How specialists worked together to create a bespoke supply chain finance programme in a highly complex environment
The challenge
Keen to develop ways to support and grow business, treasury – which aims to digitise its trade payables and receivables using smart contracts – approached relationship bank, Standard Chartered Bank (SCB), to discuss potential approaches to working capital optimisation. The answer was supply chain finance (SCF).
Flex had already identified a major mutual customer with the appetite in the secondary market for an insurance overlay, but it had specific requirements: a large size limit for this key customer group, with multiple buying entities involved, and 100% receivables financing on a bespoke payment schedule. It also had rigorous internal audit and balance-sheet reporting requirements for financial disclosure purposes. Specific operational requirements included the handling of a huge volume of invoices (1,000+ invoices per drawdown), advanced pricing quotation at drawdown level, and specific calculations of refunds and overdues.
The solution
The team devised a bespoke SCF solution, setting up a programme for its selling entity in Hungary; the first of its type. In this, Flex submits a list of invoices to the bank for discounting. The bank runs these through a list of pre-agreed parameters, providing early payments to eligible invoices. The bank takes the payment risk of the buyer at maturity, supported by an insurance provider.
Best practice and innovation
The programme is global: Flex is a Singapore incorporated corporation, Flex’s customer is headquartered in Asia, the programme operates in Hungary and it is financed through the US. This led to complex regulatory requirements, particularly as the rules for SCF programmes in Hungary are specific.
Given this, Flex needed to implement the project in two phases: implementing the programme, and then digitising processes. Flex had started discussions with the insurer and negotiated the cost prior to engaging SCB. Direct discussion with Flex helped the insurer to better understand the underlying commercial flow and associated risks, thereby facilitating a faster decision. The full transparency and dual approach of bank and corporate directly interacting with the insurer helped to get the final agreement.
Choice of banking partner was specific and an important way in which Flex has been able to implement a programme that is fully in-line with industry best practices, meets complex regulatory requirements and demonstrates significant innovation both in its structure and the level of digitisation it is able to achieve.
Flex recognised that SCB has particular strengths in trade finance and relationships with its key customers. This made it easier to design a programme that was specific to its needs, evaluate risk and ensure competitive pricing. Contributing to the success of the project was the bank’s ability to bring together a team of international experts to manage regulatory requirements, particularly in Hungary.
The result is a streamlined digital financing solution that keeps the financing process very simple and transparent for all engaged parties.
Key benefits
- Early invoice payment/longer terms enhances working capital and flow predictability.
- Establishes US$200m uncommitted line of credit; limit increases supported by underlying receivables portfolio.
- Insurance overlay reduces risk and cost of capital on financed invoices by more than 50%.
- Supports growth of sales volumes.
- Optimise balance sheet and working capital ratios.
- Delivers technical landscape to digitise trade receivables.
- Able to extend to sellers/buyers outside Hungary.
