Supply Chain Finance is a global, high-growth area of activity linked to the financing of commercial relationships, domestically and internationally, sometimes in the context of complex ecosystems of relationships spanning the globe and impacting thousands of relationships across extended supply chains.
The varying rate of adoption, development and deployment of supply chain finance in markets around the world has resulted in a situation where the novelty of the subject matter (and of the marketing and deal-structuring processes) led to the creation of a range of expressions, terms and terminology that were – and remain today – often inconsistent, opaque and even contradictory.
Supply chain finance, broadly defined, encompasses a range of well-known, long-established financing techniques, as well as a series of techniques that are more recent in their development. The latter includes providers spanning banks, non-bank financiers and increasingly, technology-enabled platform and fintech companies that aim to provide a proposition in support of the financing of global supply chains.
The Global Supply Chain Finance Forum was established in January 2014 by five partner associations, with the specific objective of developing a set of terminology and nomenclature around supply chain finance. The Drafting Group was mandated to review existing material on the subject matter, and to develop and propose a framework under which some form of standard terminology could be presented to the market, with the ultimate aim of advocating global adoption of the terminology and classification.
The initiative, supported by BAFT (the Bankers Association for Finance and Trade), the Euro-Banking Association, the International Trade and Forfaiting Association, Factors Chain International and the International Factors Group, and facilitated by the International Chamber of Commerce Banking Commission, benefitted from the contributions of leading practitioners, industry leaders and senior executives from around the world.
The breadth of engagement across industry groups, leading organisations and geographies is illustrated by Figure 1, which shows the partner organisations, members of the Forum Steering Committee, and the organisations whose members are represented in the Drafting Group.
Figure 1: The Global Supply Chain Finance Forum
Supply Chain Finance is presented as a programmatic concept and positioned on the basis of a “Master Definition” under which a series of specific techniques are organised and defined, with an eye on the numerous stakeholders and interested parties likely to benefit from the clarity and consistency enabled through shared global language around supply chain finance.
The Drafting Group and Steering Committee members have sought to address a range of issues under each definition and to place the final deliverable in its wider context by recognising that clarity in the high-growth, commercially and economically strategic area of finance. This endeavour would be of value to supply chain finance providers, regulatory authorities, legal, accounting and advisory professionals as well as to a growing number of end-clients around the world.Figure 2: SCF Techniques and Definition Structure
The first edition of the “Standard Definitions for Techniques of Supply Chain Finance” is the result of extensive debate and discussion, expert drafting, and extensive consultation with market participants through the membership of each of the contributing partners, and is presented as a “living document”, intended to evolve with market practice and requirements.
The definitions address eight core techniques in addition to the “Bank Payment Obligation”, the latter being considered an enabling framework for supply chain finance. Each technique will ‘speak’ to distinctive features, contractual, documentation and risk issues and numerous other elements as shown in Figure 2. Each definition is complemented by a transaction illustration to further provide understanding and clarity.
The document will serve as the basis for an active effort to encourage global adoption of a common framework and standard set of definitions around supply chain finance. Each of the proposed techniques will, together with traditional trade financing products and mechanisms and other forms of financing, address the needs of trading partners around the world.
About Alexander Malaket
Alexander R. Malaket, CITP, is the President of OPUS Advisory Services International, based in Canada. A recognized specialist in international trade, including trade and supply chain finance, Mr. Malaket has advised government, international institution, banking and corporate clients around the world, developed and delivered training materials and seminars, and authored numerous white papers, briefing and policy papers and research reports on a variety of topics in international business, finance and international development.
Alexander will be a speaker at the 4th Annual Supply Chain Financing Summit, a meeting of industry experts and finance leaders, promoting the discussion and assessment of issues affecting supply chain finance. This year’s Summit will focus on various topics like supply chain and financing in Asia, global growth of the SCF, importance of SMEs and strategic suppliers, transforming the role of Fintech in finance, and many more. The Paypers subscribers will receive a 10% discount by entering a code TP-10.
About OPUS Advisory Services International
OPUS Advisory Services International provides management consulting, advisory, project management and business analysis services to a variety of clients in numerous industries across the globe. We have been engaged by senior executives and government clients in a variety of sectors, with mandates ranging from strategy reviews to business process analyses, detailed requirements-gathering to senior-level project and program management.
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