Techniques

Supply Chain Finance Techniques

Techniques

Below are key techniques making up the SCF portfolio and best reflecting current market practice. This definitional framework makes a key distinction between a cluster of techniques based on Receivables Purchase, and a range of other techniques clustered on the basis of loans or advances. As a third category an enabling framework, the BPO, is defined.

Synonyms and variations are also identified. Please note that synonyms are a variety of expressions used in the industry to connote an exact or close replication of the same technique. The recommended standard market definition is the headline expression used in the definition box. The Forum proposes the general discouragement of the use of any other expressions as the standard market definitions for the relevant SCF technique. The Forum neither endorses nor rejects the synonyms provided.

Receivables Purchase category

RECEIVABLES DISCOUNTING

Receivables Discounting is a 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.

  • Receivables Finance
  • Early Payment
  • Receivables Purchase
  • Invoice Discounting

FORFAITING

Forfaiting is a form of Receivables Purchase, consisting of the without recourse purchase of future payment obligations represented by financial instruments or payment obligations (normally in negotiable or transferable form), at a discount or at face value in return for a financing charge.

  • Without recourse financing
  • Discounting of promissory notes
  • Discounting of bills of exchange

FACTORING

Factoring is a form of Receivables Purchase, in which sellers of goods and services sell their receivables (represented by outstanding invoices) at a discount to a finance provider (commonly known as the ‘factor’). A key differentiator of Factoring is that typically the finance provider becomes responsible for managing the debtor portfolio and collecting the payment of the underlying receivables.

  • Receivables Finance
  • Receivables Services
  • Invoice Discounting
  • Debtor Finance

PAYABLES FINANCE

Payables Finance is provided through a buyer-led programme within which sellers in the buyer’s supply chain are able to access finance by means of Receivables Purchase. The technique provides a seller of goods or services with the option of receiving the discounted value of receivables (represented by outstanding invoices) prior to their actual due date and typically at a financing cost aligned with the credit risk of the buyer. The payable continues to be due by the buyer until its due date.

  • Approved Payables Finance
  • Reverse Factoring
  • Confirming
  • Confirmed Payables
  • Supplier Payments

LOAN/ADVANCE-BASED CATEGORY

LOAN OR ADVANCE AGAINST RECEIVABLES

Loan or Advance against receivables is financing made available to a party involved in a supply chain on the expectation of repayment from funds generated from current or future trade receivables and is usually made against the security of such receivables, but may be unsecured.

  • Receivables Lending
  • Receivables Finance
  • Invoice Financing
  • Trade Receivable Loans
  • Trade Loans

DISTRIBUTOR FINANCE

Distributor Finance is the provision of financing for a distributor of a large manufacturer to cover the holding of goods for re-sale and to bridge the liquidity gap until the receipt of funds from receivables following the sale of goods to a retailer or end-customer.

  • Buyer Finance
  • Dealer Finance
  • Channel Finance
  • Floor Plan Finance

LOAN OR ADVANCE AGAINST INVENTORY

Loan or Advance against Inventory is financing provided to a buyer or seller involved in a supply chain for the holding or warehousing of goods (either pre-sold, un-sold, or hedged) and over which the finance provider usually takes a security interest or assignment of rights and exercises a measure of control.

  • Warehouse Finance
  • Financing against Warehouse Receipts
  • Inventory Finance
  • Floor Plan Finance

PRE-SHIPMENT FINANCE

Pre-shipment Finance is a loan provided by a finance provider to a seller of goods and/or services for the sourcing, manufacture or conversion of raw materials or semi-finished goods into finished goods and/or services, which are then delivered to a buyer. A purchase order from an acceptable buyer, or a documentary or standby letter of credit or Bank Payment Obligation, issued on behalf of the buyer, in favour of the seller is often a key ingredient in motivating the finance in addition to the ability of the seller to perform under the contract
with the buyer.

  • Purchase Order finance
  • Packing credit/finance
  • Contract monetization financing

An Enabling Framework for SCF category

BANK PAYMENT OBLIGATION (BPO)

The BPO is an inter-bank instrument to secure payments against the successful matching of trade data. As per the Uniform Rules for Bank Payment Obligations, the Bank Payment Obligation (BPO) means ‘an irrevocable and independent undertaking of an Obligor Bank to pay or incur a deferred payment obligation and pay at maturity a specified amount to a Recipient Bank following Submission of all data sets required by an Established Baseline and resulting in a Data Match or an acceptance of a Data Mismatch’ (URBPO, ICC Publ. No. 750E).

Synopsis category

SYNOPSIS OF SCF TECHNIQUES

See an indicative classification of SCF techniques against useful aspects such as commercial, financial or legal

Have a look at the Glossary for the SCF techniques

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