SocGen Tames Euro Risk With Web-Based Lending

French bank Société Générale SA is boosting its financing capabilities to suppliers thanks to a Web-based platform it says will keep the wheels of commerce turning despite ongoing risks to Europe’s financial system, illustrated by dramatic recent events in Cyprus.

Online PR News – 30-March-2013 – San Diego – Read the full article here:
French bank Société Générale SA is boosting its financing capabilities to suppliers thanks to a Web-based platform it says will keep the wheels of commerce turning despite ongoing risks to Europe’s financial system, illustrated by dramatic recent events in Cyprus.
SocGen is increasing its reverse factoring activity, by which banks provide financing to vendors against their accounts receivable, by obtaining acknowledgment of the outstanding invoices by the buyers. In traditional factoring, suppliers borrow against future revenue from their clients; in reverse factoring, the clients help their suppliers obtain bank financing. That leads to “significantly lower” rates, because the clients have made it clear that they intend to honor their obligations to the supplier, thereby lowering risk to the lenders, says Philippe Lepoutre, general manager of CGA, SocGen’s commercial factoring unit.
While the EU’s bailout of banks in Cyprus is hung up pending approval of a controversial levy on depositors in that country, reigniting concerns over the viability of the euro zone, reverse factoring has the virtue of adding liquidity to commercial activity during a period of looming crisis, says Mr. Lepoutre. “Because payments are approved, it allows us to continue financing, even for companies in countries where the banking system is in a tenuous position,” he told CIO Journal during a telephone interview Monday.
Reverse factoring also allows suppliers to take advantage of terms that are similar to those of the buyers, which are typically larger organizations than their suppliers, he said.
CGA has been a factor since 1976, and began providing reverse factoring services eight years ago, according to Mr. Lepoutre. He says the new Web-based tool, provided by San Diego-based Kyriba Corp., allows the bank to establish direct connections between buyers, suppliers and banks. Traditional factoring could be done more easily with non-Web-based tools such as EDI because they were two-way transactions between the vendor and its bank.
The Web-based platform not only allows three parties to participate in a transaction, but also allows buyers to set up factoring services from more than a single bank in order to ensure their core banks have enough liquidity to provide them with other lines of credit. “This meets the needs of a number of large customers,” he said. The Web-based platform also makes it easier for smaller companies, that typically don’t have the resources to set up a banking infrastructure of their own, to get access to this form of financing.
Mr. Lepoutre said CGA lends several billion euros annually through its reverse factoring business and expects to increase that amount as a result of the new platform, which launched in late 2012. The bank is taking advantage of the platform’s multi-language and multi-currency capabilities to expand into new markets, including Asia.
Customers who wish to set up a reverse factoring service can assign banks to specific suppliers so that their core banks don’t overextend themselves by providing credit to too many vendors; the vendors, meanwhile, receive credit through only one of the banks.
CGA will also be able to provide customers with a white label platform they can brand themselves, giving them the option of extending reverse factoring to their suppliers directly if they so choose.
Mr. Lepoutre noted that British Prime Minister David Cameron recently touted reverse factoring as a partial solution to the banking crisis. He added that this type of financial arrangement is gaining significant traction in Spain, which is also skirting a banking crisis. With reverse factoring, “we can maintain financing even if the financial context is difficult, since it’s corporate risk rather than country risk. It doesn’t eliminate country risk, but it does lower it,” he said.
IDC analyst Christine Dover notes that companies have become more conscious of the need to manage cash more carefully, and to be able to report their positions and defend them to the public, as awareness of corporate cash holdings becomes more prevalent. “Companies are looking to leverage their financial assets and protect them and grow them, and you need a system to be able to do that properly. It’s not the typical general ledger [accounting] activity,” she said.
Ms. Dover said that a Web-based platform such as Kyriba’s allows companies to act in a more nimble fashion and enter new markets more easily. “Software companies building on cloud platforms are adding functionality more quickly than on-premise vendors, and are deploying them to their customers much more rapidly.”
She noted that Oracle Corp. and SAP AG also have treasury management applications, but those are not available as cloud solutions. Sungard Data Systems Inc. does have a cloud-based treasury management application. But she noted that these vendors have treasury management as part of a larger suite, whereas Kyriba is focused on cash management and thus has more functionality available for that application.
Michael Bosacco, vice president for treasury solutions at SunGard, says the company sells cash management applications on premise and in a hosted environment, as well as through the cloud, and notes that cloud solutions “may not always fit into customers’ requirements for audit and compliance.”
A spokesman for SAP says it is working on a cloud-based treasury management application. Oracle did not return a request for comment in time for publication.
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