Presenting how supply chain management works in the business.

2. Corporate Banking Mind Mapping

3. • What is Supply Chain
• What is SCF
• Why SCF is needed for Business
• Bill Discounting
⮚ How Bank/ FI is earning from Bill discounting
• PO Financing
⮚ How Bank/ FI is earning from PO Financing
• Platforms in INDIA for Bill discounting & PO financing
⮚ Workflow of these platforms
Today’s Discussion

4. Supply chain is a network of individuals and companies who are involved in from Raw material to product
delivery system.
Raw Material OEM Supplier Buyer
A supply chain encompasses everything from the delivery of
source materials from the supplier to the manufacturer through
to its eventual delivery to the end user.
What is Supply Chain

5. Supply chain finance, also known as supplier finance, is a set of solutions that
optimizes cash flow by allowing businesses to lengthen their payment terms to
their suppliers while providing the option for their large and SME suppliers to
get paid early.
What is Supply Chain Finance ?
Raw Material OEM Supplier Buyer

6. Traditional
Method
Buyer
Seller
1.
Purchase
Order
2.
Ship
Goods
3.
Payment
Credit Period
Supply Chain Finance
Buyer
Seller
1.
Purchase
Order
2.
Ship
Goods
3.
Payment
Bank
4. Payment
Credit Period
• Sellers need not to wait for
contracted credit period
• Smooth cash flow for sellers
• Improving working capital
position for sellers
• Buyers can pay on the due date
• Reducing the payment risk
• Stability & Flexibility of
payments for both buyer &
suppliers.
Why Supply Chain Finance ?

7. Buyer
Buyer who place the order or wants to buy something
Seller who manufacture or sell the goods
Financial Institutions or Banks who provide financial services to both of buyer & seller
FI/ BANK/ Individuals
Vendo
r
Parties involved in SCF

8. Bill Discounting PO Financing
• Reverse Factoring • Working Capital Loan

9. Bill Discounting

10. Bank takes the invoice/ bill drawn by borrower on his (borrower's) customer and
pay him immediately deducting some amount as discount/commission. The Bank
then presents the Bill to the borrower's customer on the due date of the Bill and
collects the total amount.
Parties Involved
Buyer
Vendo
r
Buyer’s Bank Seller’s Bank
* The Buyer’s Bank & the Seller’s/ Supplier’s Bank may be same
What is Invoice/ Bill Discounting ?

11. 1. Place PO
2. Supply Goods & raise Invoice
• Seller will arrange the buyer’s
confirmation on the invoice
raised.
• Buyer’s bank & Seller’s bank
may be same bank
• Bank will check Buyer’s credit
worthiness.
• Discounting will happen at
the end of seller’s bank.
• Buyer’s bank will pay on
behalf of the buyer on much
earlier
• Buyer’s bank will collect the
invoice amount at the end of
the contracted period.
How Invoice/ Bill Discounting works?
* Risk has to be carried by the Buyer
4. Discounted and paid
6. Paid on due date

12. 1. Purchase Order (PO)
2. Supply goods & Invoice
6. Paid to bank
How Invoice/ Bill Discounting works?

13. 1.Invoice of 10 L
2.Ack invoice with 3 months Credit
period
Lets assume bank changes interest of 10 %. It’s
also called as discounting charge/ fee.
So here Bank will charge 10 % int on 10,00,000
for 90 days on seller.
So it becomes
(3/12)*0.1*1000000 =25,000
Bank will upfront deduct 25,000 from 10,00,000
10,00,000-25,000= 9,75,000
Bank will collect 10,00,000 from Buyer on due
date.
Hence bank’s income 25,000 here.
How bank earns from Invoice/ Bill Discounting ?

14. Types of Bill Discounting ?
Clean Bill Discounting : Clean Bill Discount is a lending service that enhances company's short-term liquidity using a bill, bill of
exchange, promissory note or post-dated cheque
Bill Discounting Backed by LC : This type of bill discounting happens depending on the letter of Credit. Letter of Credit aka
LC is a payment instrument drawn by Buyer on the Supplier at the time of placing the order
Invoice Bill Discounting : Invoice discounting is a process in which a supplier sells an invoice to a third party (Bank/ FI).
Immediately after selling an invoice, the supplier gets a percentage of the amount billed to the client while the Bank/ FI takes on
the responsibility of collecting the full payment from the buyer

