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Treasury Management Systems and Supply


Chain Finance













Treasury Management Systems and Supply Chain Finance June 2013
2013 Aite Group. All rights reserved. Reproduction of this report by any means is strictly prohibited.

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TABLE OF CONTENTS
IMPACT POINTS .............................................................................................................................................. 3
INTRODUCTION .............................................................................................................................................. 4
WHAT IS SUPPLY CHAIN FINANCE? ................................................................................................................. 5
WHY SCF SOLVES THE BUSINESS PRIORITIES OF BOTH THE CFO AND THE TREASURER................................. 7
TMS: SCF TECHNOLOGY FOR TREASURERS ..................................................................................................... 9
WHY CLOUD-BASED TMS CAN IMPROVE SCF DELIVERY ......................................................................... 11
WHAT IS THE LIKELY FUTURE OF SCF? .......................................................................................................... 13
CONCLUSION ................................................................................................................................................ 15
ABOUT AITE GROUP...................................................................................................................................... 16
AUTHOR INFORMATION ......................................................................................................................... 16
CONTACT ................................................................................................................................................. 16

LI ST OF FIGURES
FIGURE 1: TRADITIONAL STATIC INVOICE DISCOUNTING VS. DYNAMIC DISCOUNTING ................................ 6

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I MPACT POINTS
Supply chain finance (SCF) allows organizations to achieve results that measure the
success of how corporate chief finance officers and treasurers conduct their
business and add value to their company.
This document is a white paper on the market definitions and opportunities for SCF.
The goal is to identify the most effective information technology (IT) platform that
corporate treasurers should use to fully deploy (and enjoy the benefits of) SCF
programs.
Supply chain finance is based primarily on the foundation of integrating data and
information from different sources, and modern treasury management systems can
establish the platform that aggregates and distributes transactional data and
information to all the stakeholders involved in the SCF exercise (e.g., buyers,
suppliers, logistics providers, financial institutions).
The integration between treasury management system (TMS) technology and SCF
solutions is today not a nice-to-have option but has become almost a necessity.
Corporate treasury departments are the main counterparties of TMS solution
vendors, and corporate treasurers are the main decision-makers in a SCF sales cycle.
Therefore, it is very likely that in the not-too-distant future, software that automates
the sourcing and application of SCF across all points in the financial supply chain will
be offered as an extension of corporate treasury management systems.
Point-to-point connections, different communication protocols, and the existence of
legacy systems make the integration with TMS effort cumbersome and almost
impractical. Software-as-a-service (SaaS)-based computing comes to solve this issue,
allowing the task to be accomplished in a streamlined way.

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I NTRODUCTION
The continual transformation of the financial markets and the dynamics of the credit crunch
have brought to the forefront the importance for corporate executives to go beyond banks as
the only source of funds for the company's operations and, instead, adopt solutions that allow
liquidity to be extracted from the business's internal operations. Although the practices of
supply chain finance (SCF) have been described extensively in recent years, education and
information are still important factors for the successful implementation of SCF programs.
In fact, SCF is more than a set of discrete financial products. It is rather a disciplinedand
collaborativeapproach to improving the working capital ratios of the entire network of supply
chain partners. Supply chain finance allows organizations to achieve results that measure the
success of how corporate chief finance officers (CFOs) and treasurers conduct their business and
add value to their company.
This document is a white paper on the market definitions and opportunities for SCF. The goal is
to identify the most effective IT platform that corporate treasurers should use to fully deploy
(and enjoy the benefits of) SCF programs. The scenario proposed in this paper is that treasury
TMSs can provide the right technology solution to support the execution of complex business
problems. The document will also demonstrate that the integration between TMS technology
and SCF solutions is today not a nice-to-have option but has become almost a necessity. Supply
chain finance is based primarily on the foundation of integrating data and information from
different sources, and modern treasury management systems can establish the platform that
aggregates and distributes transactional data and information to all the stakeholders involved in
the SCF exercise (e.g., buyers, suppliers, logistics providers, financial institutions).
With technology today reaching new peaks of effectiveness, cloud computing allows
corporations to accomplish the task of integrating various sources of data in a streamlined way.
