Although Supply Chain Finance (aka reverse factoring) is a well established technique, legal constraints, from both the buyer's and the seller's perspective may become roadblocks, at inception or during the life of the programme. Find out how and why !
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Supply Chain Finance : A Few Legal Aspects
1. Supply Chain Finance : A few legal aspects
Alexandre Clar,
Treasurer (EMEA)
Eurofinance – Budapest, Oct 2014
2. Just a few slides about …
1. Legal documentation
2. Directive 2011/7/EU
3. From the buyer’s perspective
4. From the seller’s perspective
5. Termination ?
3. 1. Legal documentation
• For the Buyer group
Paying Agency Agreement
Buyer and Bank document A/P data transmission and payment at
maturity
+ adherence letters for each buying entity
Web tool Service agreement
• For the Seller group
Master Accounts Receivables Purchase Agreement
= no recourse factoring agreement
At an amount = face value less discount charges
KYC process !
• For both Buyer and Seller
No need to open bank account(s)
No banking fees
4. 2. Directive 2011/7/EU in a nutshell
• New Directive transposed since March 16, 2013
fights against late payments in commercial transactions
lays down common minimum requirements / more favorable treatment to
creditor possible on a country basis
• Business to Business payment terms
The period for payment fixed in the contract does not exceed 60 calendar
days, unless otherwise expressly agreed in the contract and provided it is not
grossly unfair to the creditor
Late payment interest at ref rate + 8% + recovery costs (min 40€) + legal fees
and debt collection agency costs
If term is not fixed: payment latest 30d from receipt of invoice
5. From the Buyer’s perspective
• Principle
Directive aims at REDUCING payment terms.
Save for FR & ES, payment terms still remain subject to negotiation.
Possible to apply >60 days PT if expressly agreed and not grossly
unfair (based on circumstances, including commercial practice,
dependence of supplier, objective reason to deviate).
Supplier may object that existing terms are a) binding & cannot be
changed save against price increases, b) are industry practice, c) are
hence fair.
• Strategy
Case by case analysis for key suppliers by volume (contract?
applicable law? commercial practice in the segment?)
Determine purchasing entity to minimize impact of Directive,
Purchasing in country X a good from country X is High risk situation.
6. From the Seller’s perspective
• Principle:
Directive does not force / automate PT reduction. No magic
tool. 90d remains 90d.
Shortening terms = negotiation: payment terms can be
negotiated down to 30d by leveraging local law. Expect
pushback from dependent customers (not grossly unfair).
Contract: amendment required / PO: change in terms. If
rejection … negotiation
• Strategy
Ad hoc analysis (written contract or not? applicable law?
commercial practice? Duration of relationship? Existing terms?).
Monitor upcoming regulations in application of the directive –
where possible, leverage national laws imposing mandatory terms
favorable to Seller (France, Spain). Change selling entity ? Charge
late interest ?
7. What about termination of a SCF program?
• Frequent termination clauses
Agreement on PT extension may have a fixed term, then back to
legacy
60d notice if SCF has adverse consequences to Seller
a) with PT’s unchanged or b) back to legacy PT’s
Back to legacy PT’s, if and when SCF program is terminated by Buyer
SCF program will terminate if agreed volumes are not met after two
years
• Less frequent termination clauses
Commercial agreement with revised PT’s subject to Libor ratchet
8. QUESTIONS ?
• PPG SCF main features (EMEA)
Single sponsor bank : BNP Paribas (no exclusivity)
€150 MM oustanding receivables
€40 MM working capital reduction (delivered)
Up to €300 MM outstanding discounted receivables
EUR, GBP, USD, PLN, CZK, HUF
One discount rate across the board
New payment terms = quarter end + xxx days
No centralized payment on behalf of the buying entities, so far
Notes de l'éditeur
Duration : 2 minutes
Comments :
1 - the PAA may include or not Mt101 payment instructions.
2 - confidentiality clause is essential
3 - No assignment clause
Duration : 2 minutes
Context: average EU delay: 14 days+ [DE8.4 NL 9, FR12, BE14, IT17, UK 18.2 & SP22]
Possibly 27 different laws. No uniform approach & strategy. Only implemented in France & Italy to date. Only draft laws in our other key countries (ES, PL, GER, NL, UK)
Member States can decide if contracts concluded prior to 16 March have to comply with new rules (retroactive?)
Duration : 3 minutes
Comments :
1 – Our Swiss principal : further use and systematically provide for application of Swiss law? EHQ purchases in EU: Medium risk. Risk if dispute.
Use sample letter as a basis for a possible communication with the supplier (subject to review under local laws/leverage local languages to maximize impact).
Duration : 3 minutes
Duration : 1 minute
Most causes for termination derives from
- Service Level by the bank
- Breaching commercial terms (volumes)