Digital Guangdong (Digital GD) wanted to improve the way it managed its accounts payables along its supply chain to multiple suppliers.
This deep-tier financing solution digitises Digital GD trade payables to extend support beyond its level one suppliers, serving the needs of all suppliers across the entire chain and addresses their traditional pain points.
Repayment of the account receivable under e-voucher by Digital GD at maturity and Tenpay distributes according to the Blockchain Account Book.
Here is an illustrative flow:
- The platform creates US$100 Digital Payment Obligation (“Digipo”) on blockchain, based on US$100 accepted invoice from supplier one to the buyer.
- Tier one supplier has three choices:
- Hold Digipo and be paid the full amount by the buyer on the due date.
- Transfer Digipo to its supplier two and clear its payables.
- Finance Digipo via the platform for early payment, receiving US$9x (discounted) in cash from the bank.
- Tier two suppliers have the same three options.
- On maturity date of the original invoice, the buyer makes a US$100 payment split between all the holders of the Digipo which is recorded on the third-party platform. This includes the bank which uses the payment to clear the pre-payment financing made to the suppliers.
Best practice and innovation
With a traditional vendor prepayment solution, the bank’s finance only funds the immediate suppliers (level one) of the anchor. However, this programme provides level two suppliers with access to finance on the back of the anchor’s credit rating, thereby reducing financing costs and improving financing flexibility for a larger number of suppliers, which often include small to medium enterprises (SMEs) with limited access to funding.
This solution utilises the strengths of the bank and a leading fintech platform. The result is a single solution that:
- Digitises supplier financing while allowing a buyer to quickly scale up supplier financing with a fast onboarding process.
- Enables deep supply chain financing by serving level two suppliers (whereas traditionally banks only service level one suppliers).
Standard Chartered is the only foreign bank to cooperate with Linklogis, using blockchain technology provided by Tencent, to offer this service in China. Digital GD’s pilot is, therefore, unique in the market.
- Deeper supply chain visibility – enables visibility of entire supply chain ecosystem to understand underlying source of the goods.
- Optimises procurement terms – helps to improve suppliers’ procurement terms.
- Supports economic development – particularly supports SMEs in response to China national policy.
- Lower financing cost to improve trade/payment terms – extends this benefit to more suppliers in the company’s supply chain.
- Systems integration efficiency – no system/IT integration required. Provides flexible integration with procurement and finance workflow.