Supply Chain Finance Offers Liquidity Potential for Central European Corporates
Supply chain finance (SCF) can help unlock a significant amount of liquidity for supplier companies from Central European countries in the manufacturing, wholesale and logistics sectors, according to a research report from Demica.
The report suggests that SCF could provide more than €16bn for supplier firms based in Poland, the Czech Republic and Hungary. Since many of the domestic suppliers are anchored in the supply chains of German companies, their financial stability will prove particularly vital to German buyers who depend on their supply of intermediate goods and services.
In more developed economies like Germany, local German supplier firms could benefit from potential liquidity release of €44bn with SCF arrangements, according to the research.
Corporate buyers can also seize working capital advantage in a SCF programme. The study shows that SCF could provide large buyers from Germany, Poland, the Czech Republic and Hungary in the examined sectors an aggregated €103bn of additional working capital through extending the days payables outstanding (DPO).
The exploitation of this hidden liquidity potential is particularly important for many domestic companies in Central Europe, in particular the small- and medium-sized enterprises (SMEs), as standard relationship credit is getting more difficult and more expensive to access against the backdrop of economic slowdown and western bank deleveraging.
“Whether we are looking at emerging markets or developed economies, SCF is a vital credit facility that should be leveraged to unleash working capital trapped in the supply chains,” said Philip Kerle, chief executive officer (CEO) of Demica.
“Especially for supplier companies from emerging economies where borrowing costs are high and alternative sources of financing are limited, SCF can often prove to be their financial lifeblood. Buyer companies who offer SCF programmes can equally benefit from the arrangement by extending payment terms and hence increase their own working capital.
“Over the years businesses have paid much attention to improving operational efficiencies in supply chains. However, to boost the bottom line businesses must do more to enhance financial efficiency. In a post-crisis world where working capital optimisation has become a high priority, SCF provides both suppliers and buyers a win-win solution to achieve this goal.”