The news on Bank Greensill has also put the issue of Supply Chain Finance (SCF) on the map and, in part, cast the role of SCF platforms in a skewed light. We’d like to set the record straight with a few brief arguments for using platforms.
1. Supplier financing is an extremely secure asset
Supplier financing – when practiced with the right partners – is an extremely safe asset compared to most other asset classes in the market. This is due to the short-term nature of the financing, the mostly very good solvency of the debtors, the deep business relationship between creditor (supplier) and debtor (customer), and the real economic link to a specific delivery of goods or service. Furthermore, there is little to no correlation to other asset classes. SCF is therefore a sought-after asset among many investors.
2. Platforms will prevail
Platforms will dominate the SCF market in the future. In addition to technical convenience, customers expect the freedom to choose their financing partner as well as the form of financing. Platforms that can connect a large number of banking partners will therefore prevail. The fact that banks also share this expectation is demonstrated by the partner banks of the Traxpay Financing Platform. The belief in the success of the platforms is particularly underlined by Deutsche Bank’s recent investment in the equity of Traxpay.
Platforms are also in demand on the corporate side: According to a study conducted by Traxpay together with DerTreasurer, 76 percent of treasurers prefer a platform or a combination of bank and platform – and only 14 percent a pure banking solution.
3. Financing security through the core banking principle
Receivables purchase refinancing is critical to the performance of any platform. The greatest security for customers is offered by platforms that arrange financing through those banks that already have a business relationship with the customer and are willing to support the customer in the future on a permanent basis. Traxpay’s platform approach therefore focuses on enabling an SCF program between banks and their existing customers. This ensures the greatest financing security for customers.
4. Flexibility is in demand
The platforms that will prevail are those that offer customers and their suppliers maximum flexibility. Traxpay therefore offers not only Reverse Factoring on its platform, but also other Supply Chain Finance instruments such as Classic Factoring, Dynamic Discounting and Digital Forfaiting options.
Exactly how SCF works in practice and what benefits it offers suppliers: