Deutsche Bank has combined cash and trade solutions on one integrated platform and initially launched the service in Asia, offering clients greater financial and commercial visibility of their supply chains. Justin Pugsley finds out more.

Words such as ‘seamless’, ‘integrated” and ‘unified’s are steadily becoming common lexicon in the world of trade finance. They may not be references to letters of credit or financing, but instead come from the all important area of IT, which supports trade. Not just that, but it is also steadily transforming it and making it easier to match financial solutions to corporate needs.

Bearing this out is Deutsche Bank’s latest offering, which bridges cash and trade functionalities on a single platform. There is also the launch of a new financial package, which for the time being is specific to Asia.

Deutsche Bank, like other trade banks, is responding to customer requirements for easier and faster access to trade service facilities.

The cash solution, which originally resided on Deutsche Bank’s db-eBills platform – an EIPP platform (electronic invoice presentment and payment platform) – now includes the trade functions and both are accessible through one interface. In some markets, the term EIPP is also referred to as EBPP (electronic bill presenting and payment).

Indeed, unification not only makes life easier for treasurers and procurement managers, but also opens up the enticing possibility of different financing models.

The end-to-end solution will give Deutsche Bank’s clients greater financial and commercial visibility of their supply chains. And it goes further: corporates can handle their transactions in a more streamlined manner, reduce their business risks, boost their liquidity and exercise greater control over their cashflow.

In a nutshell, the finance side of the supply chain will be more visible and can be managed more efficiently.

“Buyers and sellers can do everything from arranging and sending invoices and purchase orders to each other and even sort out disputes,” says Roger Packham, regional head of trade finance, Asia Pacific, with Deutsche Bank.

He explains that historically, the bank used this trade information to flag payments on due dates. “What we have now done is enhance this platform to also enable financing once an invoice is accepted,” says Packham. “The supplier will have the option of financing by discounting the payment up-front.”

One platform, more solutions
According to Shivkumar Seerapu, head of trade product management, Asia, with Deutsche Bank, this integration opens up the possibility of different financing models. One is for suppliers to simply discount their invoices and the bank then collects the funds from the buyer on the invoice’s due date. But there are other financing solutions available.

“We have developed a credit programme where we set up trade finance allocations for SME suppliers,” says Seerapu. And for the time being, this particular product is on offer purely in Asia where it is being piloted. Later on, it is expected to be rolled out globally and will be particularly pertinent to markets such as Eastern Europe.

Asia was chosen as it is increasingly becoming the most important continent in terms of manufacturing. Trade flows between Asia and Europe and North America are growing rapidly as manufacturing shifts out of high-cost locations to lower cost ones.

Deutsche Bank’s new programme provides finance on the back of invoices, but also on the back of purchase orders. It is common for suppliers to be on one or two-year contracts with volume, specifications and prices agreed for that period. Such contracts make financing easier. It effectively provides local SMEs with much-needed help with cashflow.

Many smaller Asian SMEs operate on very tight margins. Obtaining finance from banks in general may not be easy, and may be expensive. Such costs would eventually be reflected in the supply chain.

Nonetheless, this financing package is dependent on the level of closeness the supplier enjoys with a top credit rated multinational buyer. Such solutions work particularly well for suppliers which are part of an integrated supply chain or trade hub. Such close knit relationships are common in the aerospace and automotive industries, for instance. Under such circumstances suppliers are often making bespoke components designed for particular models. Therefore, their role in the supply chain is crucial.

According to Seerapu, one of the biggest advantages of the combined platform is the visibility the bank gets of the supply chain.

“At all points in time, we can see the invoice details, the transaction status, whether it is accepted or not and the due dates and so on,” he explains. Such real-time visibility enables the bank to offer tailored solutions to suppliers. At the same time, the cost of finance to suppliers is reduced – thanks to the buyer’s normally superior credit rating. Also, tenors can be shorter as they can closely match the supplier’s exact cash needs during the transaction cycle.

The end result of these financial savings is that some costs can be squeezed out of the supply chain.

Whereas efforts to drive efficiencies in logistics and procurement strategies are well documented, finance has often been overlooked. A multinational with a top credit rating and a solid balance sheet, has much to gain from using supply chain finance. This credit rating can be leveraged to lower financing costs in the overall supply chain.

With so many manufacturing processes now outsourced, the overall cost structure of the supply chain plays a vital role in a firm’s overall competitiveness.

Meeting local regulations
However, the Asian continent has within it a wide variety of countries, all at different stages of development. They range from rapidly emerging, such as Vietnam or Indonesia, to highly advanced, as in the case of Singapore or Australia.

Each has unique legal systems and inherent degrees of credit risk. By contrast, within the European Union, which encompasses most of that continent, many laws have been standardised. “It was relatively easy to roll-out the technology platform,” says Seerapu. “However, we had to engage in a lot of due diligence regarding the finance packages for the different markets.”

He describes China as being one market where the product had to be customised to satisfy local legal requirements.

According to Seerapu, the original plan was to use Singapore as a payment hub and make remittances to suppliers where ever they are in Asia.

“With Chinese suppliers, we realised that by doing payments remotely out of Singapore, it could be challenging from a regulatory perspective,” says Seerapu, “We were able to offer the Chinese suppliers a work-around solution, using a purchase of receivables model.”

As for systems integration, this is relatively straightforward. Smaller suppliers can access Deutsche Bank’s platform via the internet. Through the web interface, they can access and download various details, which are necessary to the smooth running of the financial supply chain.

For the multinational buyers, which have a vast amount of purchases to consolidate, the platform can be linked straight into their ERP (enterprise resource planning) system. It supports most of the major ERP packages from the leaders such as SAP, Oracle or JD Edwards. For in-house built and designed ERP systems, some level of integration would be required.

And what about future product development

  • Seerapu explains: “One of the areas we’re looking towards is how to integrate our financing options on the trade side and the reconciliation tools on the cash side.” 

    He adds that, “We want to achieve the same level of seamless integration on the receivables that we have done on the payables.” Again, such development is being driven by customer demand. Corporates want to optimise their cashflows to enhance their balance sheets to the maximum. Indeed, increasingly activist shareholders are becoming less tolerant of lazy balance sheets.

    After complaining for many years about the lack of solutions, corporates are steadily being spoilt for choice in the area supply chain finance. Many traditional and non-traditional financial institutions are now offering solutions.

    It is an area flourishing with innovation. Often these products differentiate themselves on the provider’s particular technical, market or regional expertise. Indeed, Deutsche’s latest offering will be welcomed by leading manufacturers looking at ways to drive costs out of their supply chains.