While factoring is ubiquitous in the region, there is still work to be done to convince the Baltic market of the benefits of buyer-led supply chain finance, says Uve Poom, COO at SupplierPlus in Talliinn.
By Rebecca Spong
The Baltic states of Estonia, Latvia and Lithuania are still lagging behind other European regions in their awareness and use of supply chain finance (SCF) as a means of improving a company’s working capital position.
While well-versed in the benefits of traditional factoring as a means of suppliers accessing early payment for their goods, the region has not yet been fully embraced the idea of a buyer-led supply chain finance solutions, says Uve Poom (right), chief operating officer at the Tallinn-based Supplier Plus.
Indeed, Estonia has a particularly established factoring market with volumes representing 20 percent of the country’s GDP, whereas the proportion of factoring vs GDP are closer to single digits in the other two nations.
“Factoring is very well-known, but it is seen as a supplier solution,” Poom explains.
When approaching CFOs or treasurers at corporates on the buying side of the equation, you “really need to get them out of the old paradigm and open their eyes a little to reveal what payables finance allows them to accomplish with their working capital,” he says.
While of course there are some CFOs from international companies that are very much aware of payables finance, there are many others – often working in Baltic subsidiaries of larger companies - that have little familiarity with the product, Poom says.
“When you have somebody who has not heard much about this – it tends to take several touchpoints over an extended period to convince them of the benefits. It can easily be a six to 12-month process,” he says.
However, with the increased pace of digitisation globally and within the Baltic region, coupled with the wider economic environment, Poom sees great potential in the future uptake of supply chain finance in the Baltics as well as in Central and Eastern Europe.
A big hike in demand for SCF?
“We are betting on a big hike [in SCF uptake],” he says, remarking that between 2020-21 payables finance globally increased by 38 percent, due in part to the immense pressure supply chains faced during the Covid pandemic and the urgent need for financing.
With the global economy facing fresh challenges, interest in SCF is likely to remain as corporates look to optimise their working capital as well as keep their suppliers in business.
Banks and financial institutions are also likely to retain their enthusiasm for the product, Poom predicts. “At a time when the economy is volatile, for financiers, buyer risk of large corporates is a safe haven as far as lending in concerned,” he says.
“I would forecast explosive growth, rather than something modest,” he adds.
Looking at the potential in individual Baltic states, Poom sees Latvia and Lithuania in a position to “leapfrog” Estonia in the rate of SCF adoption given the fast pace of technological development in the region.
“Estonia has been far ahead in terms of factoring volumes but if you combine the economic situation and you look at digitisation and how APIs are transforming how data is exchanged between ERPs and financiers…in terms of growth rates Latvia and Lithuania will exceed Estonia in the next couple of years,” he says.
Looking beyond the Baltics, Poom sees further growth in Central and Eastern Europe, noting how the European Bank for Reconstruction and Development (EBRD) has stepped up its support for SCF with the launch of its new Supply Chain Solutions Framework in late October to help provide more affordable financing to suppliers.
The first project under this framework took place in Poland with a corporate client of a Santander Bank Poland subsidiary. It supports the supply chain operations of convenience store chain ‘Zabka’ providing its suppliers an opportunity to receive early payment for goods. The EBRD is providing an unfunded risk participation in the project.
Food and Agriculture
Within the Baltics, Poom sees potential in agriculture to help producers optimise their balance sheet. There are many commodity trading companies in this sector in constant need of liquidity – and SCF could fulfil that need. Poom says he would like to provide access to mid-sized buyers within the agricultural sector, and not just work with the large supermarkets.
One example of SupplierPlus’ involvement in the food industry is the launch of a SCF programme for the Latvia-headquartered food producer Food Union last year.
The programme enables payments to be accelerated to the company’s medium and smaller suppliers. Food Union is the leading producer of ice cream in the Baltics and Denmark, with a strong share of the Norwegian and Romanian market too. It has an annual net revenue of €291 million in 2021.
Retail is another sector ripe for the adoption of SCF. It has traditionally been a strong market for factoring, but with a recent drive to automate payment processes and encourage the use of e-invoices in the sector, opportunities for SCF could start to emerge.
With retailers starting to implement automated ERPs (enterprise resource planning), it should make it easier for SCF providers and banks connect into their clients’ systems and set up their programmes.
Yet, there still needs to be a push towards updating the way companies transfer data, which typically relies on importing or exporting invoice data files and uploading them to a system in a xml or CSV file, for example, Poom argues.
“But that works only to a certain scale. If you go into retail for example and want to achieve high degree of automation, API is the only real option,” he says.
SupplierPlus positions itself as a company that could help drive the uptake of SCF and the rate of automation in the region, providing the technological expertise to set up a programme.
“We have one job which is to help supply chain finance develop and buyers to adopt it,” he says. The company was first established in 2015 and launched its SCF platform in 2019.
The company offers a SCF platform based on its own technology for corporate buyers and financial institutions. It is funded by both banks and non-banks such as asset managers and family offices.
“We are in a good position to help these companies whereas if you look at a typical bank SCF provider, their technological expertise may be good enough – but their capacity to deploy it related to all the other priorities that a large bank would have, is low,” he says.
Uve Poom will speak at the Tallinn SCF Summit on 6th and 7th February.