The following information gives answers to your questions about eFactor Network, supply chain finance, and the benefits of working capital finance solutions.

Who is EFactor Network?

EFactor Network is a financial technology and solutions provider operating some of the largest supply chain finance programs in Mexico and Latin America. By offering accounts payable and receivable finance, EFactor Network helps companies to optimize their working capital and to strengthen their financial supply chain.

Our technology platform provides working capital finance solutions to thousands of trading partners across Mexico and LATAM in multiple currencies. More than 10,000 clients and over 25 funders, including major financial institutions, are part of our network.

What is supply chain finance?

Supply chain finance, also known as accounts payable finance or reverse factoring is a financing solution that helps buying organizations as well as their suppliers to improve their working capital, generate free cash flow and reduce the risk of supply chain disruption. Supply chain finance achieves these benefits by allowing buyers to extend payment terms while offering to their suppliers the option to get paid early. The low financing fee for early payment paid by the suppliers is based only on the credit risk of the buyer.

How does supply chain finance work?

Supply chain finance allows a corporate buyer to optimize its working capital by improving payment terms, while offering to its suppliers the option to get paid earlier at favorable financing terms.

Instead of using its own cash to pay the suppliers early, the buyer has an arrangement with a platform provider, which allows a funder to advance payment to a supplier based on approved invoices by the buyer and the credit strength of the buying organization. The financial institution is able, therefore to make funding available to the supplier at a much lower cost than it otherwise would or if indeed, they were able to get access to finance at all.

What are the process steps in supply chain finance?

The invoice is submitted by the supplier and sent to the buyer.
The buyer approves the invoice and uploads the data onto the EFactor Network platform.
El proveedor puede ver todas las facturas aprobadas, notas de crédito y fechas de vencimiento de los pagos registrándose en la plataforma de eFactor Network.
El proveedor tiene la opción de vender sus créditos a un fondeador y seleccionar el pago anticipado de la factura a través de la plataforma.
Si el proveedor solicita un pago anticipado, el fondeador acepta esta solicitud y paga los fondos descontados.
En la fecha de vencimiento del pago, el comprador paga la cantidad total de la factura directamente al fondeador.
Si el proveedor no ha solicitado un pago anticipado, el comprador paga la cantidad total de la factura directamente al proveedor en la fecha de vencimiento.

Who pays for supply chain finance?

In most cases the buyer does not pay any fee for the supply chain finance solution and the supplier only pays a small discount if he wants to get paid early. The discount is based on the credit worthiness of the buyer as well as the duration of financing.

How is the discount calculated in supply chain finance?

The only cost for the supplier is a small discount that is deducted from the payment. The discount only applies if the supplier wants to get paid early. There are no others fees to join or exit the supply chain finance program. In general, the supply chain finance fee is ten times lower than similar financing solutions, such as factoring or asset-based lending.

The supply chain finance fee or discount is typically composed of just three elements:

Benchmark rate, such as LIBOR
Interest rate or financing spread. It is based on the credit risk of the corporate buyer and determined by the financial institution.
Servicing fee for implementing and managing the supply chain finance program. It is determined by EFactor Network.

What is LIBOR?

LIBOR is the world’s most widely used base rate or benchmark for interest rates that some of the leading banks charge each other for short-term loans. It is defined as Intercontinental Exchange London Interbank Offered Rate and serves as the basis for calculating interest rates throughout the world.

How often does LIBOR change, and what is the current rate?

The rate is officially fixed once a day by a small group of banks. Over the past year, the three-month (90 days) LIBOR rate changed from 0.53% Dec 2015 to 0.96% Dec 2016.

How long does it take me to join a supply chain finance program?

As a supplier, the registration or onboarding is quick and easy. It takes about two days to complete the registration and have access to the EfactorNetwork platform.

As a supplier how do I have to submit my invoice to my customer?

There are no changes to the invoice process. You send your invoice as before to your client for approval.

As a supplier, how quickly do I get paid?

The payments will be transferred to the supplier’s bank account as quickly as within 24 hours, depending on the financial institution.

Do I need to install software to use supply chain finance?

No software is required to use supply chain finance. You can enter the supply chain finance of EFactor Network via the internet by using a secured username and password.

As a supplier do I have to participate?

No, the supplier is not required to participate or use supply chain finance.

How secure is the supply chain finance platform?

The platform of EFactor Network has many layers of security, each with its own policies, controls, and monitoring. The technology platform has been approved and is being used by over 50 financial institutions, including the largest commercial banks.

As a buyer, what are the benefits to use supply chain finance?

With supply chain finance the buyer has the following benefits:
Improve working capital by increasing payment terms
Generate operating cash flow
Standardize payment terms with suppliers
Improve efficiency to manage accounts payable and reduce administrative costs
Reduce risk of supply chain disruptions
Opportunity to self-fund early payment terms to suppliers

As a supplier, what are the benefits to use supply chain finance?

Early payment of invoices and outstanding receivables
Non-recourse financing at lower cost than factoring or loan from banks
No debt as compared to banks loans resulting in better balance sheet metrics
Full visibility on all approved invoices and expected due payments
Reduced disputes and collection costs

As a financial institution, what are the benefits to use supply chain finance?

Supply chain finance offered bt EFactor Network provides the following benefits to funders:

Fast and easy go-to-market strategy for banks
Direct relationship with the supplier/seller and buyer/obligor.
Banks can market supply chain finance independently based on EFactor Network’s platform
EFactor Network’s platform is tested and used by over 50 financial institution
Full outsourcing and support to manage supply finance programs
No money flows through EFactor Network

How long does it take to implement a reverse factoring program?

It takes approximately three months to implement a supply chain finance program.

Are there any restrictions in terms of currencies or jurisdictions?

In general, there are no restrictions on the EFactor Network platform. However, some limitations may apply based on the funder selected to finance the supply chain finance program.

Is the financing based on letters of credit?

EFactor Network’s financing solution is based on open account and does not require letter of credit.

What is working capital?

Working capital is a very important metric and an indicator of how efficiently a company is managed. It is the capital of a business that is used in its day-to-day trading operations, calculated as current assets minus current liabilities.

The most common strategy used by companies in optimizing working capital is to either extend payment terms to suppliers and improve DPO (Days Payable Outstanding) or collect payments earlier from customers and reduce DSO (Days Sales Outstanding). While just extending payment terms can result in negative effects on the supplier’s own working capital, supply chain finance allows sharing these benefits with the supplier by offering early payment terms.

What is Days Sales Outstanding or DSO?

Days Sales Outstanding (DSO) is a metric to estimate a company’s average collection period. It is a financial ratio that illustrates how well a company's accounts receivables are being managed. The formula for DSO is: (accounts receivables / sales) x 365

What is Days Payable Outstanding or DPO?

Days Payable Outstanding (DPO) is an efficiency ratio that measures the average number of days a company takes to pay its suppliers. The formula for DPO is: (accounts payables / spend) x 365

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