Goal of the analysis:
Examine how effectively the bank provides supply chain financing solutions and manages purchased receivables to support clients’ working capital needs while mitigating credit risk.
Data required:
- Volume and value of invoices or receivables financed
- Client segments and industries utilizing supply chain financing
- Default rates or delinquency data on financed receivables
- Credit terms and discount rates offered to suppliers or buyers
- Operational processes for onboarding clients and monitoring receivables
- Peer or industry benchmarks on supply chain finance program performance
Detailed step-by-step instruction on how to conduct the analysis:
Step 1: Map out the bank’s supply chain financing program, including key products (such as factoring, reverse factoring, and invoice discounting) and their respective structures. Identify the industries and client segments served, and note the standard credit terms and operational procedures.
Step 2: Collect data on the total volume and value of receivables financed over a defined period. Compare this against the bank’s overall commercial lending volumes to gauge the significance of supply chain financing in the broader portfolio.
Step 3: Analyze the risk profile of financed receivables by reviewing default rates, delinquency trends, and any credit insurance or guarantees in place. Assess whether existing underwriting criteria and risk mitigation practices (for example, credit insurance, collateral) sufficiently control exposure.
Step 4: Review the operational processes and technology used for onboarding clients, evaluating invoices, and tracking receivables. Identify potential bottlenecks, errors, or delays that can affect the speed and service quality of supply chain financing.
Step 5: Compare pricing (such as discount rates and transaction fees) and service terms to relevant market benchmarks to determine if the bank’s supply chain finance offering is both competitive and profitable.
Step 6: Evaluate client satisfaction and retention by assessing ease of use, turnaround times, and the overall value-add for both buyers and suppliers, looking for any feedback mechanisms or metrics (for example, Net Promoter Score) that reflect client perceptions.
Format of the output of analysis:
- Tables summarizing receivables financing volumes, default rates, and revenue generated from supply chain finance
- Flowcharts or process maps highlighting the supply chain financing workflow
- Benchmarking report comparing the bank’s pricing, risk profile, and client satisfaction metrics to industry averages
How to interpret results:
- A stable or growing supply chain financing portfolio with low default rates suggests an effective program that meets client needs while controlling credit risk.
- Higher-than-average delinquencies may indicate gaps in underwriting or monitoring practices, requiring tighter controls or better screening of counterparties.
- Competitive discount rates and favorable service terms, combined with high client retention, typically indicate a well-structured and customer-focused solution.
Steps a company can take to improve on this measure:
- Enhance due diligence on buyers and suppliers through robust credit assessments and real-time monitoring of payment behaviors.
- Invest in digital platforms or automation to streamline invoice verification, payment processing, and reporting.
- Explore partnerships with fintechs or industry platforms to expand market reach and deliver faster, more user-friendly services.
- Conduct periodic reviews of pricing and terms to ensure they reflect changes in market conditions and credit risk.
- Gather and act on client feedback to continuously refine the supply chain financing offering and deepen customer relationships.
