Orbian: An integrated approach to working capital optimisation

With more than two decades of supply chain finance expertise, Orbian continues to be a source of innovation. The Orbian team introduces its new ‘payment with terms’ offering and how it can operate in tandem with traditional supply chain finance solutions.

Supply chains around the world face a host of challenges, from shifting trade corridors to ongoing disruptions. To mitigate the resulting uncertainty, buyers are demanding faster access to working capital. As this must-have rises up the agenda, supply chain finance (SCF) remains an important part of the treasury toolkit, helping suppliers get paid earlier while providing buyers with longer payment terms, thereby improving their working capital.

While it appears the perfect solution on paper, there are some downsides. Not all suppliers are willing or able to be a part of an SCF programme and, even once set up, it can take up to 18 months for the working capital benefits of a SCF programme to be realised by the buyer.

The question for Orbian, a financial services provider with its own SCF platform, was simple: is there another way?

Paying on better terms

In a world where speed is crucial, Orbian – known for its unique bank pool funding structure that allows multiple funding partners to participate in a single programme – has recently expanded its overall product offering to include ‘payment with terms’ (PwT), which offers buyers a quicker, more efficient and smarter way to extend their payment terms.

“When a buyer of goods and services needs to pay a supplier on a specific due date, we can now do so on their behalf,” explains Markus Schiffers, managing director at Orbian. “Once paid, we offer a repayment term to the buyer, therefore protecting their liquidity and improving their working capital.”

For example, if a supplier, having shipped its goods, has provided 60-day payment terms to the buyer, rather than pay themselves, the buyer arranges for Orbian to pay the supplier on the due date using the PwT solution. With the supplier paid, the buyer then arranges new payment terms with Orbian by agreeing to pay back the full amount within 90 days from the original due date. Overall, this means the buyer has secured 150-day payment terms, giving them much more flexibility and control over their working capital.

PwT would also allow the buyer to take advantage of any cash discounts that have been agreed with the supplier.

“If a supplier offers a buyer a 2% discount to pay them within 10 days, we could pay the supplier early on the buyer’s behalf and then provide a further 50 days for them to pay us back,” says Schiffers.

“In such a situation, the financing we would offer to the buyer will always be cheaper than the cash discount the buyer earns.”

Reaching SME buyers

PwT also offers increased flexibility for smaller buyers. SCF requires a minimum programme size, and while PwT also requires this, with SCF it’s never certain how many suppliers will onboard.

“With PwT, the buyer can decide for themselves how many suppliers are on the programme without supplier acceptance playing a factor, meaning that it can be offered to smaller corporates with lower procurement volume than would typically be accepted in an SCF programme,” notes Schiffers.

Different buyers may also require different solutions, depending on the jurisdiction of the supplier, he explains.

“Take France, for example, where you can never extend terms with a supplier beyond 60 days. For French suppliers, a buyer could use PwT and have increased flexibility. On the other hand, in Italy, suppliers are less stringent and can offer up to 180 days for payment. In this case, SCF would perhaps be the more natural solution. Crucially, however, it is never an either/or scenario.”

A combined approach

Among the key differences between PwT and traditional SCF solutions is that the buyer need not involve the supplier.

“SCF is certainly the more complex solution – requiring a great deal of coordination internally, as well as externally with suppliers,” says Schiffers. “Suppliers must be onboarded, and payment term extensions need to be agreed and maintained on an individual and ongoing basis.”

This process demands time and resources from both parties. By comparison, PwT is neutral from a supplier perspective. Instead of having to engage procurement, IT and legal departments internally, the buyer’s treasury can choose to ramp this solution up or down, depending on what works best for them.

A buyer could, for example, combine SCF and PwT into a single programme.

“A smart approach would be for a buyer to immediately start using PwT and, in parallel, begin to enrol suppliers onto a SCF programme to start negotiating longer payment terms,” Schiffers suggests.

“In this way, the buyer can get working capital approved instantly by applying PwT across the board. Then, whenever procurement is able to negotiate longer payment terms with the supplier, the buyer can transfer them from PwT onto SCF – where the supplier pays the fees. This allows the buyer to see rapid improvements to their working capital situation, without having to bear the costs of this forever.”

The EU late payment regulation, set to be established by the EU Commission after the elections in June 2024, will further increase the demand for flexible solutions. This regulation will limit certain transactions in the EU to 30 days, with a maximum of 60-day payment terms. Consequently, buyers will be legally required to reduce current payment terms with suppliers.

For these shorter payment terms, SCF is no longer the most effective solution. Instead, PwT can safeguard the liquidity and operating cash flow of buyers of goods and services.

The need for speed

Global trade today demands that speed and efficiency take priority, and Orbian’s PwT solution – a swift and complementary deployment with SCF – is very timely.

Typically, a buyer would need to engage two different providers and navigate the associated complexities of having two distinct technical integrations, cash flows and statements.

“This is manageable if you are an organisation with just one legal entity. But if you think about larger corporates, which have multiple subsidiaries participating in these efforts, it could quickly get quite messy. And this is what makes our solution so powerful,” says Schiffers.

The key differentiator for Orbian is that it is the only provider offering SCF and PwT under one programme, where both run on the same platform and have identical technical requirements. Combining both solutions in one place offers a powerful tool – buyers need only one technical integration, one account statement, and one process to serve all of their needs.

Add to this comprehensive global coverage, with Orbian active in 53 buyer and supplier countries, and there is only one question left to ask: where can Orbian innovate next?

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