While central banks and governments globally have intervened with unprecedented lending pledges to keep struggling businesses afloat, they cannot bear this burden alone. For SMEs in particular, without the track-record, credit rating or manpower to rely on traditional bank lending processes during this crisis, Supply Chain Finance (SCF) presents a means to tap into security within their supply chains.
“The current pandemic has placed an even greater emphasis on faster and more reliable access to working capital, as businesses face pressure on their finances. Indeed, the financial strain exacted by COVID-19, as well as physical lockdowns, have resulted in dramatic disruption to supply chains. With 44% of businesses in the manufacturing sector invoking ‘force majeure’ clauses, SCF is emerging as a means of critical support.”
Financial IT: How do you see the global supply chain finance market evolving and what can we expect from the coming months and years?
Kevin Day: Supply chain finance (SCF) or reverse factoring is gaining greater and more widespread traction as a form of finance and in recent years, we have seen considerable growth in SCF volumes internationally. In 2019, for example, SCF saw 25% growth in the DACH region alone, and 23% in the US and Mexico in the first half of 2019. Furthermore, the International Chamber of Commerce last year found trade and supply chain finance to be a top priority among banks’ strategic focuses.
The potential for its continued progression is also significant. Indeed, McKinsey & Company has reported that there is potential for much broader adoption of supply chain finance, with an estimated $2 trillion in readily financeable payables worldwide. Furthermore, growth is only likely to increase further as businesses look for financial support to weather the current strain on capital due to COVID-19.
Financial IT: What impact is the current COVID-19 pandemic having on demand for supply chain finance?
Kevin Day: As referenced already, the current pandemic has placed an even greater emphasis on faster and more reliable access to workingcapital, as businesses face pressure on their finances. Indeed, the financial strain exacted by COVID-19, as well as physical lockdowns,have resulted in dramatic disruption to supply chains, with 44% of businesses in the manufacturing sector invoking ‘force majeure’ clauses.SCF is emerging as a means of critical support.
While central banks and governments globally have intervened with unprecedented lending pledges to keep struggling businesses afloat, they cannot bear this burden alone. For SMEs in particular, without the track-record, credit rating or manpower to rely on traditional bank lending processes during this crisis, SCF presents a means to tap into security within their supply chains.
Financial IT: How is digital innovation changing supply chain finance for lenders, buyers and suppliers?
Kevin Day: Supply chain finance has traditionally been harder for smaller businesses to provide with paper-based and time-intensive processes making it viable only to larger corporates. So, by making these services faster, simpler and more transparent, technology has had a major democratising effect on supply chain finance. For example, lengthy and manual steps, such as Know-Your-Customer checks during onboarding, are now quicker and more straightforward for SMEs to meet, without compromising on a lenders’ compliance requirements.
For traditional lenders, embracing technological capabilities that allow for these efficiencies, makes offering supply chain finance to a wider range of businesses far more profitable. Furthermore, it is also critical to remaining competitive in a market where they also viefor businesses against smaller, specialised lenders.
Financial IT: Are there regions that are leading in embracing innovation in SCF?
Kevin Day: Worldwide, lenders are recognising the potential of technology to revolutionise the SCF process, with 40% of all supply chain financing now involving digital solutions. But, one region we are particularly excited to be seeing evolve is APAC, particularly after the opening of our Singapore office last year.
SCF is still in its infancy in APAC, but it has the potential to grow quickly, due partly to the deficit in trade finance. According to a 2018 survey done by the International Chamber of Commerce, 51% of financing requests received by banks were from SMEs. However, 40% of these are rejected.
APAC sits at the heart of innumerable, complex global supply chains, with many emerging markets such as Vietnam and Indonesia establishing themselves as core to global trade networks – particularly now that COVID-19 is forcing supply chains in the region and elsewhere to shift and adapt. This makes solutions that can help shore up supply chains and get businesses the support they need indispensable and for us at HPD LendScape that is a very exciting opportunity.
Financial IT: HPD LendScape recently announced the enhancement of its supply chain financing solution – can you tell us a bit more about this?
Kevin Day: As mentioned already, supply chain finance has for a long time been relatively difficult for smaller businesses to access. However, as it has done across the entire financial sector, technology has helped to put SMEs on an even footing with larger corporates and we are excited about the role of our platform in making this possible.
By bringing together lenders, buyers and suppliers on one platform to enhance visibility and efficiency in SCF processes, we have been able to make the offering faster and more straightforward for SMEs to access, while also making it more profitable for lenders to actually offer the service. The digitalisation of once manual, paper-based processes is even more important in the context of COVID-19, where social distancing and lockdowns make the physical exchange of paperwork all the more complex.