Supply Chain Finance and Block chain: A Potential Integration

Abstract

Economic downturn often creates extreme barriers in day-to-day operations of the firms that are dependent on liquid assets. The situation becomes worse when new loan granting by banks reduces significantly, cost of borrowing increases considerably and liquidity dries up in asset-backed markets. This essentially demands for some solutions which may optimise the working capital management of a firm. Supply Chain Finance (SCF) is one such popular approach that optimises liquidity condition of a firm. SCF, also known as reverse factoring, is well adopted by companies like Coca-Cola, Procter & Gamble or Walmart. Instead of adopting the conventional method of directly paying to the supplier within a given timeline (say, 30 days), firms prefer SCF where they pay certain fee to a bank or a financier to ensure 100% early payment to the supplier (as soon as 10 days). Thereafter, according to the nature of contract, firms repay the amount to bank. The entire exercise creates a “win-win-win” scenario for all three parties involved. The supplier receives early payment, the customer5 extends the formal payment term with supplier as per their desire and the bank or financier optimises their exposure of risk weighted asset portfolio. Such benefits enhances the acceptance of SCF world-wide which has been further reflected in the estimation of Aite (US research and consultancy group) about the worth of the global SCF market. According to them, the current value of this market is around US$255 billion ($376 billion).