Industry wide collaboration to bring clarity to supply chain finance and receivables discounting

The Global Supply Chain Finance Forum announced the release of its new guidance document, Market Practices in Supply Chain Finance: Receivables Discounting Technique. The paper is the first in a series of industry guidance documents intended to provide clarity and consistency to the world of supply chain finance.

Global Supply Chain Finance Forum issues receivables discounting guidance to drive further clarity in the Supply Chain Finance.

Supply Chain Finance (SCF) is one of the fastest growing finance sectors in international trade. However, financial institutions and industry players within the SCF space do not use similar terminology and accounting methodology; indeed, talks about rules of Supply Chain Finance are premature at this stage. On the other hand, recent developments in the accounting treatment of SCF have underlined the need to engage and align with other industry stakeholders.

On the 19th of June the Global Supply Chain Finance Forum took the next major step, after the release of its 2016 Standard Definitions for Techniques of Supply Chain Finance, in making the playfield ever more transparent. The industry alliance, compromised of ICC, BAFT, EBA, FCI, ITFA, leveraged on its collective power to create consistency on the various terms and techniques used by the financial institutions, accounting bodies, rating agencies and regulators. The Forum’s main objective is to react to major market developments and to create an action plan for sustaining a more unified industry landscape through standardisation and clarity.

A new guidance document was released, ‘Market Practices in Supply Chain Finance: Receivables Discounting Technique’. The paper focuses on receivables discounting – a technique and form of receivables finance, in which sellers of goods and services sell individual or multiple receivables (represented by outstanding invoices) to a financier, at a discount.

Documentation released includes definitions on the following categories:

  • Self-liquidating nature of the technique
  • Risk Structures and Mitigants
  • Unbilled Receivables
  • Dilution Risk
  • Program With / Without Disclosure
  • Trade Credit Insurance 
  • Seller Performance Risk
  • Legal Agreements and Documentation
  • Key RPA Provisions
  • True Sale Definition and Intent 
  • Compliance and AML Requirements
  • Transaction Level Monitoring Standards and Controls 
  • Post Transaction Reviews

Other aspects coming of the Forum’s action plan are the production of reliable statistics on Supply Chain Finance and developing studies on the evolution of this market.

The Forum was invigorated with the recent election of Christian Hausherr, European Product Head of Supply Chain Finance at Deutsche Bank as its Chair. He is a recognised expert in the field, a key player in the drafting process of the definitions document and a prime advocate in the efforts to include the Supply Chain Finance within the scope of the ICC Trade Register. At the end of the conference, he remarked:

“Our hope is that this guidance will lead to an industry-wide, uniform adoption of the receivable discounting technique. When all parties use similar techniques and terminology, it makes for a more streamlined and efficient process.” 

Trade Finance Global will be working with the Global Supply Chain Finance Forum to focus on implementing and advocating these definitions amongst its readers and clients.