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Tasks to be completed when creating an operating procedure (from creation to publication) |
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Table of contents
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I -
DESCRIPTIONDescription
Supply Chain Financing Program is also called Reverse Factoring Program
1 - What is a Supply Chain Finance Program ?
Program to sell our Accounts Receivables, in order to have access to early liquidity
Additional source of financing
Since 2015, Solvay takes advantage of Reverse Factoring Program thanks to :
- low interest rate (Euribor for EUR and Libor for USD) on the market
- and credit Coverage (Spread)
2 - Who is offering this kind of Program ?
The Banks of our customers
3 - What does it cost ?
Discount interest for the period from the date of discount payment to maturity date of the invoice. Discount rate = EURIBOR/LIBOR + .
- Spread (bank fee based on the buyer’s credit standing) Discount interest for the period from the date of discount payment to maturity date of the invoice.
- at 1 to 2%
4 - How does it work?
4.1. Benefits for the supplier
Additional source of funding (« True Sale »)
Funding with no impact on Solvay’s credit envelope (Off-balance sheet funding)
Attractive financing rates. No additional costs, only discounting fee
Without recourse financing to suppliers
Cash Flow optimization through earlier receipt of receivables / improvement of liquidity planning
Positive effect on important figures (equity ratio, debt ratio, DSO, WC…)
Receivable portfolio: risk reduction, potential cost savings by replacement of credit insurance
Reporting tools included in the system
Flexibility to request discounting at any time during the life of the transaction.
4.2 Benefits for the other parties
Customer / Buyer : Payment Terms extension
Customer’s Bank : Additional business / fees, based on non-risky companies
4.3 Accounting impact
II - Solvay’s position (corporate guidelines) with regard to SCFP
Such programs are set up if customer has a better credit standing than Solvay.
1 - Condition for GBU to initiate a new program :
Reverse factoring is only permitted when the customer A/R are not eligible to the Group Factoring programs
Solvay must be able to collect the money on the current dedicated bank account managed by Solvay Financial entity in the country (when applicable)
The impact of a specific A/R factoring program or reverse factoring initiated by GBU should be recorded in the GBU working capital
In case a business constraint leads to setting-up a reverse factoring program for a given customer which was part of a Group Program, then GBU cash target will be adjusted to ensure neutrality at group level
If there is a permanent extension of payment terms, there should be another benefit for Solvay in counterpart. (e.g future increase of volumes, pricing..).
2 - Main disadvantages :
SCF programs durably increase payment terms (while the conditions of discount with a bank are not durably set)
Entering a SCF program jeopardizes the potential of the BNPP program (internal financing), by using our best quality receivables
Assignment of receivables to Solvay SA should be cancelled, as receivables can’t be sold twice
3 - Key conditions for Group Egibility :
Implementation of new SCFP should remain exceptional and respect a specific process:
Threshold = 10 M€ (annual sales)
Case should be submitted to Corporate Treasury (Validation of cost), GAR (IFRS), Legal Corporate and BU Finance and legal for validation :
- Current payment terms
- Requested payment terms
- Financial and contractual Proposal of the partner bank recommended by the customer
- Impact on WC
- Business prospect with the customer. Will this extension of payment terms increase the size of the business that we have today?
- Business at stake, if any.
If accepted, contract negotiation between Solvay (including legal departement, IFRS) and the customer’s Bank
Implementation and execution of the SCF program : to be defined by Credit Management, Treasury or BU Finance
III - Programm Implementation
1 - Who are the actors of the SCFP implementation?
- The customer
- The customer’s bank
- Corporate Treasury
- Credit management team
- GAR (IFRS)
- Legal (BU + Corporate)
- BU Financial Director
- BU Market Director or Sales manager
2 - What are the roles and responsibilities of the different actors?
2.1 - Credit Management :
Isis the coordinator of the SCFP feasibility
.:
Sends the approval request template to Corporate Treasury with figures & impacts.
Involves all the concerned BU concerned by within the perimeter of SCFP on boarding.
Makes sure that the key conditions of SCFP implementation are met.
- Coordinates the actions till the best option is chosen.
Defines a follow-up agenda.
