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Supply chain financing could be the solution to address mismatches in procurement transactions as there are hundreds of billions of trade receivables and payables registered within the local business supply chain.
TFX Islamic Sdn Bhd CEO Norita Ja’afar said there are some RM20 billion owed to vendors by corporate buyers in Malaysia and another RM100 billion to small and medium-enterprises (SMEs).
“On the corporate side, we are looking at an account payable of RM20 billion by public-listed companies that are trapped and not being financed. At the SME level, the trade receivable recorded is about RM100 billion. This clearly shows there is a lot of money on hold and these businesses could sell their papers to get financing, yet they are not able to do that,” she told The Malaysian Reserve (TMR).
According to PricewaterhouseCooper’s recent Global Working Capital Study 2018/2019, about RM6 trillion of cash opportunity could be released globally by addressing poor working capital management practices.
Norita said the recent establishment of TFX Islamic is aimed at serving the gap in trade financing between SMEs and corporate buyers, particularly in the current challenging business climate.
TFX Islamic is a cross-border supply chain finance platform operated entirely on an online medium and targeted at the local and regional markets.
Norita added that corporations could save millions of ringgit in finance-related costs by implementing supply chain financing, which leverages financing cost arbitrages between buyers and sellers to optimise their working capital needs.
“TFX Islamic is a multi-channel platform where we connect the vendors, corporate buyers and the financing in a single platform to enable real-time communication done virtually, which is an integral part to execute trade financing processes.
“Trade financing has to be done digitally; otherwise, it will take too long to process and to get approval. We know SMEs are grappling now and they need cash fast,” she said.
Norita said the supply chain financing serves SMEs well, particularly when the economy is volatile, as financings are latched on corporate buyers’ credit assessments.
“If SMEs go to the bank, they will be credit-assessed based on their companies’ wellbeing, which can be difficult, especially as the moratorium on loans has ended. They would not be able to get financing on their own.
“What supply chain financing can do is it will latch onto corporate buyers, and together with the SMEs, corporate buyers will come up with programmes to allow SMEs to enjoy lower interest rates.
“With supply chain financing, the SMEs, or the vendors, do not have to worry about credit-worthiness because it is not them that are being assessed, it is the corporate buyers,” she said.
She added that cash optimisation and working capital are the core fundamentals of any company, particularly in avoiding business erosion and in recovering from the economic uncertainties.
“With abrupt lockdowns, economic conditions would certainly be affected for the foreseeable future. We hope to help high potential SMEs simplify their financial operations and process complexities to move from their working capital position and to scale their businesses to the next level,” she said.
Norita said TFX Islamic will be partnering three corporate buyers by early next year to match their vendors with financial institutions.
“The advantages of the online platform is that it could manage any frequency of financing from any sector with any volume, but there are guidelines of which we could not cut corners.
“We have come forward to say that historical data is not valid anymore in terms of credit assessment and went with a solution that looks at a more holistic view, not just on financials, but the qualitative advantage, competitiveness as well as skill and expertise.
“We are already in talks with three to four financial institutions. We have already secured one. For corporate buyers, we have two government agencies that are coming on board with us and three negotiations in the pipeline,” she said.
Norita added that a company could have as many as 2,000 vendors that need to be financed, which will require supply chain financing.
Source: https://themalaysianreserve.com/2020/11/23/supply-chain-financing-can-address-backlog-transactions/