WORLD TRADE  
ORGANIZATION  WT/WGTDF/W/55 
2 May 2011 
 
 (11-2238) 
Working Group on Trade, Debt and Finance Original: English 
 
 
 
SUPPLY CHAIN FINANCE: THE CHALLENGE OF PROVIDING MORE 
 
Information Note by the International Chamber of Commerce  
 
 
1. Supply chain finance enables buyers to potentially extend their payment terms while making 
it possible for their suppliers to receive early fundi ng against accounts receivable. In a typical buyer-
backed supplier finance program, sel ected suppliers have the option to sell the receivables due from 
the buyer at a discount and receive early paymen t. The purchaser then collects payment from the 
buyer on the due date – say, 60 days out – having ex tended its own funds and ba lance sheet to provide 
the supplier with needed liquidity. Within a typical supply chain finance program, invoices are presented and paid electronically via the provider’ s online platform, adding the benefits of supply 
chain visibility and streamlined payments to the fund ing and risk mitigation elements of the solution. 
Supply chain finance can be deployed in conjunction with a buyer’s strategy to  retain cash needed to 
meet working capital management goals. At the sa me time, supply chain finance helps suppliers 
forecast their cash flows more accurately and levera ge their buyer’s credit rather than their own, 
which may be less than perfect. Although nowhere near as established as documentary credit, which 
has been available for centuries, supply chain finan ce is now the world’s fastest growing trade finance 
offering. During the financial crisis, supply chai n finance programs proved a godsend for buyers and 
suppliers frozen out of credit markets.  
I. FROM PRODUCT TO MARKET  
2. Banks continue to see sharp growth in demand for supply chain finance. With the recovery 
gathering strength, buyer-backed supply chain finance programs are proving critical for large 
manufacturers with global supplier networks. By enrolling in a buyer program, suppliers have 
obtained the liquidity necessary to help them meet swelling order volume. At the same time, buyers 
have been able to fund their key suppliers by leve raging a bank’s balance sheet -- and to hold onto the 
cash they need to make strategic growth investment s. Some European banks report that buyer-backed 
program volumes have doubled since the beginning of th e crisis, with participating suppliers saving as 
much as 4% on their cost of borrowing. With the heaviest corporate demand coming from the 
manufacturing, retail, pharmaceutical, telecommunica tions and technology sectors, the offering has 
quickly evolved from a product to a market. Suppl y chain finance is now understood as a suite of 
payables and receivables finance solutions that su pport domestic, regional and global supply chains. 
Such financing options are now st andard working capital management tools for corporate treasurers, 
especially those whose organizations are expanding in ternationally. With traditional credit flows still 
not as strong as they were before the crisis, s upplier solutions including receivables finance and 
pre/post export solutions are proving vital as dema nd for output increases and cross-border trade picks 
up across the globe. Small and medium-sized supp liers are now eagerly seeking out supply chain 
finance programs, clearly hungry for the working capital benefits these programs provide through 
accelerated cash flow.  
3. In this maturing market, multi-country, multi-cu rrency programs have become more common. 
Buyers now ask their providers to run programs in as many as 50 countries; Peso-, rupee- , real- and 
renminbi-based programs are being launched in additi on to existing programs in U.S. dollar, euro and WT/WGTDF/W/55 
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  pounds sterling. As supply chain finance programs br oaden, they need to be better supported locally. 
This means that lenders are now challenged to provide more  knowledge, infrastructure and 
operational support on the ground. How can suppliers in  fifty countries be effectively educated about 
the program and persuaded to sign up? How can s upply chain finance programs be most effectively 
delivered to all the counterparties in a transaction?  If one platform is used for a global rollout, how 
should that platform serve local markets? Until a few years ago, on-boarding was a huge challenge for 
these programs, not least because of the reluctance of some suppliers to share information about their 
businesses. Now the challenge is more about distance and infrastructure. Counterparties in the remote 
parts of mainland China or South America may also  be key suppliers of major multinational buyers; 