Software applications no longer require expensive infrastructures and time-consuming
implementation projects. SaaS is the new IT paradigm that provides the foundation for SaaS-
based treasury management system to become the likely platform that will allow corporate
treasurers to enjoy the benefits of SCF initiatives without the concern of having to install yet
another technology stack on their already chaotic IT portfolio. This document is based on the
assumption that a SaaS-based TMS is the likely platform for SCF solutions that corporate
treasurers will use.
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WHAT IS SUPPLY CHAI N FINANCE?
In a tough economic environment, it is less easy to access funds through traditional channels.
The ability to innovate and be flexible is a requirement in the newly evolving ecosystem. During
this transformational process, businesses will find or generate sources of precious liquidity
within their own operational processes once they are capable of analyzing the impacts of supply
chain management practices on the components of working capital. When a company's chief
financial officer and treasurer understand the financial dynamics of the supply chain, they can
employ a vast array of financial instruments and practices to help the company meet its working-
capital objectives. Banks have a role in supporting working capital management through
optimizing their customer's financial condition. This is the supply chain finance arena.
The adoption of financial instruments to improve accounts payable (A/P), accounts receivable
(A/R), and inventory values has long been a common practice among corporate treasurers.
Financial institutions, therefore, need to offer such instruments in a more organic way to impact
the underlying financial elements concerned. These instruments and practices are components
of SCF. Given the extreme importance for their business results, market players state that there
is a strong need for clarity around terms and definitions of SCF and its components. The lack of a
common nomenclature complicates the understanding of the solutions offered and amplifies the
confusion of apparently simple financial instruments. Supply chain finance is therefore best
described as a series of practices and technologies that support the regular trade flows and the
financial processes of collaborative parties in an end-to-end supply chain.
The premise of SCF is to reduce the finance costs of not only one part of the supply chain but
rather the entire supply chain. True SCF software vendors are those developing and
commercializing application suites that apply to the entirety of these processesnot solely to
the buyer/supplier portion. SCF should actually refer to the financial approaches and
instruments that optimize the transactions, working capital, and costs of all supply chain
processes, from product design to after-sales management, and through procurement,
manufacturing, warehouse management, and distribution. If we are to look at the real market
for SCF todayand set realistic expectationsbanks and businesses are mainly concentrated on
the buyer side of the trade equation. What the market refers to as SCF are typically "supplier
finance" platforms focused on payables. The set of the payables financial supply chain processes
and the financial instrumentsalong with the enabling IT solutionsconstitute the focus of the
present white paper.
As a proven success, the payables-centric segment will no doubt continue to grow and flourish
and will be enhanced by further dematerialization and accelerated exchange of electronic data
and documents. With this in mind, two are the most frequentlyand successfullyadopted
payables-centric SCF instruments in the market today:
Reverse factoring
Invoice discounting (aka cash discounting)

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Reverse factoring (aka approved payables finance) allows a supplier to receive early payment
with a discount of an invoice due to be paid by a buyer. The buyer approves the invoice for
payment and arranges for early payment by means of finance raised from a bank or other
provider, who relies on the creditworthiness of the buyer without recourse to the supplier. The
finance provider applies to the supplier a discount rate (i.e., cost of capital) lower than what it
would normally apply should the supplier not be connected to the creditworthy buyer. The
arbitrage opportunity on the difference of cost of capital between large buying organizations and
their smaller suppliers makes these vehicles popular for organizations that may not want to use
their own capital to fund trade payables.
Invoice discountingthe other SCF instrument described in this paperrelies on suppliers
receiving a percentage of their receivables in exchange for an earlier payment, thus reducing
their DSO (says sales outstanding) exposure. Traditional invoice discounting is based on a "fixed"
combination of discount value/payment date. The most frequently illustrated invoice discount
scheme is "2/10, Net 30": For an invoice due to payment in 30 days the supplier offers an extra
2% discount on the invoice face value, receiving in return an early payment in 10 days (i.e., 20
days earlier than contracted). The potential rewards for early supplier payments are great. Even
the standard discount of 2% for payment within 10 days translates to an annual percentage rate
of 36%. This SCF instrument, though, suffers a problem of static terms: In the cited 2/10, Net 30,
the supplier risks not being entitled to a discount if the invoice approval takes longer than 10
days. The alternative solution to static invoice discount is dynamic discounting: This new form of
invoice discount allows both buyers and suppliers to propose terms by putting them on a sliding
scale and opening them up to negotiation, as shown in Figure 1.
