Supply Chain Finance

Beck20

Are there any 3PLs out there providing financial services such as factoring, invoice discounting etc? Banks have traditionally provided such services but I've heard that logistics providers are moving into the area to provide a complete package for supply chain management. Can anyone suggest some examples?

pedroeibar1

What magnitude? Deal size? Frequency? Market? Sector?

Beck20

Ideally the electronics or automotive sectors, but I'm really looking for broad information. Any examples would be helpful.

RUDOLF289

Beck20 wrote: »

Are there any 3PLs out there providing financial services such as factoring, invoice discounting etc? Banks have traditionally provided such services but I've heard that logistics providers are moving into the area to provide a complete package for supply chain management. Can anyone suggest some examples?

Hello Beck20,

Yes, there are some specialist 3PL providers that have those options in their service offerings.

However, you have to consider that they reinsure the "risk". Depending on your own credit rating you are likely to pay a considerable premium for the service provided.

I know of one company that offered that option to a large manufacturer in Ireland. The manufacturer actually went out of business and there was a long drawn out process to unravel the deals that were done. Somebody lost a lot of money.

On the face of it, the service is attractive, especially since you are completely outsourcing your supply chain (including sourcing) and invoicing process, with at the end one invoice (likely to be a credit note for the money collected from the ultimate client/receiver less the charges for the service). In practise you are completely locked into one provider who litterally controls your complete process. That could leave you exposed to premium prices along the whole of your supply chain and your credit.

With cost of credit currently at all time lows it probably does not have a significant impact on your margins, but if cost of finance increases this may become a challenge. If you then are forced to make changes you have to change your whole process.

pro's and cons I suppose

Cheers,
Rudolf289

Beck20

Thanks Rudolf289. That's really helpful.
There are always going to be contingencies, I suppose. For research purposes, could you suggest any particular service providers to look into? I'd like to get a bird's eye view of the industry.

Thanks

pedroeibar1

Beck20 wrote: »

Ideally the electronics or automotive sectors, but I'm really looking for broad information. Any examples would be helpful.

Your question is still very broad – IMO there is more talk and hype about full circle type 3PL incorporating finance than there are actual cases. Disassembled, it is quite common – and often when finance is involved it is via a simple out-sourced EDI-type system working in conjunction with (but not integrated electronically with) a credit insurance policy that had been assigned to a lender. A manual version of that was fairly common, even as far back as the mid 1980’s (!) – Barclays Dublin (retail) had a JV to run that product I recall. The risk to the bank is that the funds do not get credited to the correct account, or that a non-payment (credit) claim arises that is not covered by the credit insurance policy because the vendor /policy manager did not adhere to its terms. That was why Barclays subsequently pulled the plug back then.

I can see a need for a fully integrated product, particularly if securitization deals on trade credit get traction in Ireland (rather than plain vanilla securitizations), but again there is a lot of waffle out there on what can be done rather than what HAS been done. The fees involved (particularly legal) are very substantial and the limit amounts accordingly have to be very large to make it worthwhile.

A good few years ago I was involved in several SCF deals in Ireland & UK, but each was a one-off/single transaction, high ticket (seven figure) and all had a 180 – 240 day credit duration based on bills of exchange /bullet payments. Credit quality was good and the product was commodities. The absence of knowledge of some of those involved (usually 'up-the-line') made it a little more difficult at times, and there were insurance issues because (at that time) the insurers operating here had ‘pure financial risk’ as a cover excluded by their reinsurers, so that hurdle had to be overcome and (I think) we were the first. BNP also were involved in that sector, their minimum facility amount was I think USD10 million so not in the market I had an interest in.

I share many of Rudolf’s views – be careful of the provider you get into bed with, it is easier to get involved than to unwind. There are quite a few ‘bottom feeders’ out there, some from the UK, Del Boy characters, operating here under FPS. I’m a while out of the trade finance market so things might have changed – but my preference as a user would be to split the chain and not depend 100% on a single entity.

A few years ago Mazars did a report on SCF in Ireland, possibly worth a read - the link to it on their site does not appear to work. Many of the SCF participants are covered by confidentiality clauses. Google a few providers, see if they have any client endorsements and work from there. I’d suspect you will not get all the answers you require here, the topic is a bit esoteric.

Beck20

Thanks for taking the time pedroeibar1. You've given me a lot to think about.