in order to serve them, global banks must extend th e reach of their supply chain finance programs via 
their own capability, or through relations hips with regional partner banks.  
II. GLOBALITY AND THE NEED FOR COLLABORATION  
4. As corporate supply chain finance programs de velop larger credit needs and global supplier 
bases, more collaboration between fina ncial institutions is required. C oncentrated corporate risk often 
exceeds the appetite of a single funding party; collabor ation more effectively distributes that risk. 
Since supply chain finance is delivered electronically and companies are often reluctant to integrate to 
multiple platforms, a lead bank’s program will deliver  financing, but the corporate customer may also 
make use of other banking relationships to fund its  supply chain finance program. In its continuing 
evolution, supply chain finance may come to mo re closely resemble syndicated lending, with 
seamless capability to add funding partners to progr ams. Also moving towards this market is more 
sophisticated risk distribution via capital markets st ructures – for example, Special Purpose Vehicles 
(SPVs) and notes that can be sold to banks and institutions. Funds may soon  participate in supply 
chain finance programs, buying assets and notes issued on receivables in a manner reminiscent of the commercial paper market. This capital markets aspect is an important nuance that is not yet widely 
understood or appreciated, but its day has come.  
5. Most of today’s corporate supply chain finance programs are not for everybody in the buyer’s 
supplier base. Big corporations and multinationals ar e offering participation in supply chain finance to 
what the industry calls “strategic” suppliers. As  the global recovery accelerates and more strategic 
suppliers sign up for buyer-backed supply chai n finance, many SMEs in emerging economies 
continue struggling to access affo rdable lines of credit. How can these producers meet their working 
capital needs if banks won’t lend to them -- even wh en the supplier, viewed as a high credit risk, is 
willing to pledge 100% collateral?  For multinational corporations and their key suppliers, supply 
chain finance programs like those J.P. Morgan offe rs are an increasingly essential means of managing 
working capital and mitigating risk in the supply chai n. But with the rising tide needing to lift more 
boats in countries like China and India – and now in  disaster-struck Japan—the issue may be whether 
enough supply chain finance can be made available to provide SMEs with a debt-free alternative to 
traditional bank loans. In some of the most critical emerging economies, the ongoing recovery 
depends on further help for supplie rs who would not typically be invited to participate in a global 
program.  
6. In response to this challenge, Export Credit Ag encies are also becoming involved in supply 
chain finance. The U.S. Ex-Im Bank’s recently a nnounced Supply Chain Finance Guarantee Program 
was developed to meet the needs of small businesses and President Obama’s National Export 
Initiative. At least half the credit provided under th e program must be extended to suppliers meeting 
the small-business definition of the U.S. Small Business Administration. The Ex-Im Bank supply 
chain guarantee is offered to lenders whose ex isting supply chain finance programs have been 
implemented by U. S. exporters. Ex-Im’s guarantee  enables the financial provider to increase its 
purchase of U.S. supplier receivables related to export-related production and once again gives the 
exporter the option to extend payment terms and obtain a working capital benefit without imposing 
undue financial hardship on the supplier. Such gua rantees further mitigate counterparty risk while  WT/WGTDF/W/55 
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  making supply chain finance available to a much  larger portion of the supplier base. An ongoing 
challenge for custodians of the global economy will be providing similar credit and risk-mitigation 
solutions to meet the needs of SMEs in em erging economies. ECA programs and/or lending 
syndicates providing lenders with additional financia l and risk capacity could prove the most effective 
means of bringing more small-to-medium suppliers all the benefits of state-of-the-art global supply 
chain finance programs. 
7. This article was prepared by J.P. Morgan  for the International Chamber of Commerce 
Banking Commission for presentation to the World Trade Organization and represents the opinions of J.P. Morgan. J.P. Morgan is a marketing name fo r the treasury services businesses of JPMorgan Chase 
Bank, N.A. and its subsidiaries worldwide. 
 
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