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Supply Chain Finance Solutions

Chapter 6

The Market Size for SCF Solutions

By Wang Di

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Main contents1. Company Characteristics2. Commercial Relationship Characteristics3. Cost–Benefit Analysis of SCF Solutions4. Application of the SCF Model5. Summary of Results

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Product and industry categories based on SITC(Standard International Trade Classification)

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highest benefits were assigned to retail, manufacturing, electronics, food and beverage and pharmaceutical companies

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Commercial Relationship Characteristics

1. Supply Chain Design2. Supply Chain Risks3. Supply Chain Transaction Characteristics

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Supply Chain Design

constraints :A bilateral monopoly or restrictive monopsony （ only one

supplier and one buyer ）low level of complexity

No Networks

lower benefit opportunities.

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Supply Chain Risks

economic risks

political risks

financial risks

the probability of deterioration in the exchange rate. a constraint towards SCF solutions.reduce currency risks via various hedging techniques

the possibility that cargo is damaged

insurance

Not fulfill its obligations.Exporter:1.Production risks2.Risks of non-acceptance3.Default Importer:1.Procurement risks2. Insolvency risks

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Supply Chain Transaction Characteristics

•Cross-border domestic trade

• OECD non-OECD trade.

Geographic Scope

•120 annually is minimum

•assumed 75% fulfills the frequency criterion

Frequency of Transactions

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Cost–Benefit Analysis of SCF Solutions

Assumptions:• The calculated market potential implies that each company

either acts as an importer or exporter, thereby excluding the likely case that a company represents both

• excluding the possibility of prepayments• does not consider intra-OECD and intra-non-OECD trade• does not consider distinctions in the motif and benefit

distribution of the different SCF solutions. Experience

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Determination of the Relevant Parameters

average invoice value

DPOWACC

DSOWACCeliminated insolvency risk,dilution rate savings in loss deduction

Servicing feefunding and the risk fee

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Administrative Costs

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Parameters Specific to the Importer (Focal Company)

the average DPO in all major industries was 50 days51.6 and 48.5 days

SCF leading to a DPO extension of 20 days.

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WACC(Weighted Average Cost of Capital)

Defination : A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt are included in a WACC calculation.

• ke = cost of equity • kd = cost of debt • E = market value of the firm's equity • D = market value of the firm's debt • V = E + D • E/V = percentage of financing that is equity • D/V = percentage of financing that is debt • T = tax rate

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we can see how much interest the company has to pay for every dollar it finances.

WACC 代表公司整体平均资金成本，可用来衡量一个项目是否值得投资；项目的回报必须不低于 WACC 。 计算 WACC 时，先算出构成公司资本结构的各个项目如普通股、优先股、公司债及其他长期负债各自的资金成本或要求回报率，然后将

这些回报率按各项目在资本结构中的权重加权，即可算出加权平均资本成本。

• 加权平均资本成本（ WACC ），反映一个公司通过股权和债务融资的平均成本，项目融资的收益率必须高于这个加权平均资本成本该项目才具有投资价值。

• 　　计算公式 = （债务 / 总资本） * 债务成本 * （ 1- 企业所得税税率） + （资产净值 / 总资本） * 股权成本

• 　　其中，债务成本和股权成本用债务人和股东要求的收益率表示。至于债务成本一项要乘以（ 1- 企业所得税税率），是因为与股权融资相比，债务融资可以使企业少缴企业所得税，因为利息在计算利润时是被扣除掉的，而所得税的计算又是按照利润总额的一定比例计算的，显然被扣除利息后的利润乘以一定比率所计算的所得税要比不扣除的计算的少，基于此，所以说利息能够抵税。

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Parameters Specific to the Exporter (Focal Company)

DSO average 59 days SCF can reduce 39 days & reduce lost ratio from

0.3% to 0.1%

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Parameters Set Externally•An

average funding spread of 3% in this research

Funder

•realistic risk fee is 0.2% annually

Risk taker

•around 0.3% of the transaction volume

Service provider

•their WACC is estimated to be 15%

Non-OECD supplier/buyer

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Cost–Benefit Analysis to the Importer

An importing focal company generates potential savings by implementing an SCF solution if its non-OECD purchase volume is greater than $3,373,984.Additional purchases yield savings of $0.0089 per US dollar

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Cost–Benefit Analysis to the Exporter

An exporting focal company generates potential savings by implementing an SCF solution if its non-OECD turnover volume is greater than $1,904,937.Additional turnover yields savings of $0.016 per US dollar.

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Estimation of Relevant Trade Flows

• As can be inferred from Table 6.10, the constraints overall reduce the SCF

application potential from $2,770,260 million to $702,843 million, which accounts for approximately 25%. Table 6.11 displays the OECD exports.

• The SCF potential from non-OECD directed imports is estimated at

$702,843 million. The potential for directed exports is estimated at $547,049million.

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ModelsBenefits to Suppliers in the SCF Importer Model

Benefits to Buyers in the SCF Exporter Model

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overviews

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overviews

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overviews

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overviews

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Summary of Results

• The potential market size for SCF solutions for non-OECD directed imports isestimated to be $702,843 million.• The potential market size for SCF solutions for non-OECD directed exports isestimated to be $547,049 million.• An importing focal company generates potential savings by implementing anSCF solution if its non-OECD purchase volume is estimated to be greater than$3,373,984.• An exporting focal company generates potential savings by implementing anSCF solution if its non-OECD turnover volume is estimated to be greater than$1,904,937.

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The end

Thank you!