems, enabling them to exchange data securely and in real-time, from a single standard interface. 

Connect Once, Connect to Many. But How Does It Work?

You can either install on your premises or via the cloud the Marco Polo Platform and Corda blockchain node, which is integrated to your ERP system via APIs.  By integrating just once to the Corda Node and the Marco Polo Network, a company can connect to multiple different parties within their physical and financial supply chain, without any further integration to banks, suppliers or any other third-party.

Frictionless and Straightforward

Supplier onboarding, master data synchronization, purchase order and invoice validation and matching are critical factors driving costs and compliance within each supply chain. This is why Marco Polo Platform makes it frictionless and straightforward for suppliers to interact securely and privately with the buyer organization and get access to working capital finance though banks, part of the Marco Polo Network. 

The integration is native and takes minutes, not days to complete. Corporates invite their suppliers by issuing a token to them; the token is entered by the supplier into the Marco Polo Platform.

The Marco Polo Portal provides secure and private data exchange and access to working capital finance using Corda Blockchain technology. None of the supplier’s or buyer’s data is accessible by anyone other than permissioned parties. Their valuable information is completely secure and private. 

Once suppliers click on the token to access your Supply Chain Finance program, they automatically receive access to their Corda Node on the Marco Polo Network, allowing them to check their companies profile and information, accept purchase orders and send invoices securely and privately through the Marco Polo Network.

Smarter Trade and Working Capital Finance

Only authorized information is shared between the buyer, the suppliers, and the banks. By leveraging blockchain technology, all transactions have a verifiable and immutable audit tail. 

By automating key processes, using cloud-based solutions and open APIs, the Marco Polo Network reduces friction, risk, errors, time and costs for all parties, providing them with a simple and efficient way to interact and financing trade. 

Supply Chain Finance has been on an incredible journey since the first iteration back in the late eighties. But it continues to evolve and adapt to our new digital world. The Marco Polo Network is transforming the world of Supply Chain Finance and taking it to another level. 

What’s is the goal? Simply to make trade and working capital finance smarter, more transparent, and better connected.