Figure 1: Traditional Static Invoice Discounting vs. Dynamic Discounting

Source: Aite Group
At any point in time the supplier and the buyer can agree on the discount to apply or on the
advance payment date. The underlying system takes care of providing visibility to the parties
involved as well as ensuring the contractual parameters (e.g., maximum discount allowed;
minimum early payment days) are met. This sophisticated SCF alternative version of invoice
discounting requires a robust technology platform to run the necessary calculations and
negotiation process.
2.5%
2.0%
1.5%
1.0%
0.5%
0%
$
10 days 30 days
2.5%
2.0%
1.5%
1.0%
0.5%
0%
$
10 days 30 days 20 days
$
$
$
$
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WHY SCF SOLVES THE BUSINESS PRI ORITI ES OF
BOTH THE CFO AND THE TREASURER
It is well known that the financial (and now economic) crisis has stretched the resources of small,
yet strategic, suppliers of large corporations to the limit. The instinctive reaction of large buyers
to the incumbent crisis that is, to delay payments as a means to free up liquidityhas put
suppliers on their knees. This has had a negative consequence on the buyers as well, as the
campaigns to stop or delay payments have hit both "normal" and "strategic" suppliers, reducing
their ability to serve their large customers. In this business environment the upheaval of the
economic and financial crisis that we are still suffering is marking an evolution in the role of the
treasury function. The treasury ecosystem has been revolutionized, and the "cash is king"
imperative requires treasury to adopt new ways to interact with corporate executives and the
other lines of business. Past is the time when treasury was made responsible only for "bean
counting" and executing payments instructions. Treasury managers today must adapt and
dominate areas (e.g., payables, receivables, credit management) that were previously only
niches of their business ecosystem.
During this transformational process corporations will find sources of precious liquidity within
their own operational processes, once they are capable of analyzing the impacts of supply chain
management practices on the components of working capital. Successful treasury organizations
are adapting to disruptive events by moving into the "new" environment of supply chain
management. One of the functions of SCF is to align the deployment of financial instruments
with the actual movement of goods and payments along the supply chain. Supply chain finance
promises to support the company in both securing business continuity to its supplier base
through focused funding and extracting liquidity from supply chain processes.
Cash visibility, management of liquidity, and management of risk are the key priorities of
corporate finance executives who meet with shareholders and investors almost daily. The
treasury office has become the "information steward" of the CFO. Corporate CFOs are
supporting their CEO's strategy in multiple facets, mainly along the lines of:
Improving the capital side of the balance sheet
Extracting liquidity from the global value chain and improving the profit and loss
figures (e.g., through invoice discounting)
Optimizing working capital ratios (i.e., A/P, A/R, inventory)
Supply chain finance will further be accepted as a strategic necessity for a company since it
represents the answer to the CEO's challenge by:
Turning the last source of cash into the driving force of corporate growth
Being an innovative differentiator for ensuring sustainability, especially in the critical
international trade
Offering a major source of liquidity and key enabler of profit margins and return on
equity
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In light of this new perspective, the role of a corporate treasurer is to provide the CFO with
pertinent and up-to-date information on the company's financial situation (e.g., liquidity
position, sources of available cash, status of counterparty risk) and with a future outlook of cash
inflows and outflows. Corporate financial performance is now more than ever linked to supply
chain decisions, and the role of the treasurer is expanding across the full financial supply chain.
Treasurers of very large (i.e., revenue of more than US$10 billion) corporations today look at
cash not only in terms of where to find available sources of finance but also on how to best
utilize the free cash available on behalf of their supplier base. The behavior of corporations in
response to the credit crisis is forcing banks to turn away from their traditional, product-oriented
approach toward being more careful and conscious of their customers' needs and expectations.
