Table of contents 

By default the table of contents displays Heading 2 & Heading 3 (other levels can be added)

I - DESCRIPTION

Supply Chain Financing Program is also called Reverse Factoring Program

1 - What is a Supply Chain Finance Program ?

2 - Who is offering this kind of Program ?

The Banks of our customers

3 - What does it cost ?

• 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.

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

• Is the coordinator of the SCFP feasibility.

• Sends the request to Corporate Treasury with figures & impacts.

• Involves all the concerned BU concerned by the 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 documents for banks and BU.

The Credit Manager responsible for the SCFP implementation is the one in charge of the BU that has the largest turnover with the customer.

2.1 - 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. - 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).

Financial Impact (examples)

• 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 to BU to get their approval on suggested options & defines the next steps.

• Chosen option (meeting BU needs with best market conditions: payment terms, pricing, execution) submitted to Corporate Treasury through filled in RF file

SCFP Template

Action to add in RF template: currency issue (RF template)

currency libor or euribor

• Once Corporate Treasury approves the principle of change, one can then move forward with the necessary internal reviews:

• 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.

• 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.

http://pf1sapr3.ibm.be.solvay.com:8040/sap/bc/webrfc?sap-client=050&sap-language=En&_FUNCTION=WWW_GET_SELSCREEN&_REPORT=ZZRENTL1&_TEMPLATE_SET=ZZR2_E

• 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

https://drive.google.com/drive/folders/0B1Gs3PGrkscCMVphY1hkejBjMGc?usp=sharing

• CM coordinator needs to update on a quarterly basis all changes or necessary information in the CM shared google file.

https://docs.google.com/a/solvay.com/spreadsheets/d/1fnWV0pY7kKQ_sT2qEOVY9GSKJnmmNXr6iuq32aUST5w/edit?usp=sharing

• As part of this SCFP structuration, create a CM shared google file and gather copies of current contract

https://drive.google.com/drive/folders/0B1Gs3PGrkscCTTNMMS1MMjNDUEk?usp=sharing

• 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.

1. SCFP Execution

• Receivables are in Solvay SA => 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.