The Digital Revolution in Supply Chain Finance is Shaped in Estonia. - Janek Stalmeister

Published on 2022-12-07

Janek Stalmeister, former CEO and Chairman of the management board at Tallink Group for four years, now serves as the CFO in the financial technology company SupplierPlus and helps create solutions for the digital revolution of supply chain finance (SCF). Äripäev interviewed Janek Stalmeister ahead of Tallinn SCF Summit, a landmark event for working capital management in the region.

“SCF allows both buyers and suppliers to easily free up working capital and manage cash flow,” says Stalmeister. He adds that the financing of purchase invoices, i.e. reverse factoring, allows buyers to optimise payment terms, which is important for working capital and liquidity management.

“Another important goal of SCF is to increase the financial capacity of suppliers. SupplierPlus helps to strengthen the supply chain so that subcontractors can sustainably produce or order the necessary raw materials. By freeing up the supplier’s working capital, the manager of a company that actively manages supply chain risks has a positive effect on stable and timely deliveries. In other words, it is in the interest of the buyers that their suppliers are financially capable,” says Stalmeister. This is how strategically thinking managers operate at a time when the global economy is shifting from one crisis to another.

According to Stalmeister, banks offer SCF solutions to a limited number of large companies. This service is underdeveloped in the Baltic countries as well as in Central and Eastern Europe. There is an unfilled gap in the market, which especially concerns mid-sized buyers, because their purchase volumes are not large enough for banks to justify the implementation of a fully-fledged supply chain programme and the associated costs. SupplierPlus can also successfully finance these buyers with its digital solution.

Handling invoices, including related approvals and payments, is automated, making the otherwise cumbersome processes faster and more cost-effective with SupplierPlus. Financing underbanked buyers is feasible on the SupplierPlus platform.

“Reverse factoring is a win-win solution for the buyer and the supplier alike; if the buyer irrevocably confirms payment to the financier, then the suppliers’ access to working capital is immediately improved. Unlike banks, the digital solution provided by SupplierPlus can also ensure that financing reaches smaller and cross-border suppliers who are typically excluded from SCF programmes.” - says Stalmeister.

Estonian fintech SupplierPlus offers innovative financing for both buyer and supplier

In the case of standard factoring, suppliers finance invoices on their own initiative and go to the bank for this purpose, while SCF puts buyers at the centre of the arrangement. “In buyer-led factoring, financiers assess the credit risk of the purchasing entity, which determines the interest rates. If the buyer gives a binding confirmation regarding the payment of the invoice, the invoice is paid to the supplier to the extent of 100%, which includes the financing cost,” Stalmeister added.

Case Study: How does a supplier benefit from buyer-led factoring?

Food producer Kriskal OÜ has been a customer of SupplierPlus since 2019. The company sells goods to supermarket chains and provides typical 30-day invoices for food products. Kriskal OÜ’s interest is to receive money from the sold products as early as possible, while supermarket chains have an interest in paying as late as possible - even after the goods have already been sold. Without financing its invoices, Kriskal OÜ would have to wait 30 days for payment and this would have a negative impact on the company’s working capital. However, with SCF solutions offered by SupplierPlus, the company can sell receivables without recourse - and therefore without utilising its own credit capacity.

How does pricing work at SupplierPlus?

Using the above example, Stalmeister explains how, and at which price, the supplier pays for the service. The price of the service depends on the risk profile of the sector where the companies operate, as well as the financial strength of the buyer and the risk-return expectations of the financiers. “We can’t offer our service to every buyer,” he said.

Speaking about the sectors, Stalmeister adds that the risk of the sectors also affects the valuation. The risk in the construction sector is generally higher than that in the retail trade; thus the prices for customers in the construction sector are also higher. In the telecommunications sector, service prices are again slightly lower than in the trade sector. On SupplierPlus’ platform, prices can vary, by sector, by up to ~6% on an annual basis, or ~0.5% on a monthly basis.

Based on feedback from suppliers, the price offered by SupplierPlus can even be up to 5% cheaper, on an annual basis, compared to standard factoring. For example, financing a €100,000 invoice with a 30-day payment term at a 6% annual rate means that the supplier pays 0.5% of the invoice amount on a monthly basis, i.e. €500, upon assigning the claim. Therefore, given that this amount is outstanding throughout the year, SCF can reduce the financing cost by up to €6,000 per annum.**
You can find out more about SCF on the SupplierPlus website and at the Tallinn SCF Summit 2023, taking place over 8-9 February in the capital of Estonia. The event will be organised in hybrid form and you can sign up for participating in person (paid) or online (free).

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