Banks want to become more customer-centric. This demands banks to carefully focus on how
corporations are freeing up cash, where corporations are increasingly focused on running supply
chain management practices as a source of generating extra cash flows and free up liquidity.
Supply chain finance, therefore, in line with its nature of providing financial instruments that
optimize the working capital of collaborative supply and demand networks, establishes itself as
the business platform that supports both CFOs and corporate treasurers in their endeavor to
strategically build relationships with trade and financial partners.
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TMS: SCF TECHNOLOGY FOR TREASURERS
As previously seen, corporate treasurers are the reference points for information and guidance
on the financial performance of their organizations. The rate of change in the market and the
multiplicity of data sources require the consolidation of data and filtering of the most relevant
and pertinent information for sound and business-relevant decision-making. Treasurers
understand that the CFO's focus is on them, and they are demanding IT systems that support
them throughout their daily activities and responsibilities, not only in terms of automating
manual operations but, more importantly, in terms of providing them with timely and integrated
information along the value chain.
The role of technology is to detect events, gauge their relevance against predetermined
thresholds, and take action. While technology should not replace human decisions, it should be
able to identify critical items and provide intelligence for sense-and-control-like operations.
Product differentiation, pricing, service fees, the ownership of the technology platform are all
differentiating factors for enhanced competition. Technology is still an important factor that
automates the execution of financial products and a cheaper delivery. Although becoming a
commodity, technology has not lost its influence yet as a strategic tool for competition. It is a
fact that technology still plays a pre-eminent role in providing intelligence to a treasurer's daily
life.
Corporate treasurers are very careful in their choice of IT platforms, and prefer to select Web-
based, multi-bank, and standards-based dashboards. They want to avoid being trapped into a
bank-proprietary platform. They also want the freedom of choosing the best trading partner by
exchanging transactions on the Web using globally accepted communication standards and
protocols. The trend is one in which treasury, cash management, trade finance, payments, and
foreign exchange are all interconnected within a single multi-bank and standards-based (i.e.,
"open") platform. At present, the limited selection of software that automates SCF arrangements
tends to be bank-centric. This approach imposes yet another stand-alone system on
corporations whose IT portfolios are already chaotic. Such imposition may be one of the key
reasons why most corporations are not yet taking advantage of the generous returns SCF seems
to offer.
Software solutions for treasury have evolved from basic standalone treasury workstations,
where automation would lead to the business objective of efficiency, to interconnected TMSs
covering cash management, forecasting, and risk management tools. Treasurers will soon ask
what intelligence the built-in software functionalities of the TMS provide to support business
decisions, and treasury solution vendors must develop functionalities that provide transparency
on what creates the decisions. It is anticipated that to better manage their duties and to fulfill
the responsibilities they are charged with, treasurers will demand more integration of the
software applications they use on a daily basis with the corporate enterprise resource planning
(ERP), as the integration of the TMS with payables and receivables from the ERP increases the
visibility of the inbound and outbound flows of cash. Treasury systems provide buyers with the
capability to upload invoices from the ERP and execute payment instructions as a payment
factory. From the same TMS platform, suppliers have the visibility of the approved invoices and
can better forecast their cash flows. They also have the option to get the invoices financed.
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Corporate treasury departments are the main counterparties of TMS solution vendors, and
corporate treasurers are the main decision-makers in a SCF sales cycle. Therefore, it is very likely
that in the not-too-distant future, software that automates the sourcing and application of SCF
across all points in the financial supply chain will be offered as an extension of corporate
treasury management systems. A key feature of this software will be its support for a virtual SCF
marketplace, in which a corporation can invite a wide range of banks (and perhaps other credit
providers) to participate in meeting a specific SCF need as easily as today's consumer can search
airlines, hotels, and online travel booking engines for specific travel needs.
There are several technology platforms for SCF provided by banks and specialist software
vendors in the market today. There are problems related to technical integration and
organizational complexity faced by companies, however, especially those smaller in revenue size
and with reduced personnel in the treasury departments. The possibility to run SCF operations
using the TMS as a "cockpit" (or dashboard) would certainly make treasurers feel more confident
because the same system they use for their daily operations (e.g., cash forecasting, payments,
bank accounts management) would also allow them to execute instructions for SCF such as
reverse factoring or invoice discounting. As mentioned earlier, one of the most important
functions of SCF is to align the execution of financial instruments with the movements of goods
and payments along the supply chain.
