- June 19, 2019
Global Supply Chain Finance Forum issues receivables discounting guidance to drive further clarity on terms and techniques
- October 12, 2018
Home of Supply Chain Finance Terminology
These aim to standardize and harmonize the existing Supply Chain Finance market terminology to make it operational and usable in daily practice by banks and non-banks when processing, financing and mitigating risk in trade transactions.
World trade volumes have seen a startling increase in open account transaction over the recent years. Already today more than 80 % of the total world trade volume (export) is settled by clean payment. This impressive ratio is expected to grow even further in the future. As a consequence banks are compelled to offer their corporate clients products that support fully automated processing as well as cost savings combined with payment assurance and financing options.
The graphic reflects the relative slow growth of traditional trade finance as against the exponential growth in open account trade activity, particularly in the last decade.
Open account transactions
Letters of Credit transactions
The terminology will greatly enhance the ability of clients to understand, compare and select optimal solutions to their supply chain finance needs and consider the offerings as an attractive alternative to other financing models. Clients will be able to weigh alternatives, their advantages and disadvantages, and engage in a clearer and more relevant dialogue with finance providers and other supporting communities.
Download a PDF version of the terminology in English or Chinese language.
Supply chain finance is one of the fastest growing trade products, however, financial institutions often don’t use similar terminology or accounting techniques. The Forum, comprised of BAFT (Bankers Association for Finance & Trade), Euro Banking Association (EBA), Factors Chain International (FCI), International Chamber of Commerce (ICC), and International Trade and Forfaiting Association (ITFA), is issuing a series of guidance documents based on its 2016 Standard Definitions for Techniques of Supply Chain Finance to get all industry stakeholders on the same page.
The paper released today focuses on receivables discounting – a technique and form of receivables purchase, flexibly applied, in which sellers of goods and services sell individual or multiple receivables (represented by outstanding invoices) to a finance provider at a discount.
Supply Chain Finance is defined as the use of financing and risk mitigation practices and techniques to optimise the management of the working capital and liquidity invested in supply chain processes and transactions.
SCF is typically applied to open account trade and is triggered by supply chain events.
Visibility of underlying trade flows by the finance provider(s) is a necessary component of such financing arrangements which can be enabled by a technology platform.
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