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There’s more to supply chain finance (SCF) than merely reverse factoring: that was one of the key takeaways from a conference on the topic in Amsterdam last week. Although there has been limited uptick in second and third-tier banks, in the coming years, SCF is likely to extend beyond simply taking advantage of early settlement discounts. Innovative financing programmes geared towards sustainability are one way in which the market is branching out.

Over the last couple of years the SCF market has become more established: financiers have been actively setting up supply chain finance departments, and much progress has been made in terms of onboarding options.

There seems to be a clear and natural path that companies choose to follow when setting up a SCF programme.

As a first step, generally, most companies establish a centralised procurement department – one that combines treasury and procurement capabilities. They initially prefer a single-bank approach, and only tend to utilise the capital markets and their own cash further down the line.

Nevertheless, exceptions do exist: when, a couple of years ago, Lufthansa sought a supply chain finance solution, it chose an auction system over a single-bank solution. In doing so, it became the pioneer customer of CRX Markets, a German start-up that had, at that point in time, not signed up any formal deals. The “competition approach” offered by the platform, Lufthansa head of supply chain finance Alexander Pawellek said at last week’s SCF Community Forum in Amsterdam, was in line with the German carrier’s business on all fronts.

The development of a “green” supply chain is one way in which SCF is being taken to the next level. At the conference, sports brand Puma’s senior head of treasury and insurance, Frank Wächter, told the audience about a new supplier financing programme geared towards sustainability that the company has recently been working on. Sustainability, he said is “embedded in the company’s business decisions”. Earlier this year it entered into a partnership with the IFC, which provides financial incentives to Puma’s suppliers in emerging markets to improve environmental, health and safety and social standards.

It involves the IFC adopting a financing structure with tiered pricing of short-term working capital, offering lower costs for those suppliers that achieve a high score in Puma’s supplier rating system. The ratings are assigned based on Puma’s monitoring of suppliers’ adherence to its social and environmental standards through an auditing process.

Puma and the IFC launched the initiative in partnership with GT Nexus, a cloud-based business network and platform for global trade and supply chain management. In its first phase, the programme is being rolled out in Bangladesh, Cambodia, China, Indonesia, Pakistan and Vietnam.

During the conference, speakers also advocated the advent of the so-called “circular economy” to address the dwindling availability of raw materials. Seen as an alternative to a traditional linear economy, a circular economy would see consumers keep resources in use for as long as possible, extract the maximum value from them, then recover and regenerate the products and materials at the end of each service life.

Michiel Steeman, founder and chairman of the SCF Community, said at the event that sustainability of natural resources must be a collaborative approach in SCF. He announced that the SCF Community is keen to start a research programme that would investigate sustainability and the circular model.

The SCF Community is an independent not-for-profit global community consisting of knowledge institutions, corporations, and supply chain finance professionals who are encouraged to share best practice and new research in an open, collaborative environment. It is managed by an executive board consisting of leading professionals and scientists in the field of supply chain finance.