Fills in the different necessary documents for banks and BU .(for ex : onboarding)
The Credit Manager responsible for the SCFP implementation is the one in charge of the BU that has the largest turnover with the customer.
2.
12 - Corporate Treasury
Coordinates the ‘technical’ aspects
.:
Liaises with IFRS, reviews and confirms with IFRS the off-balance sheet treatment of this factoring.
Liaises with Legal, reviews the contract with Legal.
Recommends best option.
Secures this external financial source for the BU.
Negotiate with banks.
Reviews the pricing with BU and CM.
Reviews the contract with Tax.
2.
1.3 - Business unit
Sales Manager : generally receives the original request from customer
Sales Manager + Finance Director : make the decision
General Manager or Finance Director : validates the set up
3 - What are the different steps of the implementation ?
Implementation is a long process involving different stakeholders & different steps of validation.
The request to implement a SCFP usually comes from the customer. But it can also be a solution suggested by CM to reduce credit exposure on a customer.
CM checks if the key conditions are met (turnover and BNPP cession).
CM identifies the BU coordinator who will be in charge of the coordination (the one having the biggest turnover with the customer).
CM organizes a first call with the Bank and Corporate Treasury to collect SCFP conditions offered by the supplier’s bank (automatic or manual, rates, perimeter coverage, payment terms).
CM defines the concerned perimeter (BU, country, invoicing zone).
CM collects all the necessary info (Sales + SCFP conditions) :
PRS number of customer.
PRS customer.
Customer country.
List of involved GBUs and legal entities.
Payment terms granted by each GBU.
Annual Sales per GBU.
Any specific information on ongoing contracts.
to measure the impact and fill in the RF template (see Appendix).
CM organizes a global call including different BUs (sales manager, BU or Market Director and Financial Director, BU legal ?) and Corporate Treasury to get their validation.
CM communicates the RF file financial impact to BU to get their approval on suggested options & defines the next steps.
Financial impact communication example
Chosen option (meeting BU needs with best market conditions: payment terms, pricing, execution) submitted is submited to Corporate Treasury for validation through filled in RF file SCFP
Action to add in RF
template :
Once Corporate Treasury approves the principle of change, one can then move forward with the common choice, necessary internal reviews will be necessary up to implementation :
Legal and Tax review of the contract/program
.Treasury to review the pricing with BU and CM
.IFRS to review and confirm the off-balance sheet treatment of this factoring
.BU and CM to be kept in the loop as well to follow up the contract implementation and the bank on boarding until finalization
Such steps can take more than 6 months time before implementation.
CM informs OTC Service Center Manager, Collection Manager and AR Manager about new coming SCFP.
When contract and bank on boarding are available, CM coordinator (or legal BU representative) makes sure that contract is signed by duly authorized BU representative.
- Communication of go-live to OTC Service Center Manager, Collection Manager and AR Manager.
CM and/or Corporate Treasury organizes bank training for AR.
Contract and on boarding documents stored by Treasury and BU Legal but also centralized in CM google file
CM coordinator needs to update on a quarterly basis all changes or necessary information in the CM shared google file .
:
As part of this SCFP structuration, create a CM shared google file and gather copies of current contract
Shared google file access given to Treasury, BU Finance Director, OTC Service Center Manager, Collection Manager and AR Manager and CM Team
CM regularly checks the rate evolution and if program is still relevant.
IV - SCFP Execution
- Receivables are in Solvay SA (PI1) => not visible anymore in the local systems (WP1, PF1) .
-
- Receivables are assigned to PI1 (since 10/11/17) and easily recognizable via the F7 document type .
- Standard Collection process in case of manual discounting .
- Cash Collector coordinator has to check if invoices are correctly processed in the bank web-portal .
- Early payments: should be approved by the GBU and executed by the cash collector coordinator or the credit manager : for Manual option, Cash Collector Coordinator communicates to CM the list of invoices available for discount .
- :
CM coordinator communicates amount to BU Finance.
Cash Collector coordinator receives automatic remittance advices when invoices are paid .and make sure with AR of correct booking
CM filled up amount factored each quater after closure :
- CM regularly checks the rate evolution and if program is still relevant
Scope
2. Add countries when the procedure is for a specific country (optional)
ERP
References
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