The expectation is that the TMS will further serve as the corporate platform for SCF by
expanding its integration beyond ERP to also incorporate supply chain management applications
and maximize the efficiency gains made possible from the introduction of improved IT-driven
supply chain management monitoring. A process event in the physical supply chain (e.g.,
purchase order request) will trigger a corresponding series of processes on the financial supply
chain (e.g., check the ordering client's credit limit, forecast the expected cash inflows
consequent to the fulfillment of the purchase order, evaluate the working capital availability to
complete the obligations of the purchase order). Once visibility of these processes in made
available through the integrated TMS platform, it will be possible for the corporate treasurer to
decide on the best options to properly fund the internal operations and, at the same time,
evaluate the need for the suppliers' and distributors' networks to access external financial
resources in case of momentary financial distress. Or, more simply, to instruct multi-bank and
multi-currency payment orders from the TMS cockpit.
Enriching the core payments franchise through process integration, improved reference data,
and error reduction is one example that gets banks and corporations alike more accustomed to
the financing opportunities linked to supply chain transactions. With the visibility and
transparency provided by a TMS platform of trade transactions and the link between funding
and trade activities, SCF lessens the risk associated with traditional lending. While traditional
lending requires the knowledge and expertise of highly paid loan officers and strict management
of collateral, SCF relies on the invoice as a key document in enabling lending. Using the visibility
of the TMS gained through the invoice onto the tradeincluding the partners involved, the
ability of the buyers to pay, and the expected receivables of the suppliersthe TMS-based
platform can provide banks with information to make more knowledgeable judgments about the
creditworthiness of trade participants. The final integration of the TMS platform with
transactional applications that provide payment capabilities closes the SCF process loop
efficiently and effectively for the corporate CFO and treasurer.
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WHY CLOUD- BASED TMS CAN I MPROVE SCF DELI VERY
Corporate treasurers find themselves ever more involved in helping their IT colleagues decide
whether to opt for an internal treasury system or an external (i.e., outsourced) solution. The
benefits of an internally managed system include insuring better control and security of data at
the expense of dedicating more resources and maintenance activities. An externally managed
system incorporates the outsourcing to a specialized partner all the development, maintenance,
and update tasks. Nowadays, externally managed systems commonly take the form of SaaS
delivery.
Supply chain finance is based primarily on the foundation that data and information must be
collected and integrated from different sources. Point-to-point connections, different
communication protocols, and the existence of legacy systems make the effort cumbersome and
almost impractical, whereas SaaS-based computing allows the task to be accomplished in a
streamlined way. Corporate buyers generally prefer to start a SCF program with their preferred
partner bank. Once the SCF program starts running regularly, the next step is to extend the reach
of the program to other banks. A multi-bank platform is scalable and allows the number of
banking partners to increase as well as switching from one bank to another.
The fact that SaaS-based solutions have proven to be easier to integrate and that interfaces with
external systems are easier to build makes SaaS a viable option for banks and their partner banks
when sharing information and data. Connections on SaaS-based platforms can also be reused on
the same platform with other partners, and this is especially valuable to banks that prefer to
connect directly to their corporate client's systems and not through third-party intermediary
hubs. The SaaS-based SCF platform resident on the corporate client's TMS offers the same
benefits, eliminating the presence of such undesired mediators. With the full range of SCF
options visible on their TMS, and with the ability to factor in TMS-based cash forecasting,
analysis of investment options, and trade finance options available, sophisticated treasury
officers are looking at ways to use their treasury systems to develop models that could
continually compare different options for financing the supply chain and determine the optimum
approach at any given point in time. A full-functioning SCF platform sitting on a cloud-based TMS
that integrates with banks globally through a multi-bank portal might even allow the corporation
to switch between bank-provided credit and its own capital during periods when surplus cash
happens to be available.
