Supply Chain Finance (SCF) allows companies to optimally leverage their vendor and distributor networks. Done correctly, it means reduced cash conversion cycles and lower costs of borrowing for clients. While from the banks’ perspective, it means yet another revenue stream as well as the opportunity to build relationships with new clients across the world.
Although SCF is often considered a part of trade finance, it is a specialized niche within trade finance and is especially popular in business hubs around the world (both manufactured goods and services can be financed this way). If you are interested in a career in supply chain finance, or just want to explore it, you are at the right place!
Understanding Supply Chain Finance
Companies, in very simple terms, operate by turning raw materials into goods that are in demand and then selling them off to paying customers. This sounds simple enough but the challenge here is internal efficiency and external competition. Now that the world is a much smaller space, companies have to compete with others from around the world to produce their goods at the lowest possible cost, sell it at a low price point, and to do this without compromising on quality.
It is this hectic competition that necessitates the use of financial and operational leverage. Such mechanisms allow a company to squeeze a bit more out of their assets. Supply Chain Finance is one such tool. It allows companies to finance their supply chains, often without even having to take on any debt.
For example, consider a scenario where a European company sells its finished products to a distributor in Indonesia to sell locally. Using SCF, the European company can provide financing to that distributor so that he can buy more from said European company (hold more inventory) and pay them for their goods immediately. Expand this across the whole supply chain and you have a lot of value that can be unlocked.
SCF roles exist not only in banking but within large corporations as well. For example, a large conglomerate might finance its supply chain operations via its own financial services subsidiaries or even directly from its own balance sheet. Either way, the job profile is rather similar:
- Most of your time as a SCF specialist would be spent analyzing the financing requirement and the credit worthiness of the company’s channel partners. Therefore, there are a lot of shared skillsets between SCF professionals and credit analysts.
- SCF professionals also work closely with the sales teams of their clients. After all, the main motive for using supply chain finance is to increase the company’s revenue and profitability. For example, the sales team at a client might determine that the sales target for a particular market has to be EUR 1 billion. The SCF manager then has to make this funding available to his client’s sales teams.
- Once the funding requirement has been determined and the credit analysis is complete, the rest is rather similar to handling a normal corporate client. The due diligence and regulatory checks are performed, contracts signed and the client on boarded along with all the channel partners that are to be part of the program (more channel partners can obviously be added later).
- Once the program is up and running, the job is mainly to maintain the existing relationships. This means periodic meetings with the client to address additional/ changing requirement or fine-tuning the program and so on. Of course, the opportunity to on-board new clients always exists.
- There is a fair bit of maintenance to perform as well. Monitoring the credit health of the portfolio, performing annual regulatory and KYC checks, handling ad hoc requests and unexpected business contingencies and looking out for any opportunities to maximize revenue potential.
As you can probably sense from all of this, the SCF manager’s role is a mixture of what a relation manager, credit analyst and trade finance specialist might do. It shares some elements with all those roles and therefore is a good starting point to learn about multiple disciplines within core institutional banking.
As was illustrated in the previous section, SCF professionals need to have a multi-disciplinary skillset to perform their duties. The main ones are as follows:
Credit analysis – SCF managers have to be certain about the credit worthiness of clients before making a lending decision/ proposal to management. In most cases, this is not as complex as specialized funding vehicles since SCF finances normal supply chains rather than complex projects or acquisitions etc. However, the volume of analyses to be performed is significantly higher since each corporate client might have dozens if not hundreds of channel partners that need to be financed.
Sales mindset – SCF manager’s help their clients increase sales or decrease acquisition costs. They work closely with the sales/ channel management teams of the client to release the necessary funds to the relevant channel partners. Therefore, SCF professionals need to think like a salesman in the client’s industry in addition to acting like their bankers. They have to be on both sides of the equation, so to speak. Giving their clients as much as they can without increasing the risk profile of their portfolio too much.
Multi-tasking – Because of the sheer number of channel partners that may be handled by a single SCF manager, they need to be able to multi-task like no one else can. While most bankers only have to answer to a few key people at their client organizations, SCF managers might have to interact with dozens of sales managers across the globe.
Building your Resume for an SCF role
SCF is an ideal place to start for beginners to the world of corporate banking. You need a healthy mix of skills which means you don’t have to niche down too hard this early in your career. Focus on the following main areas:
Get an Online Certification: SCF is a rapidly growing niche within Trade Finance which offers greater flexibility to clients. In my opinion, SCF sells itself. But as a SCF candidate, you need to stand above the crowd.
To that end, I highly recommend an online certification from a reputable institute that adds credibility, showcases your commitment to the field and also helps you prepare. Here are my top recommendations:
Best Trade Finance Certifications/ Courses (2022) ranked by Bankers
Showcase your credit skills – This can be done in a number of ways depending on what sort of prior experience you have. You are essentially analyzing the capacity of a company to repay any loans that you have advanced to them. If you have any relevant experience with that, then focus on it. Otherwise, focus on any academic courses or certifications that you have taken. GARP’s FRM course is the gold standard for financial risk management although it covers a lot more than just credit risk. I talk about FRM career options a bit more in the linked article.
Show that you can manage people and relationships – To put it plainly, you need relationship management skills in ALL front-end banking and finance roles. Much of the back-end stuff has been automated, and for retail-banking even the front-end is largely automated. The reason for that is those products are standardized. Corporate banking products are standardized to an extent, but the solutions are still bespoke. Which means each company’s operations are different and they are big enough to warrant a custom solution, unlike for the overwhelming majority of retail customers. This is where the relationship manager comes into the picture.
