Experts from Mashreq Bank credit the changing economic landscape and rising role of digitalisation in enhancing supply chain finance solutions<\/p>\n
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Digitalisation and a growing interest in supply chain resilience have been highlighted as key enablers when it comes to the\u00a0growing adoption of supply chain finance (SCF) programmes.\u00a0<\/p>\n
Speaking during a live broadcast organised by MEED and Mashreq, senior finance experts highlighted that while SCF has been around for a long time, a shift in priorities has prompted corporates to look for broader solutions to alleviate working capital issues and improve cashflow.<\/p>\n
Watch the on-demand webinar\u00a0here<\/strong><\/span><\/u><\/p>\n\u201cThe evolution of technology during the pandemic helped propel supply chain finance further,\u201d says Victor Penna, co-head of Global Transaction Banking at Mashreq Bank, citing the example of fintechs\u2019 rising popularity in the Middle East.<\/p>\n
\u201cThe change \u2013 wider adoption of SCF \u2013 is here to stay. But not because of the pandemic or any disruption, but because buyers are keener to support and protect their suppliers and ensure a resilient supply chain.\u201d<\/p>\n
WATCH HIGHLIGHTS FROM THE WEBINAR<\/span><\/strong><\/u>\u00a0
\n<\/p>\nSCF, historically more commonly known as reverse factoring, refers to a solution where a buyer approves a supplier\u2019s invoice for financing from a third party, for example a bank, allowing the supplier to get paid more quickly than they would otherwise.<\/p>\n
From a procurement perspective, SCF provides\u00a0buyers with an opportunity to finance\u00a0preferred\u00a0suppliers on favourable terms, thus\u00a0increasing the latter\u2019s business resilience and overall health.\u00a0This is especially relevant in economies such as the UAE, where a vast majority of suppliers tend to be small and medium-sized enterprises (SMEs).<\/p>\n
Conversely, from a supplier perspective, SCF\u00a0allows a reduction in\u00a0receivables risks of\u00a0buyers\u00a0and the ability\u00a0to remain\u00a0financially viable.<\/p>\n
\nThe wider adoption of SCF\u00a0is here to stay. Not because of the pandemic or any disruption, but because buyers are keener to support and protect their suppliers and ensure a resilient supply chain<\/span>
\nVictor Penna, Mashreq Bank<\/span>\u00a0<\/span><\/p>\n<\/blockquote>\n\u201cSupply chain finance is especially relevant in the current macroeconomic scenario,\u201d says Penna. \u201cFrom supply chain bottlenecks and the Russia-Ukraine war, through to greater focus on near-shoring and a stringent need to cut costs \u2013 all of this impacts the supplier and its access to working capital.\u201d<\/p>\n
\u201cManaging your suppliers and ensuring the financial health of your supply chain is essential for working capital efficiency,\u201d explains Reda Ezzat, SVP\u00a0\u2013\u00a0head of Trade & Structured Finance at Mashreq Bank.<\/p>\n
\u201cSupply chain finance benefits both the buyer and supplier,\u201d he says. \u201cThe buyers get access to a wider supplier base, across different jurisdictions. It is further a great tool to negotiate payment terms, and the better your payment terms, the better your cash conversion cycles.\u201d<\/p>\n
Cash conversion cycle refers to the time it takes for a firm to convert its raw materials into cash. The shorter these cycles, the greater the liquidity a firm holds.<\/p>\n
\u201cIn markets where suppliers are not financially resilient, due to low liquidity or high interest rates, buyers can extend their support and in turn increase the strength of the entire supply chain,\u201d says Reda.<\/p>\n
\nManaging your suppliers and ensuring the financial health of your supply chain is essential for working capital efficiency
\nReda Ezzat, Mashreq Bank<\/span><\/span><\/p>\n<\/blockquote>\nRoom to grow<\/h6>\n
Reda emphasises the need to think of SCF beyond a financing solution and instead, keep the holistic value proposition and strategic benefits in mind.\u00a0\u00a0<\/p>\n
\u201cBuyers need to work with their relationship and trade finance managers to figure out the benefits,\u201d he says. \u201cThis could be inculcating sustainability in the supply chain, supporting SMEs or securing working capital.\u201d<\/p>\n
Equally crucial, says Reda, is to understand that adopting the programme is not the sole responsibility of a treasurer alone. A procurement manager is key in supporting such initiatives.<\/p>\n
\u201cAnd a major step in the right direction is is the shift from manual to digital,\u201d says Reda. \u201cSupply chain finance works best on a platform where you can easily onboard even hundreds of suppliers. A digital platform allows you to track everything. And capabilities can be further enhanced if it\u2019s integrated with a buyer\u2019s ERP system.\u201d<\/p>\n
For a lender, SCF is\u00a0like any other form of financing, says Reda.<\/p>\n
\u201cIt\u2019s\u00a0about our relationship with our client\u00a0\u2013 the buyers. Over time,\u00a0it helps us form a relationship with the suppliers as well.\u201d<\/p>\n
Reda notes that commercial\u00a0banks are not just about making money\u00a0and that they have an obligation to support the economy.\u00a0<\/p>\n
\u201cSupply chain finance\u00a0is an excellent tool for commercial banks to support SMEs indirectly,\u00a0through the buyers,\u201d he says. \u201cWe can\u2019t\u00a0always directly\u00a0help SMEs due to\u00a0limitations or\u00a0restrictions, but through such tools we can. It is our obligation.\u201d<\/p>\n
Watch the on-demand webinar\u00a0here<\/strong><\/span><\/u><\/p>\nIf\u00a0you have further queries about Mashreq\u2019s supply chain finance solution, please\u00a0reach out to the team on:\u00a0SCF@mashreq.com<\/em><\/p>\n<\/p><\/div>\n
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