One of the major obstacles to implement a successful SCF program is supplier onboarding, which
consists of convincing the suppliers to join and use the platform. A SaaS-based TMS platform is
better placed to facilitate the onboarding process, as it is already used by the headquarters
treasury team to centralize treasury operations. In this respect, the process of convincing
peripheral treasury offices to accept the new system is comparable to an onboarding activity.
Anecdotal evidence shows that this process is faster if it is offered in combination with an easy-
to-use technology. Local treasuries are less reluctant to change the way they have to manage
their business if they can use technology easily accessible through a single Web page and with
easy-to-use applications. Onboarding through a cloud-based TMS can improve SCF delivery
because it helps demonstrate to suppliers the ease of use of the system via a simple browser.
Potential SCF suppliers can immediately learn that there is need for neither hardware integration
nor any particular use of specific software to implement. Accessibility from the Internet provided
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by cloud-based SaaS is very important, especially for small-sized suppliers with limited budget.
Similarly, the benefits of cloud-based SCF platforms appeal to company subsidiaries that
appreciate the non-intrusiveness of the SaaS platform, which preserves the corporate IT
infrastructure.
A SaaS-based treasury system helps trading partners (i.e., buyers, suppliers, and banks) exchange
data via the Web with no installations and download data with export functions. Moreover,
through the system, a supplier has visibility into his or her payments status. Such information
can be easily linked to the supplier's treasury system, thanks to the non-intrusive integration
capabilities of SaaS. Far-sighted treasurers might also offer to their selected suppliers some basic
cash management features extracted from the buyer's TMS platform. Suppliers could therefore
exchange data via the Internet with no installations and download data with export functions
from the buyer's TMS cloud-based SCF platform.
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WHAT IS THE LI KELY FUTURE OF SCF?
A treasurer sees the company from both sides of the value chain, that is, as a company that is at
the same time a buyer and a supplier. While this white paper has so far focused on practices and
technologies that address the payables side of SCF, it is widely acknowledged that the expected
benefits from SCF solutions deal with both sides of the trade relationship equation. There are
many ways in which companies can influence the values of working capital through management
practices of the physical supply chain. It is important to recognize that these practices go way
beyond purchase orders, logistics, and inventory management. While these are, indeed, part of
the supply chain manager's duty, additional activities, such as planning of production, supplier
sourcing strategies, forecasting and distribution of finished goods, negotiation of purchasing
deals, and managing returns and post-sales services, belong to the management of the supply
chain and, therefore, to the reach of SCF instruments and technologies.
The current market for SCF software is in strong demand for applications (named supply chain
transactionsSCTenablers) that create an infrastructure. The most-offered SCT enablers are
dedicated to managing invoices, payables, receivables, and collaboration platforms (including
multi-bank, a real novelty for the banking world). The majority of SCT enablers are for open
account transactions. On this infrastructure run software applications (named SCF enablers) that
automate SCF transactions. Within the next three years, it is likely that we will see a strong
convergence between software suites dedicated to open account transactions and documentary
credit-oriented (e.g., letters of credit, guarantees, collections) application suites.
With the vast majority of vendors selling directly to banks, financial institutions are finally
realizing that it is more appropriate to turn to specialized providers to acquire software
applications that support the execution of mission-critical SCF transactions rather than building
software internally. Given that cash-rich corporations could finance their trading partners on a
global scale by ensuring their own financial stability (enhancing business opportunities and
market share growth), SCF will support stronger customer relationships by enabling credit
policies that are beneficial to all parties of the global value chain. Collaboration in the supply-
demand network is the key foundation of the SCF of the future, and all trading partners will
enjoy the benefits of IT solutions that enable and accelerate the deployment and exchange of
financial instruments that serve the business objectives of all parties involved.
One example of where integrated platforms of SCT and SCF enablers are heading is represented
by dynamic discounting auction platforms. This white paper has already described the process
flows of dynamic discounting and the benefits for both buyers and sellers of adopting a solution
that allows highly flexible negotiation scenarios based on sliding discount schemes associated
with early payment terms. Dynamic discounting moves away from the traditional payables-
centric role of static invoice discounting to become an SCF instrument that strongly merges with
a corporate treasurer cash and liquidity management instruments. In fact, an invoice discount
based on a sliding scale can either be requested by the supplier as an A/R-centric SCF instrument
to anticipate their DSO term or offered by the buyer as an A/P-centric financial instrument to
enjoy the benefits of a reduced purchase price while simultaneously facilitating advanced cash
to the supplier. Dynamic discounting from the buyer's perspective becomes more of a suppler
relationship management tool integrated with the SCF capabilities of the instrument itself.
