Supply chain finance (SCF), also known as reverse factoring, is a supply chain management strategy used by buying companies (buyers) to improve their working capital without negatively impacting their supplier base.
In order to improve a buyer’s working capital, a payment term extension or payment term harmonization is usually sought across all suppliers. Companies can minimize the resulting potential negative impact of a payment term extension on a supplier’s performance and stability by offering reverse factoring programs that allow the supplier to sell its client-approved invoices to a financial institution at a discount, thereby obtaining liquidity before the invoice is due. When the invoice is due, the buyer pays the financial institution the full invoice amount.
By offering suppliers the opportunity to finance their invoices at lower financing costs, the impact of payment harmonization can be mitigated and, in turn, the supplier base can be strengthened.
We believe that SCF offers real benefits to all stakeholders, but primarily to buyers and suppliers. In line with our corporate principle of full transparency, CRX Markets has used a data-driven approach to verify that this benefit can indeed be quantified. So, can we prove the expected benefits to buyers and suppliers based on historical data from the CRX marketplace?
One of the main benefits for suppliers to participate in SCF programs is the ability to have their own invoices financed at a lower financing cost due to invoice approval by the buyer than would be available to the supplier through traditional means. By comparing the supplier’s maximum accepted financing cost (‘supplier cap’) and the actual financing cost on the CRX marketplace, we gain good insight into this credit arbitrage.
By participating in SCF programs through the CRX marketplace, suppliers have saved over € 110 million in financing costs over the past three years.
Apart from the desire to support its suppliers and ensure a stable and robust supply chain, the buyer typically benefits from a positive annual cash flow effect by harmonizing or extending payment terms under an SCF offer.
When evaluating the performance of all SCF programs on the CRX marketplace, it is clear that buyers can generate very positive cash flow effects by implementing successful supply chain finance programs.
Thus, as of today, the marketplace generates a cash flow effect of more than € 1,000 million p.a. through our buyer programs.
Looking at the CRX marketplace data and comparing the results with the expected benefits of supply chain finance programs, we conclude that reverse factoring, when these programs are set up correctly, can indeed generate clear, quantifiable benefits for all parties involved, both in terms of cash flow effects and significant cost optimization, which have a direct positive impact on the stability and further expansion of global supply chains.
It is a great endorsement for us and our daily activities to see that our solutions bring real, quantifiable benefits to all our clients, primarily to the companies (buyers and suppliers), but also to the financing partners, who benefit in particular from higher risk transparency and efficient processes.