Getting cash to suppliers safely but as early as possible delivers significant cost savings. These arise principally because the buyer typically has better access to liquidity than the supplier does - which means the cost of working capital in the supply chain is lower - and this is a big saving.
PrimaSCF links buyers, suppliers and funders together. Funders are typically banks or other relationship lenders to the buyer.
PrimaSCF enables suppliers to access trade finance or supply chain finance against approved invoices at shipment. This typically delivers savings of up to 1% or more on the cost of goods being supplied - whether on a landed basis or FOB - whilst still allowing the buyer to maintain standard payment terms for all its suppliers. So this arrangement is positive for the buyer's operating cash flows, whilst strengthening the supply chain by enabling suppliers to monetise their approved invoices very early. The saving is realised over our platform (up to 1% or more on the cost of goods); the saving is delivered directly to the buyer by reducing the cost of goods. PrimaSCF can be used alongside PrimaEarlyPay allowing buyers to mix in their own excess liquidity as a funding source for suppliers alongside external funds.
PrimaSCF builds on the concepts and capabilities of PrimaEarlyPay to deliver a funded solution to suppliers.
PrimaEarlyPAy is our automated, straight-through system which enables suppliers to request early payment, sign the legal documents involved, and then for buyers to manage the risks and consequences of payment before goods are receipted. Getting cash to suppliers as early as possible typically delivers savings of up to 1% or more on the cost of goods - and leads to significant strengthening of the supply chain. Supply chain resilience is one of the top issues facing most global businesses today - and reducing working capital stress is a good way to increase supplier loyalty, reduce costs and to help suppliers to build stronger balance sheets of their own.
Bringing in an external funder involves further coordination, calculations and operational activities, but our platform manages all of these processes and ensures funders are not exposed to any operational risks.
The steps involved in providing supply chain finance or trade finance to suppliers, enabling them to access cash at shipment are:
Buyer approves the invoice for payment and determines the percentage that is approved (eg: 90%) and the discount that suppliers will be charged if they take up finance.
Over the platform, suppliers are offered a funded early payment on these terms. Suppliers can accept or ignore the funded early payment offer.
Suppliers accepting the early payment offer use our PrimaSign system to execute an electronic legal agreement on our platform which transfers their invoice(s) to us, PrimaTrade. We are factoring their invoice - and not, it is PrimaTrade which performs this function, not the funder and not the buyer.
The buyer issues an irrevocable payment undertaking ("IPU") to the buyer in line with the approval level (in step 1). So if 90% of the invoice is approved, the IPU is for 90%.
The funder advances the IPU amount to PrimaTrade and this initial amount is paid to the supplier by PrimaTrade.
At invoice maturity (say 75, 90, 120 days later), the funder is paid the full amount of the invoice net of debit notes, set offs and any other deductions by the buyer - but always at least the IPU amount.
The funder settles up any balancing payment with PrimaTrade and PrimaTrade does the same with the supplier.
Whilst the above arrangements are described invoice-by-invoice, the whole system operates as a bulk process - so that the funder is one payment out, one payment in each day - so the administration is very simple. Moreover, funders are not exposed to the invoice-level detail and do not need to:
interact with suppliers in any way
interact with the platform in any way
on-board or otherwise have to deal with the platform or the suppliers
Solving the limitations of supply chain finance
The above arrangements - where funders do not interact with the platform or with suppliers - might sound fanciful to many participants in the supply chain finance industry. But leading international banking groups are working with us on this basis - and have agreed that our simple approach works. The key point is that the PrimaTrade platform is more than software; it includes legal, regulatory, fiscal and other technology which enables the SCF, the funding, to be separated practically from the supply chain. PrimaTrade handles these aspects of the process, enabling funders that do not have a platform of their own or who have long on-boarding processes for platforms to participate quickly and easily in SCF programs.
The PrimaTrade platform solves, upfront, the limitations on SCF that have meant it only addresses some <5% of the potential market need for supplier financing globally (see the Mckinsey report on working capital for this statistic).
Making SCF available for mid-cap and SMEs
These kinds of processes have only be available to the largest corporates globally - able to invest many $ millions in their accounting and ERP systems. PrimaSCF also brings these outcomes down to a very low cost, available to SME and mid-cap companies that do not want to invest heavily in new accounting and ERP systems themselves - provided they have domestic access to liquidity of their own.
Our platform has six components
Different parts of our platform cover different elements of the documents and cash process flowing through supply chains.
PrimaEarlyPay links through to other components that can be used to achieve an automated, straight-through process on paperwork, approvals and payments.
Most clients realise savings of up to 1% or more on the costs of goods that they purchase - simply by making documents and cash flow more efficiently through their supply chains.