The International Chamber of Commerce (ICC) has released a list of standard definitions for techniques of supply chain finance (SCF), developed jointly with Baft, the Euro Banking Association (EBA), Factors Chain International (FCA) and the International Trade and Forfaiting Association (ITFA).
The initiative is a step towards the much-needed standardisation of the SCF industry: at an SCF event attended by GTR today (March 9) in Frankfurt, delegates unanimously expressed their frustration at the lack of harmonisation in the sector.
Ruediger Geis, head of product management, trade, at Commerzbank and a member of the ICC’s Banking Executive Committee, explains: “It’s a step in the right direction. The very good thing is that it involved several organisations, and I know it was sometimes a very hard and long fight to agree on definitions, which is okay, but now they’ve agreed.”
Definitions were compiled based on the views and feedback by a wide range of industry specialists and interested parties. Eight core SCF techniques, along with the Bank Payment Obligation (BPO), are defined in the document, which aims to provide clarity for finance providers, corporates, investors, regulators, law firms and software providers.
Jochen Oberlander, general manager of Surecomp Germany, tells GTR: “Being able to develop fitting products requires clear definitions, and this is highly supported by clear legal frameworks. The ICC standards are, to my understanding, setting standards terms, and having standard terms is the base for setting up legal standards. It’s like building a house. The next level is legal and structural framework.”
Being able to develop fitting products requires clear definitions, and this is highly supported by clear legal frameworks. Jochen Oberlander, Surecomp
The standards propose a definition of SCF as: “the use of financing and risk mitigation practices and techniques to optimise the management of the working capital and liquidity invested in supply chain processes and transactions. SCF is typically applied to open account trade and is triggered by supply chain events. Visibility of underlying trade flows by the finance provider(s) is a necessary component of such financing arrangements which can be enabled by a technology platform.”
The other definitions include: receivables discounting, forfaiting, factoring and factoring variations, payables finance, loan or advance-based SCF techniques, loan or advance against receivables, distributor finance, loan or advance against inventory, pre-shipment finance, and the BPO. These will be regularly updated to reflect market developments.
“Standardised SCF terminology will ensure a much clearer communication in this rather complex ecosystem of providers, clients, accounting and legal professionals, regulatory authorities and others involved in international supply chains,” says Kah Chye Tan, immediate past chair of the ICC Banking Commission and chair of the Global Supply Chain Finance Forum Steering Group.
Tod Burwell, Baft president and CEO and vice-chair of the Global Supply Chain Finance Forum Steering Group adds: “SCF has grown and evolved in recent years in response to shifts in corporate supply chains and the ever-growing demand for trade finance. This publication should aid the market, regulators and other stakeholders in gaining clarity and consistency on the various terms and techniques used.”