Supply chain finance (SCF) has become an established tool firms can use to free up working capital.
Yet it can’t be used in all cases – lower credit ratings of the buyer, regulatory constraints and restrictions in some sectors can prevent companies from participating in SCF programmes.
To address this gap, SCF provider Orbian has developed Payment with Terms (PwT), a product that enables suppliers to be paid on the agreed due date while giving buyers a certain amount of extra time to settle their invoices with Orbian, improving both cash flow management and forecasting accuracy.
For Orbian, which was launched in 1999 as a co-venture between Citi and technology giant SAP, this offering removes the need for supplier consent, making the entire process much faster and more inclusive.
GTR speaks to Markus Schiffers, Orbian’s managing director, about how the firm is part of a new wave of tech-enabled funders reshaping trade finance.
GTR: Orbian has long described itself as neither a bank nor a fintech. How does that positioning help you compete in a market now seeing a surge of non-bank funders entering trade finance?
Schiffers: We are not just a fintech and we are not a bank. We’re something in between. We have technology that we use to apply our solutions to the market, but it’s not only technology – it’s much more than that. We offer a complete set of solutions, which includes a funding structure, the correct legal setup and compliance with regulations in many countries.
Most fintechs mainly focus on their own platforms, but they do not set up legal entities, open bank accounts or process payments like Orbian does. These are done by their funding partners, which are typically banks.
GTR: With institutional investors increasingly active in SCF, how is Orbian adapting its multi-funder model to this changing funding landscape?
Schiffers: For probably 15 years or so, we have had a corporate funding the programmes of Orbian clients through the model we offer. Because this has worked for many years, we haven’t had to adjust our funding model that is used for institutional investors.
What we’ve done very successfully over the last two years is to add other means of funding. While in the past, we were very much focused on [money market] notes issuances, now we have started to offer risk participation on a larger scale, which helps us with certain funding partners that would not be able to purchase a note.
GTR: To what extent do you see the growing role of non-bank liquidity providers reshaping corporates’ expectations around flexibility, transparency and cost of funds in working capital finance?
Schiffers: I think it is changing expectations in multiple ways. Now, corporates can expect to be served under a SCF or PwT model that in the past they probably did not qualify for, because, unfortunately, there is still a huge focus on investment-grade credit from most bank funders.
With the non-bank funding partners and institutional investors, this is changing. The model is opening up to allow more non-investment grade clients to be funded. Now, they expect that we will find funding for them, while a few years ago, nobody was really expecting it.
Sometimes, we add a non-bank funding provider to a programme otherwise funded by the banks, just because they bring some incremental availability. What we see from those non-bank funders is typically a fast turnaround with relatively large limits, which is important as well. Time to market is improving by using non-bank funders.
Having said that, what also needs to change is probably the expectation of unrated companies on the pricing. Because of the different funding sources, there is a different return expectation as well. An unrated client should expect slightly increased pricing when we use non-bank funding.
GTR: How do Orbian’s solutions give treasurers greater predictability and control over cash flow forecasting, especially amid regulatory limits on payment terms such as those coming from the EU late payment directive?
Schiffers: Our flagship product is Flex Pay, a Payment with Terms solution that works perfectly well in conjunction with traditional supply chain finance in a single programme as well. Flex Pay allows us to improve the working capital of the buyer without involving the suppliers. There is no process of renegotiation of payment terms with suppliers; the buyers’ procurement department does not have to be involved at all, and the supplier is not involved at all.
This means that the control of this programme is entirely in treasury’s hands, which solves one big issue – the aligning of resources at the client end. This allows much more precise cash flow forecasting because the treasurer can decide how many suppliers will use this solution and then very quickly calculate the cash flow impact that will have.
Flex Pay also covers suppliers that you typically would not even consider a supplier, like a landlord. From a Flex Pay perspective, we can pay the rent on behalf of the buyer. The same is true for tariffs – we can pay tariffs through Flex Pay. It’s really opening up the numbers of payments and volumes that you can use to improve your working capital.
GTR: In which sectors or among which types of clients are you seeing the biggest take up of the products?
Schiffers: Flex Pay is not being used by AA or A-rated clients that much. It’s used more by the BBB to B-rated clients. The reason for that, among others, is that if they were to offer a traditional SCF programme, it may not be that attractive to the suppliers, because the pricing relative to the suppliers’ funding cost would be relatively high.
The product goes across all industries, but I think it is extremely relevant for retailers. If 80% of your volume is fresh food, an SCF programme is not the perfect solution on its own, because there are rules around the trading practices when it comes to food delivery. In these cases, SCF should be combined with Flex Pay.
GTR: Looking ahead, how do you expect flexible payment structures like Flex Pay to evolve as treasury functions become more digitised and data-driven?
Schiffers: I think the next step is probably that we can offer these solutions without requesting any technical change on the buyer side. A treasurer will, in real time, be able to decide whether to use this service right now or not. It will be much more dynamic than in the past. I think we are very close to making this happen, and this will be the next wave.
GTR: With global supply chains under constant pressure, where do you see the greatest opportunities for Orbian to further support clients’ liquidity and resilience in the next two to three years?
Schiffers: One interesting opportunity is in how we allocate suppliers to different solutions – Flex Pay or SCF. What we have started to do is use a third-party platform that applies AI and advanced analytics to analyse the buyers and suppliers, and then, based on market data and relatively complex calculations, predict the payment term that a supplier would accept. This predicted acceptance or rejection of the supplier determines whether to allocate the supplier to SCF or Flex Pay.
