[ Gentle music plays ] So in terms of assessment in in in current state, so there are different points to consider. As I mentioned before depending on the solutions which you want to implement it's really important to review how much is responsible for direct spend and how much is responsible for indirect spend, correct? Then also you want to look at this spend divided into different units. So you spend let's say 80% out of US 20% out of Europe then it would make maybe sense to start in the US and not in Europe or how much is the concentration. I mentioned earlier today a company like Lactalis one of the largest milk manufacturer, so here there is almost no concentration on the suppliers because what you're looking for is always this type of rule which you have almost every industry. The 20 80% rule. So basically this 20% okay is responsible for for 80% of the spend. So 20% of the supplier responsible for 80% of the spend, that's that's the classical kind of structure within spend and also within actually also within sales. So in most cases most industry for most companies 80% of the total revenue is generated with 20% of your clients, but they are exceptional as I mentioned Lactalis one of the largest milk manufacturers, they have like 10,000 of suppliers which are mostly milk manufacturers and there is very little concentration. So then you have to spend like with thousands of thousands of suppliers which you don't want. So you want to concentrate on small amounts of suppliers to start with, and also what you want to look at is what are the current payment terms versus the new payment terms you want to achieve. For example if you're if you're if you have a company which says like okay I have currently payment terms of 30 days, I want to increase him increase his terms by 2 days from 30 to 32 doesn't make sense, correct? So the impact is too small and and suppliers will not come on board and use or there's very little incentive for a supplier to come aboard and choose such financing. Then you also would like to know if there were some recent payment terms in initiatives. Let us say if you're if you have a c6ompany which increased just like 3 months ago or let's say half a year ago that terms from 30 to 60 days without supply chain finance just like okay supplier were increase from 30 to 60 days and now they want to increase it further to 90 days using supply chain finance. No supplier will take them seriously, correct? The the time period between the last initiatives and this one is too short. So you also want to look are there other initiatives going on? Or when was the last one? Then very important is the invoice approval time. So let's say first of all just to as a summary again you remember the supply chain finance programs are always initiative initiated by the buyer uploading the invoice or connected directly to the ERP system but the invoices are uploaded to the platform and these are not just invoices in general, these are approved approved invoices. That means they are approved for payment, basically in the system in the ERP system they flag them that these invoices belongs to the same purchase order they have done that they have placed before with the supplier. Now that means that the supplier can only see the invoices which have been approved, correct? Now let's say again this is 60 days, the buyer needs-- and by the way this is not an exception this is not like unseen. The buyer needs 40 days to approve an invoice that means the supplier cannot get paid on on day 5 correct? Doesn't work, so the supplier the first or the earliest possible is he can get paid on day 40. Sometimes let's say realistically 41 because the platform once he has requested the payment still the platform has to inform the funder which can take seconds, but the funder has to to issue the transfer of money. So there are some banks that can do it T plus one so the same day depending on you do it you request the funding before 11 o'clock a.m. most of them are T plus one, so you request now you get the money tomorrow and then some exceptions like I think Japanese banks or they need two days, so but mostly it's T plus one. No it's yeah I mean it mostly has to do yes with internal pool times but also internal procedures but yeah you're right, but anyhow this if it's 40 or 41 this is not a big difference the promise is 40 correct. So now if you terms before were 40 days to make it even worse. The terms before were 40 days the buyer says like," I want to increase it to 60 days," alright. He goes to his supplier and say like," Hey I have a great surprise. I increase your payment terms to 60 days, but now I have supply chain finance, you can get paid earlier." But he needs 40 days to approve it. What is the benefit for a supplier? It's the same but now instead of $100 he receives 19-- 98 so there he only loses money there's no benefit for the supplier and I mean this is this is an extreme case. Mostly it's like I mean I have seen an example where the approval time is two days or one day and I have seen example of 40 days, but so it's why if you are a corporate or if you are somebody who wants to help a corporate to set up a program, you always ask like what on average is your approval time for an invoice and if your approval time is high do you have any kind of initiatives in place like electronic invoicing, like if you receive this and this is not unusual if you receive that invoice based on paper then first of all you have to receive the paper. Then you have to scan it then you know you have to digitalize it. So electronic invoice can speed up the process dramatically which this is the next point, the type of electronic invoicing solution and another point which I have seen in my past with with corporate this, of course, corporates have a lot of initiatives in mind to improve efficiencies in the supply chain or in general and the financial department. So if your priority number is six for such a large program then sometimes you have to ask yourself you don't want to first set up the other initiatives before you're going with supply chain finance okay. Then of course, you want to know the companies cash conversion cycle. So you don't only want to know that they're their accounts payables but also you want to know their receivables days, their inventory, if there are other improvements there and and because sometimes these companies are not just looking at the accounts payables but looking more on a general to improve cash flow and working capital by improving their receivables or their inventory, and then very important point the ERP system. So if you speak with very large corporates they have been buying companies in the past, correct? Some of them use some of them are using let's say an Oracle or a J.D. Edwards or SAP as an ERP system. Every time you have to receive this data from the ERP system, so it can be you have a buyer entity one this can be SAP. This can be let's say this the buyer bought in in Sweden they bought a company but in Sweden the company use Oracle. It can also be that the company in the US has this has SAP but a different version, so they use SAP I don't know 1.0 they use SAP 1.