Basics for Understanding Supply Chain Finance

What is “supply chain financing”? “Supply Chain Financing” is the creation of a financial ecosystem (the term “finance”) between B2B suppliers and customers to ensure the sustainability of all actors in the chain (“supply chain terms”).

Specifically, through a third party (publisher), companies may request to finance their invoices directly (reverse factoring or reverse invoicing) or, conversely, offer an advance payment in exchange for a discount on the total invoice amount (dynamic discounting).

Technology providers are becoming financial service providers

The IT publisher then plays the role of both a technology intermediary – for registering requests through a software solution – and a financial intermediary – for cash flow management.

“This is a strictly regulated credit banking business,” said Pascal Uyon, CEO of Cegid. Technically, it consists of “buying 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 does not finance customer requests at its own expense – and then resells it to institutions (such as JP Morgan or Unicredit).

The activity is described as “subversive”. Emmanuel Olivier, CEO of Esker, because it is a solution for financing outside of traditional business partners, ie banks.

It also deprives historical publishers of their role as pure technical suppliers to make them real fintechs.

What is the interest for the supply chain financing company?

The interests of supply chain financing are diverse. ” You can manage deadlines, ie. defer or expedite payment invoices to meet the financing needs of the customer-supplier relationship, ”explains Emmanuel Olivier.

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

Supply chain financing also encourages us to think in terms of “ecosystem”.

“All companies have a network of suppliers and service providers around them that they need to support, because losing a critical supplier directly affects your own performance,” says Emmanuel Olivier.

“Liquidity and cash are the oxygen that companies need during difficult economic cycles and periods of growth,” added Cedric Brue, CEO of Taulia, a French-born finance technician.

With this in mind, supply chain financing completes advances or additional payment terms that trusted partners can provide to each other (intercompany solution), allowing loans to be replicated in terms of invoice payment, payment distribution, discounts and , more broadly, on the management of suppliers’ accounts and loans.

Which publishers fund the supply chain?

The concept of supply chain financing is not new. But note Emmanuel Olivier is a topic and demand that is gaining momentum. “This is a major challenge for decades to come,” said Jean-Michel Berar, chairman of Esker’s board.

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

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