Supply chain finance: upgrade

The PrimaTrade platform delivers an important set of supply chain finance upgrades.


Our platform connects buyers with suppliers and funders in order to enable:

  • Suppliers to get paid at shipment if they wish

  • Buyers to save up to 1% or more on landed costs

  • Funders to deploy capital into the supply chains of important corporate clients without first having to onboard us as a fintech

and

  • AP Automation from shipment: with real-time data on shipments arriving via the upload and digitisation of documents, our platform automates real-time invoice approvals before suppliers handover goods

What is the supply chain finance upgrade?


The PrimaTrade platform combines the functionality and approach of traditional supply chain finance with classic trade finance technology (ie: documentary credits):

Trade finance and supply chain finance combine
Trade finance and supply chain finance combined

It all starts with data and documents - and how they are processed:

  • Traditional SCF platforms consume data from the buyer's accounting system:

  • Approved invoices are downloaded from the buyer and then

  • Suppliers then decide if they would like early payment

  • Invoice approval takes place, broadly, after delivery.

  • PrimaTrade's platform works the other way around:

  • Data and documents are provided at shipment by suppliers

  • Documents are digitised as they are uploaded by suppliers

  • The resulting data is used on the platform to approve invoices

  • Suppliers then decide if they would like early payment

  • Invoice approval is automated and takes place at shipment.

By getting much better information much earlier, PrimaTrade's platform can:

  • Drive and automate approval and payment processes for the buyer (AP Automation at shipment with 3-way match), and

  • Move the availability of cash forward to the time of shipment and before control of goods is handed over.

This leads to a considerable number of benefits for buyers, suppliers and funders.


What are the benefits?


Buyers:

  • Save up to 1% or more on landed costs because getting suppliers paid before handing over control of goods is valuable. Our platform is designed to realise this benefit in cash.

  • Real-time data via the integration and digitisation of shipping documents, ESG documents and invoices regardless of geography, carrier, logistics, product, industry.

  • Supply chains are more resilient and it becomes easier to switch suppliers

  • Multi-funder platform that can incorporate own funds alongside.

  • Robust legal and accounting structure.

  • Our two-payment system enables buyer to control the risk of early invoice approval.

Suppliers:

  • Getting paid at shipment makes the supplier's own funding work better.

  • A P Automation at shipment gets invoices approved quickly.

  • Real-time view of the payables process including early payment.

  • Coordination of shipping documents, increasing requirements for ESG documents and payables through one gateway - with built-in digitisation.

Funders:

  • Provide SCF without having to onboard a new platform.

  • Use simple banking products like trade loans, bilateral loans or RCF.

  • Easy to syndicate and sell-down.

  • Extend existing programs, as the PrimaTrade platform can be added alongside existing traditional platforms.

Our blog about AP Automation at shipment is here.

Our blog about Banks and Platforms is here.


How limited are existing SCF programs?


Mckinsey recently analysed the coverage of supply chain finance programs and concluded that:


"Significant value in the global supply-chain finance (SCF) market remains untapped. Nearly 80 percent of eligible assets do not benefit from better working-capital financing, and the remaining one-fifth of assets are often inefficiently financed. Despite improvements made in recent years, advances have been largely incremental."

Their summary of the coverage gap is as follows:

Coverage gap in supply chain finance
Source: McKinsey supply chain finance report 2021 exhibit B

Our comment on the above is (a) the interesting column is the one on the right - showing that the existing penetration of SCF is $0.5 trillion on $17 trillion of potential and (b) the unaddressed gap is more likely much bigger than the $3 trillion shown - but the numbers are huge, come what may. The report is available here.


The gap arises for a variety of reasons:

  • Existing SCF platforms give no help to buyers with invoice approvals.

  • Supplier eligibility is driven by funder appetite to on-board suppliers which is limited by cost and geography.

  • Invoices happen after delivery, often slowly; this limits the attractiveness of early payment to suppliers - so many suppliers ignore the early payment offer.

  • Buyers have limited tools to manage the risk of early approvals, since invoice approval is all or nothing (ie: 100% of the invoice amount).

Addressing the gap


Addressing this gap has required a different approach to the way that invoices are approved. Buyers find invoice approval before delivery difficult to achieve - yet this is what is really required to provide tangible benefits to suppliers.


The PrimaTrade platform provides the next generation of supply chain finance solutions - enabling existing programs to be extended easily to the long-tail of suppliers that really need support (SMEs in emerging markets, in particular).


Many banks also want to offer supply chain finance progams themselves but do not have an in-house platform, nor do they wish to on-board a fintech. For these banks, PrimaTrade offers a ready-made way forward which avoids on-boarding and which delivers a market-leading product offering.