-- 2.0 so basically if you are the platform provider you have to connect with all of them and if you have and there are examples where you have like 10 different ERP system. So how you weight efficiently? Because every time this costs money to implement and to connect with them. So you want to look where first of all how many ERP system are involved and where is the biggest concentration. So if in terms of spend this is 20% this is 10% and this is 70% you start with this one. Then the third last point very important is difficult you can find a feel in terms of what is the relationship between the buying organization and their suppliers. So is it it's a relationship built on trust on working together on collaboration or is it like nobody trusts each other, everybody's competing you know so this is very very important. Is there a good relationship where you're not just looking at your own financials but you also want to work with your client or suppliers or if this is not happening because then if you implement such a program, the first thing suppliers will think about you is like you just want to take advantage of them. Yeah and then if you have defining stakeholders so like if there's no change in terms of top management the CEO CFO is there you have a Treasury he's not changing or he's new to the business, so what is the structure, and of course, as I mention before what are their their major projects which are currently being worked on. Any any question? Then in terms of I mean this was the internal or micro level than in terms of macro level also very important points to consider. So one is the specific laws, so are they some laws which have been implemented or laws which are upcoming because they can change some of the some of the supply chain finance results. So for example one law in Europe in Europe there's a big discussion since many years about limiting the payment terms okay. So the Europe government the EU government they they kind of issued it's not a law but they issued like kind of a directive where they say like," Look you should pay your suppliers on day 60," actually in France since about I think almost 10 years they set up a law called La loi modernisation economic LME and what this says is if you are buyer you are in France and if you're a supplier and you're in France so if it's a domestic trade maximum 60 days, if not if I'm buying from you and in France and you pay me in 80 days I can go to the government and I can sue you. Now objectively you can say that is great because everybody gets paid on time, however, what happens now is it doesn't really help the French economy because again this is only applies to domestic. So if I'm a French buying organization and I just if I can replace my French supplier by I don't know American supplier where I can apply in 90 days, but it's important if you are a French corporate, how to deal with this kind of laws. Then for example in I'm not sure if you are aware in Latin America mainly in Mexico and Brazil there is a law for electronic invoicing. So if I'm a supplier I have to first issue an electronic invoice. So everything is done electronically which is great, but I have to first send this copy of electronic invoicing to the government. They will approve it and only then I can send it to my client and the government does that to have a better transparency on their sales tax they collect in the market. So there's specific laws which has to be considered. Then second point is what are specific benchmarks you want to achieve? As I showed before an example with Kellogg's you know do you want to achieve a specific benchmark in terms of days payables outstanding or you want to compete against a specific competitor. So this is interesting to know what what you want to achieve. Same thing like against you peer group in terms of the different metrics and you also want to know are you the first company in your industry which are setting up such a program? Or are they already other programs from competitors which have experienced good or bad with such programs because, of course, if you have I mean there's twofold. If you are coming to an industry setting up a program where suppliers know already about that they have some kind of experience then you don't have to educate them. They're like," Okay what's the price," does it makes sense, I'm joining or not joining correct. So this can this can be kind of important. Then of course, the general situation in the industry. So I have seen several times experience where you set up a program and then the companies is getting purchased by another company. So is it worth to set up a program or not? No if you have to do all the efforts and then there's an acquisition. The same is what is the interest level in the development so for example in Brazil the interest level is currently so high it doesn't make sense. I mean there is there is a need from suppliers to get paid earlier at low interest rates but the funding from banks is so high there. So it's very difficult I would say to set up a program there, and then what is the general financial market development. So during the financial crisis it was fairly difficult to set up, of course, a program because of the limited liquidity and then to review with your bank or your relationship banks. What is the appetite in terms of credit risk appetite in your company in your balance sheet. If you have no bank interested in your credit risk mainly because they already have provided already too much financing, so they have a full bucket of credit risk or because your rating is is too low then all the efforts doesn't make sense or you need like 100 million, but your bank will only provide 50 million then it limits the size of your program.