A banking RM is more than just someone who wines and dines the clients. You have to lead and structure deals. With smaller, niche teams like SCF, you are likely to get an opportunity to get more responsibilities sooner rather than later. To find out what being a relationship manger is all about, check out this linked article. Any experience you have with managing relationships, will help build your CV.
Show that you can multi-task – It’s not uncommon to feel like a one-man or one-woman army when you are working in SCF. While you will have other teams to help you out, you still have the ultimate responsibility for relationship management, deal origination and structuring, on-boarding, credit analysis, account maintenance, operations, account stress and everything else.
So, if you have prior experience with any kind of roles that required you to juggle a dozen balls at the same time, it might deserve a place on your CV.
A Day in SCF
Managing the flow – SCF is a volume driven, flow business. What that means is that you’d have a lot of transaction volume to handle on a day-to-day basis which needs to be processed smoothly. While most of this processing is automated and handled by back-end teams, the sheer volume means that one or two exceptions might still get through and require your attention.
Monitoring credit quality – Since there are likely to be transactions every single day, the amount of exposure to various clients will change daily. This requires real time monitoring to detect any deviations. For example, let’s just say your auto industry client decided to offer a 20% discount on an old model to clear stocks. All of a sudden, dealers are picking up stock and exposure would be rising fast. You’d have to get ahead of that!
Troubleshooting and ad hoc requests – To be honest, I think this needs to be added to almost every banking job or even every corporate job. Exceptions occur all the time and not everything can be automated. Exceptions don’t even need to be on your end. A client might have an urgent but unconventional demand that needs to be entertained.
Relationship management – Most SCF professionals would focus on managing the relationship with key clients. SCF has the unique advantage of being close to the sales teams of their clients which provides them with an “in” that other teams can’t possibly match. The opportunities for meeting with clients are endless. As any marketing course will teach you – it’s all about top-of the-mind recall!
Deal structuring/ on-boarding – While this is not a daily activity, it is one that requires several days or even months once undertaken. On-boarding a new client involves an astounding amount of activity to be completed which can takes weeks or months. For example, there are complex KYC and AML (Anti-Money Laundering) regulations to comply with, complex credit analysis, future projections, competitor analysis, agreeing to the specifics of the deal with the client and internal teams including pricing and so on.
Salary and Bonus
When it comes to salaries, SCF roles fall somewhere between the top front-end roles in corporate and investment banking and everything else (like retail banking, middle office/ support roles like credit, compliance, marketing, HR etc). SCF departments are obviously revenue generating and stable cash-cows. But since most of the money is earned from outstanding credit, it’s hard to compete with fee-based roles like investment banking and such. Nonetheless, it eventually depends on how much revenue you generate and a top SCF salesman can earn more than an average salesman in any other team.
Highest paying roles are obviously in the financial capitals of the world like New York, London, Tokyo, Singapore, Dubai and so on. However, the growth is quite strong in developing economies like China, India and SE Asia where access to capital is not as easy and therefore products like SCF sell like hot cakes. Starting salaries can range anywhere from USD 60K to USD 100K. Like all banking roles, expect rapid growth in the first few years because experience really is valuable. USD 150K is usually plausible by year 3, but this can be substantially more or less depending on your location in the world and the size of the bank you are working for and even the size of your own portfolio.
Bonuses are obviously linked to performance which is all good. But Since SCF is a flow business, it means that it is usually only possible to ramp up slowly. Unlike deal-based businesses you can’t magically go from 0 to 500 million in a year. You have to build up slowly, but what you build is quite resistant to shocks or competition. So, you might get a consistent bonus of 30% each year, while other teams might get 100% in some years and 0 in others.
Career Path and Progression
SCF is an ideal steppingstone for a broader career in banking and finance. Unlike most roles which are very specialist, SCF has a much broader area of responsibility. SCF experts gain a basic understanding of credit analysis, relationship management, trade finance, compliance etc. and opens the door for a specialization in any of these functions and more. SCF can therefore be thought of as an extended foundation building opportunity for other prospects.
This does not, however, mean that individuals cannot continue to grow within SCF. There are regional and functional team-lead positions within SCF that offer opportunities for growth and promotion. Professionals can easily spend their entire careers in the field. The lateral movement opportunities are just an additional bonus that SCF provides. You always have the opportunity of switching over to a client and managing things from their perspective, if that is what you want.
SCF equips you with a much broader skillset than the specialized roles. For example, in our article on credit analysis careers, we discussed how they build a much better understanding of that aspect (better than SCF usually), but the role does not provide nearly the same opportunities for honing your relationship management skills. Similarly, trade finance provides a good deal of experience in trade and even relationship management, but lacks in building foundational credit skills. SCF touches upon everything, although not in as much detail.
Who should want to work in SCF?
SCF is ideal for newcomers who want to get their foot in the door while not straitjacketing themselves into a single vertical from the get-go. There are many other entry-level roles in finance too, but inexperienced bankers can find themselves just playing a supporting role for many years in any of those roles. SCF allows you to hit the ground running from day one.
Secondly, SCF is also ideal for people with industry experience in manufacturing or other heavy industries which requires a lot of supply chain financing in the first place. This means that the potential candidate would possess a much greater ability to think about things from the client’s perspective. And such people always make better salesman in my experience. Having a lot of contacts that can help you land more deals is also a plus.
Thirdly, SCF is a good steppingstone from retail banking, wealth management or other such B2C roles into the world of corporate banking. Bankers who have experience working with small and medium businesses, usually have a fairly good understanding of financing and supporting their supply chains. This can prove to be a valuable asset when making your move.