Financing trade in an increasingly competitive world

Supplier and buyer risk ratings take supply chain financing to a new level.

With the rapid expansion in domestic and international trade, increased competition has led companies to seek innovative ways to expedite and streamline their supply chains. At the same time, companies are looking to their bankers to provide alternative financing solutions that will align with the way that they manage their supply chain.

Standard Chartered has responded by creating Supply Chain Finance solutions designed to adapt to this rapidly changing environment. Suppliers and buyers now have access to working capital finance aligned to their business cycles, providing the means to expand their business and stay competitive without the need for traditional bank security.

Companies are increasingly abandoning the paperwork-intensive and expensive Letters of Credit (LCs) and turning to trading on open account terms. Whilst this shift to open account trading has helped companies enjoy efficiency gains and cut costs, it has also created a new set of problems for suppliers.

Bank-issued LCs provide the comfort that a company will be paid upon presentation of compliant export documents. However, open account trading places the financial risk of the buyers entirely with the supplier.

Asian, Middle Eastern and African suppliers are among the most affected as they have traditionally had less access to working capital compared to their multinational counterparts, and they are constantly under pressure to move away from the "security" of the LC.

BREAKING NEW GROUND

Banks with an international presence are in the best position to address these new problems. They already provide domestic and cross-border trade and cash management services that are designed to reduce operating costs, mitigate risk and improve working capital efficiencies. Standard Chartered, with its long history and knowledge of the markets in Asia, the Middle East and Africa, is able to offer a unique solution to companies.

Standard Chartered uses a model that "risk rates" the strength of a company's trading relationships with its buyers and suppliers. By intensively consulting with a client company, the bank grades the reliability and importance of each trading relationship for the client.

Supplier and buyer financing will only be offered for the portion of the trading partner's business that is directly linked to the client company, so it is transaction-based financing. This highly targeted approach minimizes the risk of funds being diverted for non-related purposes and essentially extends the client company's banking relationship to its trading partners.

"The bank takes a partnership approach to better understand the client company's business model and its trading relationships. In this way, we can ensure that the client company and their trading partners have access to the working capital they need to grow their business," explains Karen Fawcett, Group Head of Transaction Banking at Standard Chartered Bank.

A WIN-WIN SOLUTION

The Supply Chain Financing solutions create a multitude of benefits and a win-win situation for companies and their trading partners. Under Standard Chartered's programme, suppliers can increase their sales without increased exposure to their buyers.

The model is also extremely flexible, designed to align with seasonal peaks and changing country risk profiles and seamlessly fit in with companies' existing trading relationships. In addition, Standard Chartered offers companies its web-based supply chain portal, B2Bex, and has demonstrated its ability to customize technology solutions to fit with a company's current trading process and technology.

The appeal of this innovative solution is evident in the rapid expansion of these services. To date, the Bank has rolled out Supply Chain Financing solutions to clients in 16 countries, and is planning to roll out the services in a total of 30 countries by the end of 2005. In a changing business environment, Standard Chartered's response with Supply Chain Financing delivers a successful vehicle for companies to enhance working capital needs with its trading partners while managing their risks.

PARTNERSHIPS IN PROGRESS

"Nokia Middle East & Africa and Standard Chartered Bank are working together to enter markets considered to have high country credit risk in the region. The decision to choose Standard Chartered is based on their long term knowledge and understanding of the MEA markets and their proven experience in Supply Chain Financing to alleviate country risk from any company's balance sheet," notes Henri Holm, Business Controller, Nokia, Middle East & Africa, Customer & Market Operations.

"We have been using Standard Chartered's channel finance scheme for our spare parts business and vehicle dealers for 18 months now, and the feedback has been very encouraging. We are especially pleased with the way the bank understands the business relationship between our partners and our parent company, Tata Motors. Standard Chartered takes care of our channel partners with the same diligence and cooperation afforded to our parent company and, when combined with their willingness to work with the Tata Motor sales team to help us expand our business, we have managed to grow our business multifold without a single NPA," Pradeep Bandivadekar, Chief Operating Officer, Tata Motors Finance.

Contact information:
Ken Stratton
Global Head
Trade, Supply Chain Sales & B2Bex
Standard Chartered Bank
Tel: +65 6331 5025
[email protected]

Farooq Siddiqi
Head of Supply Chain Sales
Standard Chartered Bank
Tel: +65 6331 4172
[email protected]

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