16. • Receive money much earlier than the credit period
• Smooth cash inflow as working capital for next projects
• No loan required to be taken
• Not affecting the GL
• Paying money at the end of the credit period
• Maintaining good relationship with the suppliers
Supplier’s advantage in Invoice/ Bill Discounting
Buyer’s advantage in Invoice/ Bill Discounting

17. All the bills or invoices are not eligible for discounting. Banks have their own set of rules. Bills / invoices
need to be passed those check listed points prior to discount. Some of the points are as below
• Usance Bill with fixed maturity date: A bill which has a specific payment date
• Demand bills are not accepted: A bill which doesn’t have any specific data of payment but needs to be paid at
sight if produced within expiry date.
• Bill/ Invoice should be accepted by the Buyer/ Drawee
• Buyer should have a good credit rating
• Buyer’s repayment history is good
How Banks take decision for Invoice/ Bill Discounting ?

18. PO Financing

19. PO financing or Purchase Order Financing is an instrument using which Seller can
avail working capital by presenting a purchase order received from a reputed
buyer.
Parties Involved
Buyer
Supplier
* The Supplier & OEM may be same
Supplier’s Bank
OEM
What is PO Financing?

20. 1. Placed PO
2.
Forward
PO
for
Financing
3.1. PO financed and amount provided to
OEM
Buyer
Supplier
Supplier’s Bank
OEM
5. Supply Order
6. Make Payment
7.
Make
Payment
• Finance will be done on the received
PO
• 70%-80% value of the PO will be
financed
• This provided Suppliers the working
capital
• If the Payment terms of the buyer is
cash on delivery, Supplier will receive
the payment immediately and repay
the finance.
• If supplier invoice buyer with credit
terms (e.g. 60-90 days), can opt for
Invoice discounting
How PO Financing works?

21. Buyer
Supplier
Supplier’s Bank
OEM
1. Gives order of 10,00,000
2.
Request
for
PO
financing
3.1 PO Financed & paid to OEM 7,00,000
5. Order delivered & received 10,00,000
6.
Paid
7,00,000
+
Interest
Lets assume supplier receives an order of
10,00,000 of which 9,00,000 is the cost of
development of the product and 1,00,000 is
profit of the supplier.
But the supplier has only 2,00,000 as WC to pay
the Original Equipment Manufacturer (OEM). So
supplier requested the Bank to finance the PO on
the remaining amount of 7,00,000. Bank
underwrites & paid the same to OEM directly.
Open a loan account of 7,00,000 in name of the
supplier at 10 %.
After getting the delivery of the goods from OEM
within 1 month, supplier deliver the same to the
Buyer and receives 10,00,000 within 1 month.
Supplier paid the loan amount + interest to the
bank.
Interest =(1/12)*0.1*10,00,000= 8,333
Total paid to bank 7,08,333
So Bank’s earning is 8,333
Supplier’s income =
10,00,000- 9,08,333= 91,667
* If the buyer is enjoying the credit period as contracted, then to pay the loan
supplier may use the bill discounting
How bank earns from PO Financing?

22. Buyer
Supplier
Supplier’s Bank
OEM
Gives order of 10,00,000
Request
for
PO
financing
PO Financed & paid to OEM 7,00,000
Order delivered & received 10,00,000
Paid
7,00,000
+
Interest
Supplier delivered the order but will receive
the 10,00,000 after credit period of 90 days
from buyer.
So here if the supplier use the Bill discount
on 10,00,000 at 10 % then the discounted
bill amount will be
10L – ((3/12)*0.1*1000000) = 9,75,000
Interest of 1 month(during the development
period) for PO financing is 8,333
Need to pay to bank is
7,00,000+8333=7,08,333
Receives from Bank after discount= 9,75,000
So supplier has
9,75,000-7,08,333=2,66,667
Paid as Advance to OEM 2,00,000
Net income from order is 66,667
Lets understand what if Supplier use the Bill discount here

23. Other Platforms for Invoice/ Bill Discounting & PO financing in INDIA

24. M1 Exchange: Seller’s invoice screen

25. M1 Exchange: Seller’s invoice approval screen

26. M1 Exchange: Digital signature on invoice approved

27. M1 Exchange: Seller’s invoice Digital Sign confirmation

28. M1 Exchange: Bidder's invoice approval screen

29. M1 Exchange: Bidder's invoice bid placing screen

30. M1 Exchange: Seller’s bid approval screen

31. M1 Exchange: Seller’s bid acceptance screen