Unlocking off- benefits for buyers and suppliers/July 2017

Understanding

The current economic climate is forcing many companies to better manage liquidity and strengthen their balance sheet. Supply chain finance (often referred to as SCF/Supplier Finance/Reverse ) can be an attractive way for companies to improve their working position.

The key concept behind SCF is to provide suppliers with access to advantageous financing facilities by leveraging the buyer’s stronger rating.

Benefits for the Buyer Benefits for the Supplier

Longer supplier payment terms without Reduction of Receivables and increase having to ‘trade off’ with price – 30-50% in position Trade Payables increase Off-balance sheet finance and general Faster access to cash at advantageous rates improvement of the balance sheet Reap early settlement discounts while still Strong cooperation with the buying company paying at invoice maturity creates a competitive advantage Improved process capability in Invoice Faster from delivery Receipting, Approving, Electronic Invoicing to cash and overall

www.pwc.com.au The mechanics of Supply Chain Finance

SCF requires the involvement of a SCF platform and an external finance provider Purchase orders who settles supplier invoices in advance of 1 the invoice maturity date, for a lower Supplier Buyer financing cost than the suppliers’ own 2 source of funds. This benefit is then shared among the parties. Goods/services and invoices After ordering from the Supplier (1), the supplier then fulfils the order and invoices Discounted Request Confirmation/ the buyer (2). The buyer then approves the Invoice finance for discount approval 5 4 3 6 payment supplier’s invoices and confirms that it will provided facility of invoices pay the financial institution for these at invoice maturity (3). The supplier sells (discounts) the invoices to the financial institution at a predetermined discount rate (4) and receives the funds straight away (5). Financial institution The buyer pays the financial institution as agreed at maturity of the invoice (6).

In parallel to the SCF facility, the buyer is typically able to negotiate better payment terms and/or prices with the supplier. Why do companies implement Supply Chain Finance? Companies implement SCF for far more reasons than just cash release

Implementation reasons between SCF practition aspirants are quite similar

SCF in place

Working Capital optimisation 42%

Supplier liquidity needs 18% Principal reasons for implementing Supplier relationship improvement 18% an SCF program Supply chain stability improvement 12%

Other 10% • Additional revenues, cost reductions • Utilise cash surplus • Optimize (incl. financing) Key success drivers for Supply Chain Finance programmes

To maximise the potential of a SCF programme it should be part of an integrated Procure to Pay (P2P) strategy and approach – follow the lead of many global companies that have already implemented SCF. Key Drivers of Success for Supply Chain Finance Programmes

Selection of the right Cross-functional approach Integration into a Technology Platform and comprehensive Financing Partner Procure-to-Pay Initiative

• SCF has been around for decades, • Despite the name containing • Minimise invoice approval times, resulting in multiple technology “Finance”, SCF programmes maximise use of e-invoicing, approaches that offer different cannot be successfully rolled out self-billing and cooperation with levels of flexibility and integration only with the involvement of the suppliers with your ERP system – selecting Treasury or Finance function – • Payment term and payment run the right one is key for long term Procurement and Accounts enhancement; Differentiated success Payable are equally important terms strategy with aligned • Cutting-edge Fintech allows you • Successful SCF programmes payment runs to tap into global finance markets. bridge the functional gaps and • Consideration of small The off-balance sheet nature of align the organisation to a suppliers; be economic with SCF allows to add financing common Procure-to-Pay strategy corporates – nurture small providers despite possible restrictions from covenants.

What does the Research Say? SCF is not industry specific… Respondents with SCF in place

Only Consumer Goods 65% 7% Automotive Communications & IT Energy, Utilities & Mining of European companies with of Australian large companies Industrial Manufacturing revenues larger $750m revenues have implemented a supply Transport & Logistics run a supply chain finance program chain finance program so far Professional Services Other

Up to 14% 21% +4% 7% EPS

7% Increase in Earnings-per-Share 14% (EPS) through Working Capital with SCF 11%

11% 14% How can PwC assist you

PwC’s dedicated Working Capital Management team combines global best practice experience with industry knowledge to provide our clients with expert advice and implementation assistance to maximise benefits.

Supply Chain Finance Procure-to-Pay Opportunity Feasibility Review & Assessment Opportunity Estimation

• Quantitative analysis of spend • Review of end-to-end process Our specialist data to estimate SCF capability in Cash-Cost-Service capabilities opportunities (Cash & EBIT) performance • Dedicated working capital • Supplier-industry specific • Quantification of benefits from expert team terms benchmark Performance avoiding early/late payments, • Industry experience assessment in invoice improved terms structures • Tailored best practice processing and approval price (end-of-month terms, settlement methodology discounts), optimised payment • Assessment of electronic • Proven change management channels (PCards, SCF, EFT, etc) invoicing penetration, capabilities non-PO spend • Opportunities of invoice • Hands on mentality and scanning, EDI interfaces, collaborative mindset robotics and AP automation • Focus on knowledge transfer • Optimised use of ERP resources, better controlling & governance PwC contacts

Working Capital Project Total Working Capital Management Office Programmes

• Establishment of global PMO • Total Programme from Jonas Schofer to drive change through the Analysis over Implementation Director (National) organisation Sustainability activities M: + 61 402 271 564 • Performance Dashboards with • Roadmap development, action E: [email protected] drill-down capability planning and delivery of best practice processes, tools and IP • Executive and operational KPIs and performance • approach with reporting client resources for upskilling and sustainability • Action plan development and monitoring of progress • Measurable impact within James Fowler 2-6 months, payback while we • Build-up of a Working Capital are still working with you Manager Centre of Excellence for M: + 61 420 571 253 the client • Contingent fee arrangements E: [email protected]

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