Supply chain financing (or reverse factoring) is a form of financial transaction wherein a third party facilitates an exchange by financing the supplier on the customer's behalf.
Unlike traditional factoring (where a supplier wants to finance its receivables), supply chain financing is initiated by the ordering party (the customer) in order to help its suppliers to finance its receivablesmore easily and at a lower interest rate than what would normally be offered. In 2011, the reverse factoring market was still very small, accounting for less than 3% of the factoring market.The current, global market size for Supply Chain Finance is estimated at US$275 billion of annual traded volume, which translates in approximately $46 billion in outstandings with an average of 60 days payment terms. It is still relatively small compared to the market size of other invoice finance methods such as factoring, which remains the largest trade finance segment and is primarily domestic in focus.
The potential market for Supply Chain Finance for the OECD (Organization for Economic Co-operation and Development) countries is significant and is estimated at $1.3 trillion in annual traded volume. The market serving European supply chains is approximately $600 billion. Based on these figures, the potential Supply Chain Finance market size for the US is estimated to be approximately $600 billion in traded volume per annum. A recent comprehensive research paper estimated that currently there are 200 GSCF programs of scale in place. These programs are run both domestically and cross-border and in multiple currencies. Still, the market potential is far from its capacity. If examining spending of large organizations, such as Lowe's $33 billion in spend, it becomes apparent that Supply Chain Finance programs usually require a multi-bank platform due to the credit and capital issues associated with banks.
SCF essentially works by finding a bank to pay a customer’s invoice from its suppliers early [in essence, a loan], for a fee, so that suppliers can improve their cashflow. [see graphic]
Any business concerned about its cashflow has to look at three important measures. How long does it take to get money in from customers; how quickly are suppliers paid; and what level of stock needs to be held.
Increasing the time taken to pay suppliers would have been an easy and immediate way of increasing cash availability. But the proposed shift from settling invoices in 30 days to making it 90 days would have really annoyed suppliers.
A solution was found through discussions with the company’s bankers that helped develop what was initially called reverse factoring. As it became more widely adopted, it became known as SCF.
When it comes to technology, Shenzhen may well be the most fascinating city in the world. It makes the majority of our electronics. It clones the best technology Silicon Valley has to offer with ease. And, these days, Shenzhen buzzes with new ideas and an unrivaled energy that ensure it will play a major role in shaping our collective futures.
Comment : "I love this woman, ever since I read her book. Here's a quote: "As the choices on the path forward become starker, the government leans more determinedly on its most powerful tool of governance: its ability to quickly amass and deploy the resources of a massive unified nation. So effective has been the use of credit to stall and cover over problems associated with China’s antiquated political system that it has proven to be irresistible. For the whole of the 2000s to date, China’s has been the most capital-intensive economy in the world, with the result that, by 2013, China’s domestic debt had reached somewhere between 200-250% of GDP. At this writing, one unit of GDP growth requires roughly three units of credit growth—a ratio that has worsened dramatically since before the global financial crisis in 2008. China is like a man who has burned all the trees around his house to keep warm and now is tossing his furniture into the stove. Financial resources, in the end, are limited, and the acceleration in credit to forestall what inevitably must be a sharp recession cannot last much longer." Stevenson-Yang, Anne. "China Alone: The Emergence from and Potential Return to Isolation"
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A power crunch in some parts of China has shut down factories and left households without electricity. The shortages come as coal prices rise and in some cases because of efforts to meet official energy use targets.
21-9-27 Power cuts hit homes in north-east China: Residents in north-east China are experiencing unannounced power cuts, as an electricity shortage which initially hit factories spreads to homes. People living in Liaoning, Jilin and Heilongjiang provinces have complained on social media about the lack of heating, and lifts and traffic lights not working. Local media said the cause was a rise in coal prices leading to short supply. The country is highly dependent on coal for power. One power company said it expected the power cuts to last until spring next year, and that unexpected outages would become "the new normal". Its post, however, was later deleted. The energy shortage at first affected manufacturers across the country, many of whom have had to curb or stop production in recent weeks.
21-9-28 Goldman Sachs cuts China growth forecast over power outages: Goldman Sachs has become the latest banking giant to cut its growth forecast for China, as the country struggles with energy shortages. It now expects the world's second largest economy to expand by 7.8% this year, down from its previous prediction of 8.2%. The firm says major industrial output cuts caused by power outages add "significant downside pressures". It estimates as much as 44% of China's industrial activity has been affected. The power supply crunch, caused by environmental controls, supply constraints and soaring prices, has left some factories and homes without electricity. The energy shortage at first affected manufacturers across the country, many of whom have had to curb or stop production in recent weeks. A document seen by the BBC shows that the largest port in northern China at Tianjin has been affected by a shortage of electricity. Power rationing for cranes that lift cargo between ships and the shore is expected to continue until the end of the week.
Comment: The largest producer of coal having a coal shortage is not as weird as it seems. There is a wide variation in coal types and some are better for some purposes, than others. The two main types of coal are thermal coal and metallurgical coal. The main difference is the type of ash. Thermal coal produces fly ash, which is basically dust particles that do not stick together and form lumps. Metallurgical coal has ash that does clump up and this is helpful for scavenging impurities while smelting metals. In the bad old days of workers shoveling coal into furnaces, metallurgical coal was known for causing 'clinkers', glassy deposits on the furnace grate that would need to be regularly removed with hammer and chisel. The clinkers from burning metallurgical coal to raise steam was bad enough when all that the clinkers did was limit the flow of air through the grate. In a modern coal-fired generating station, the clinkers form on the boiler tubes and restrict the transfer of heat from the burning coal to the water that becomes steam and removing the deposits is nightmarishly expensive (in time, if not money). Along with whether the coal is thermal coal or metallurgical coal, different types of coal also liberate different amounts of heat per unit mass. Ocean transport being very inexpensive, even over long distances, it is more economical to design a powerplant to run on high heat content coal that does not form clinkers , from across the sea, than it is to design a powerplant to run on local coal of a lower heat content that does form clinkers.
"In many ways, China's ongoing electricity crunch is a mess of its own making. It's due in part, for example, to an overly rigid regulatory system that compels local officials to act a bit too aggressively in complying with Beijing's diktats – as has happened in this case in response to power consumption quotas handed down from the central government – even when it becomes abundantly clear that doing so is a bad idea. It's also partially a result of dwindling reserves of thermal coal, which accounts for more than half of China's energy mix.
One cause of the depleted inventories is the ban China imposed last year on imported coal from Australia. It did this to pressure Australia on a number of issues, ranging from Canberra's criticism over Beijing's initial handling of the COVID-19 outbreak to Canberra's hearty embrace of the Quad. Whatever the goal of the ban, it led to ships full of Australian coal being stranded just outside of Chinese ports at a time when blackouts were beginning to roll across the country. (China has since quietly allowed the cargos to be offloaded.) And it's forced China to race to find alternative suppliers on the fly, including from places more difficult and expensive to reach like western Kazakhstan. It's also contributed to the surge in prices globally. Coal is a highly fungible commodity, so the disruption is almost certainly temporary, but painful nonetheless."