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Dynamic discounting becomes particularly appealing to cash-rich companies that want to
securely invest their assets while keeping them sufficiently liquid to cushion any credit
constraintsnot unlikely under the current financial and economic turmoil conditions. Rather
than ensuring return on the principal, corporate treasurers are much more cautious to ensure
return of the principal. Dynamic discounting appears to be a valid solution to handle short-term
liquidity with a flexible and collaborative IT tool. The collaborative nature of this SCF instrument
further increases its appeal when the auctioning feature is added. In short, dynamic discounting
is also somehow based on predetermined sliding discount scales, which not always respond to
the suppliers' need for immediate liquidity and risk appetite. Auction-based dynamic discounting
solutions sit on a liquidity "pool" set by the buyer. Suppliers are not presented with established
discount rates but are invited by the buyer to participate in an online auction event. Participating
suppliers can place bids at any time or gather online at the designated time and present the
percentage discount on their invoices they would be willing to offer in exchange for an early
payment within an established time window. They have visibility of the chances to win the bid
(i.e., draw liquidity from the pool) and have the ability to continuously offer new discounts. At
the same time, the buyer can see the bids arriving from the competing suppliers and
immediately evaluate the new income and the equivalent return generated. The "pool" cash
allocation can also be adjusted based on the bids offered by the suppliers.
Auction-based dynamic discounting illustrates how SCF will evolve in the next three to five years,
in association with other innovative collaborative SCF instruments, such as purchase order-based
financing, asset-based lending, and inventory financing, which move beyond buyer- and
supplier-centric financing.


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15
CONCLUSI ON
Treasury has upgraded its role in the company and is now expected to be the
knowledge steward of the CFO. Decisions on how to best invest available cash or on
how to extract cash trapped in working capital require new discipline and knowledge
of SCF instruments. Supply chain finance practices and technologies are a reality,
and corporate treasurers need to become familiar with their adoption. Clarity on
terminology and nomenclature for SCF is important to turn it from an academic
concept into usable and easy-to-deploy solutions.
Although the SCF ecosystem of solutions is vast, the current most-adopted SCF
solutions are concentrated in reverse factoring and invoice discounting, with its
additional sophisticated dynamic discounting version. Supply chain finance has been
for long time under the tight control of banks, providing fruitful results to the
institutions as they took almost no risk. Now that risk appetite and entrepreneurial
approach are the paradigm for the "new normal" economic environment,
corporations are starting to look at SCF as a set of practices and disciplines they can
deploy by themselves. In order to do so, traditional manual operations must be
replaced with technology support that provides visibility and a collaborative
environment to all parties involved.
Instead of relying on yet another layer of technology, treasurers prefer to run SCF
software applications from the existing foundation they use for their daily duties.
That is, the treasury management system. SaaS-based technology can extend the
reach of a TMS to incorporate additional SCF features that make the TMS a "cockpit"
for the corporate treasurer from which all cash, trade, payments, finance, and
foreign exchange transactions are launched and controlled.
The likely future of SCF is a set of financial applications (e.g., reverse factoring,
dynamic discounting, auction-based dynamic discounting, pre-shipment finance,
receivables and payables finance, and digital letters of credit) that sit on a cloud-
based foundation and integrate seamlessly with the corporate ERP, TMS, and supply
chain management enterprise applications.

Treasury Management Systems and Supply Chain Finance June 2013
2013 Aite Group. All rights reserved. Reproduction of this report by any means is strictly prohibited.

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ABOUT AITE GROUP
Aite Group is an independent research and advisory firm focused on business, technology, and
regulatory issues and their impact on the financial services industry. With expertise in banking,
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AUTHOR I NFORMATI ON
Enrico Camerinelli
+39.039.21.00.137
ecamerinelli@aitegroup.com
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