Deep-tier financing

From ACT Wiki
Jump to navigationJump to search

Commerce - supply chains - supply chain finance.

Deep-tier financing is a form of supply chain finance (SCF).

The commercial customer provides support for both its direct ("tier 1") suppliers and the suppliers of those suppliers, and so on along the supply chain.

These indirect suppliers to the end customer are known as tier 2 suppliers, tier 3 suppliers, and so on.

Treasury support for suppliers deeply through supply chain
"There are also alternative [supply chain finance] support structures in use, in particular what is known as ‘deep-tier’ financing.
This approach sees treasury at end customers provide support not just to tier 1 suppliers, but also to those in tiers further along the supply chain.
Such suppliers are mostly smaller companies and more likely to be vulnerable to economic disruption.

Like SCF, the approach uses the end buyer’s credit rating to support financing for suppliers. But instead of extending that aid only to tier 1 suppliers, it goes deeper, to benefit the ‘supplier of suppliers’. Blockchain technology is used to link the supply chain ecosystem and the credit rating to suppliers further down the chain, and maintain confidentiality over supplier pricing.
Deep-tier financing is regarded by many to be in its infancy, though there are headline examples, such as DBS Bank in Singapore with what it calls its 'multitiered financing facility'.

Concerns remain, however. One worry is that it puts too much power in the hands of large corporate buyers when it comes to negotiating terms, and lacks transparency. Some speculate that suppliers seeking to access a deep-tier scheme could be forced to discount their services too much and, therefore, undermine their own working capital."
The Treasurer 2023 Issue 2, p10 - May 2023.

See also