Supplier Financing Activities In Turkey

We can state that Turkey's physical and financial supply chain solutions are less affected by the pandemic, and systems are flexible against risks

Supply chain finance is a system where the supplier is at the centre of the operation and provides a substantial and fast data flow between the supplier, buyer and financial institution through uploading the supplier's invoice data. While the platforms offer various financing opportunities, they also enable suppliers to join the system easily and quickly and upload their invoices. The supplier's access to finance is provided by direct financing or by allowing early selection of invoices to be paid.

BENEFITS OF THE SYSTEM FOR THE BUYER:

• Optimising the payment terms offered to suppliers by optimising working capital.

• Improving the position of negotiating payment terms or purchase prices by offering an attractive financing solution.

• Strengthening business relationships with key suppliers through a smooth process.

• Stabilising the supply chain by supporting suppliers financially.

BENEFITS OF THE SYSTEM FOR THE SELLER:

• Improving the working capital by turning receivables into cash, indirectly contributing to the company's stock management and other ratios.

• Improving financing costs and making financing permanent, usually where the buyer's financial situation is better than the seller's.

• Providing additional funding.

• Forming the opportunity to sell more by reducing counterparty risk.

In the Supply Chain Research Report conducted by PwC in 2019, the opinions of 67 participants from 13 different sectors in Turkey were evaluated. 41% of the participants work at the general manager, CFO and director level. According to the report, when the areas that companies see themselves as lacking are examined, it is expected that system, and process-oriented investments that increase agility and reduce costs in the supply chain will maintain their weight. Digitalisation comes to the fore in supply chain initiatives. We can say that this trend has increased rapidly with the effect of the pandemic. The digitalisation process in the supply chain starts from field operations such as production and stock/inventory management. It is seen that digitalisation will play an essential role in the investment decisions of supply chain leaders. In addition, economic uncertainties are seen as the most crucial issue that will affect the supply chain organisation. According to Mc Kinsey's 2015 report, working capital optimisation ranks first among the main reasons for using the supply chain platform with 42%.

Any development in using digital solutions brings new opportunities in receivable financing. We see examples of this both in the world and in Turkey. However, with the effect of the pandemic, a security flaw in financial and physical supply chain systems has also emerged. The fact that fraud cases that shook the system, such as Greensill in 2020, clearly revealed exposure points of the supply chain systems. In this context, I think that the importance of the financial resilience of companies has increased. An important question we need to answer is how high is the buyer's well-being in supply chain systems to the increased cost of supply chain and financial resources that may suffer disruptions. Likewise, in physical supply chain systems, the issues of how substitutable the components of the product are and how flexible the design is in solving this if the production inputs cannot be supplied have been the points that we have come across in the pandemic process of the system. However, we can say that both the physical and financial supply chain solutions in Turkey have been less affected by the pandemic and that the systems are flexible against risks.

Over the last 10 years, debt financing programs have become a popular means of financing supply chains. When we look at the country practices, banks and financial institutions provide services to their customers, and digital platforms take almost the same share of the pie. We, as FCI, offer two different solutions to our members. Our members can use the system specially developed for the FCI reverse prod uct and supported by Demica, as well as provide supplier financing services to their customers through Edifactoring, FCI's own platform. Turkish FCI members provide services to their customers through these platforms, especially from the seller's side. However, we can say that such systems are not adapted easily in technical and other integrations with countries, systems and vendors, and the transactions are still in the initial stages.

The digitisation process in the supply chain starts from field operations such as production and stock/inventory management

When we look at the example of Turkey, supply chain finance has been defined as a factoring product by the regulatory agency, the Banking Regulation and Supervision Agency (BDDK). In world practice, factoring is defined as receivable financing, while supply chain financing is defined as a debt financing instrument.

Another digital project offered by the Association of Financial Institutions (FKB) to its members and other users is the Trade Chain Financing System (TZFS) to digitise all factoring products. TZFS consists of technology-based business and financing processes that connect the parties (buyers, suppliers, factoring companies, banks, other financial institutions, etc.) to reduce financing costs and increase business efficiency. TZFS was established at the beginning of 2019 and was initiated to be used by financial institutions and companies at the end of March 2019. While banks and factoring companies provide supply chain services to their customers through the digital solutions they have developed, they can also use the solution offered by FKB. However, digital solution companies that work with banks and support services contracts in Turkey are not yet able to operate with factoring companies. It is expected that the regulatory infrastructure will be strengthened within the scope of the Information Technology Regulation published by the BDDK in 2020 for this issue.

In supply chain solutions, transactions that usually start with an invoice (transactions that start with an order form are also seen in tailored solutions), except for Islamic banking, start with an order form in Islamic banking. Unfortunately, the turnover and turnover details of the supplier financing transactions carried out on the entire financial system are not yet at the stage of collective reporting