Fundamentals for understanding “supply chain finance”

What is Supply Chain Finance? “Supply chain finance” is about building a financial ecosystem (the term “finance” of the expression) between suppliers and B2B customers in order to ensure the sustainability of all participants in the chain (the terms “supply chain”, i.e.).

In particular, through a third party (publisher), companies can request financing of their invoices directly (reverse factoring or reverse invoicing) or, conversely, offer an upfront payment in exchange for a discount on the total invoice amount (dynamic discounting).

Technology providers become financial services providers

The IT publisher then plays the role of both a technology intermediary, to record requests through the software solution, and a financial intermediary, to manage cash flows.

“This is a lending and banking activity that is highly regulated,” said Pascal Huyon, CEO of Cegid. Technically, it consists of “purchasing debt [N.D.R. : celles des clients qui demandent une avance de trésorerie] and sell it to financial institutions. In other words, the publisher securitizes the debt—it doesn’t finance customer requests with its own funds—and then resells it to institutions (such as JP Morgan or Unicredit).

Activities described as “subversive” Emmanuel Olivier, CEO of Esker, as it is a financing solution outside of the traditional business partners i.e. banks.

It also deprives historical publishers of their role as pure tech vendors, turning them into true fintech companies.

What is the interest of “supply chain finance” for the company?

Interest in supply chain finance is multifaceted. ” You can manage deadlines, i.e. delay or acceleration of payment invoices to meet financing needs within a customer-supplier relationship,” explains Emmanuel Olivier.

When [un éditeur] does it, she is financing the business,” he adds. “In short, supply chain finance uses business relationships to finance your working capital [besoin en fonds de roulement, N.D.R.] “.

Supply chain finance also encourages us to think in terms of “ecosystems”.

“All companies have a network of suppliers and service providers around them that they need to maintain, because the loss of an important supplier directly affects your own productivity,” notes Emmanuel Olivier.

“Liquidity and cash are the oxygen that companies need during difficult economic cycles and growth periods,” adds Cédric Bru, CEO of French fintech Taulia.

With this in mind, “supply chain financing” completes cash advances or additional payment terms that partners who trust each other can provide to each other (an in-house solution), allowing loans to play on bill payment due dates, payment staggering, rebates and, more broadly, supplier account and credit management.

Which publishers fund the supply chain?

The concept of supply chain finance is not new. But, indicate Emmanuelle Olivier is a topic and a demand that is gaining momentum. “This is a major challenge for the coming decades,” says Esker Chairman Jean-Michel Berard anyway.

A sign of this development, which is also a growth driver for publishers, is that several IT players are no longer hiding their ambitions to “break” banks.

In January 2022, SAP acquired Taulia. In April 2022, Esker acquired a stake in his US partner LSQ, an investment that the Lyon publisher described as “strategic”. And in early June, French publisher of ERP and accounting solutions Cegid formalized its interest in this financial intermediation activity, which it sees as a promising area of ​​development. It is safe to say that many other players in the financial management industry will soon follow suit.