1. What is supply chain finance?


Supply chain trade finance (SCF), also known as supplier finance or reverse factoring, is a set of solutions that optimised cash flow by allowing businesses, i.e. buyers, to lengthen their payment terms to their suppliers while providing options for their large and SME suppliers to get paid early.  This will result in a win-win situation for both the buyer and supplier.  The buyer optimises working capital while the supplier generates additional operating cash flow, thus minimising risks across the supply chain. 


In summary, SCFsupply chain finance is,


  • an extension of the buyer’s accounts payable and not considered a loan or financial debt.  For supplier, it is a sale of their receivables;

  • not restricted to a single financier or bank as it allows multi-bank participation and helps the buyer to diversify the source of liquidity should its bank lose appetite for its own supply chain finance program;

  • not a factoring as each invoice is paid to the supplier minus a transaction fee.  Once the invoice is paid, there is no recourse burden on the supplier; and

  • not exclusively participated by financial institutions as it can be self-funded by the buyer or funded through the capital markets.


Through SCF, the financing cost is lowered, business efficiency is improved, and cash optimisation is achieved for both buyers and sellers.



2. How does TFX Islamic do it?


When a buyer offers suppliers an option to be paid early by selling approved invoices, this will improve business efficiency and optimising cash flow for both buyers and sellers.


TFX Islamic is a service & cloud- technology driven based business and financing process that link various parties in a transaction – buyer, seller and financing institutions while ensuring the risk is mitigated along the supply chain.


3. How does TFX Islamic process the invoices?


Once the buyer approves the invoices, the buyer will upload the approved invoices onto TFX Islamic platform. At any time, the supplier will get notified and have visibility of all the approved invoices on the platform. 


A finance provider will make payment directly into the supplier’s bank account on the original maturity date, or the supplier may sell or ‘trade’ his receivables to the finance provider on the platform in return for advance payment.

If traded before maturity, 100% of the invoice – less a small financing fee or discount – is transferred electronically to the supplier’s bank account on the next business day or within 2-3 days. Since funds from the finance provider are advanced based on the buyer’s promise to pay on the original maturity date, financing rates are based only on the buyer’s risk, not the supplier’s.


At maturity, the buyer pays the full invoice amount to the supplier or the respective finance providers on the platform.


4. How does SCFcan supply chain benefit your company?


The main goal for businesses globally in adopting supply chain finance is the ability to lengthen business Days Payable Outstanding (DPO).  With continuous adoption of SCF supply chain finance programme, there will be massive improvements in the supply chain as suppliers are able to give better prices and services, hence improving business margins.  It also creates a sustainable business relationship between vendors and buyers improving business growth, improves the business bottom line and better returns for shareholders.


On the other hand, with good financing returns, the internal treasury is welcomed to participate in the programme to improve their capital returns.



5. What are should be your concerns if when your company implements SCFsupply chain finance?


Any SCF supply chain finance will require proper planning and execution by TFX Islamic service team in collaboration with the buyer. Risk mitigations will need to be efficiently managed with strong governance as well as technology, in this case, within TFX Islamic platform.


With proper SCFsupply chain finance implementation, there is no effect on your trade payables accounting and your suppliers will have improved working capital. Communication will also be more effective. This also includes effective communication.



6. What are the accounting implications?


 There is still the issue of inadequate regulations on accounting implication for SCFupply Chain Finance. Globally, this is resolved by way of additional disclosure of the nature of arrangements and the financial reporting judgment. Also, with the principle-based approach accounting treatment, it should be based on understanding that it is the set-up of the arrangement driven by the fact that the buyer itself seeks financing of its working capital by lengthening its days payable outstanding(DPO).


From a finance perspective, reclassification will not have any impact on the cash flows of the company. Hence, there is no real difference between financing the DPO with accounts payables or debt-financing. In this sense, this issue is strictly an accounting issue and should be solved by either additional disclosure of the account payable programs or principle-based regulations.


In summary, for buyers, trade payables stay remain as trade payable. For suppliers, receivables are not converted to debt, hence not impacting neither their outstanding debt covenants nor balance sheet.



7. How long does TFX Islamic need to get SCFsupply chain finance completed before 1st invoice is financed?


TFX Islamic offers end-to-end SCFsupply chain finance services and technology application. The initial phase will take an average of 3 months before the initial invoices can be uploaded into TFX Islamic for the approval by the funders. This period will involve


  • Data-driven analysis of the entire supply chain to determine importance and prioritization of different suppliers.

  • Assist buyer with cash flow optimisation for balance sheet improvement and sustainability

  • Training of different Finance team namely Account payables, Procurement and Supplier Management Base.

  • Train and support suppliers selected by Buyers, this includes live chat, conversation days and workshops.


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