The financial environment surrounding companies is undergoing drastic changes due to revisions to the Subcontract Act and other laws. The appeal of supply chain finance. What kind of response are parent operators and subcontractors required to take now?
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“Bulk factoring service” based on short-term pricing
–What kind of services does your company provide using electronically recorded monetary claims?
Ogura : We support the construction of supply chain finance based on electronically recorded monetary claims. We are creating a system that allows us to provide the funds necessary for a series of corporate activities such as purchasing, production, and sales promptly and at a low cost.
Specifically, suppose there is a parent operator and multiple subcontractors. First, we will establish an SPC (Special Purpose Company) exclusively for the parent company. This SPC specializes in purchasing accounts receivable generated when subcontractors deliver products to the parent company, thereby facilitating the subcontractor’s cash flow.
At this time, in addition to the parent company’s surplus funds, the SPC will raise funds from financial institutions using the parent company’s credit. The interest rate is about TIBOR + 0.2 to 0.5%. Therefore, it is possible to significantly reduce the discount interest rate when subcontractors bring in accounts receivable. Again, in the case of bills, a discount rate of short-term prime rate + α is applied depending on the credit of the company brought in. Discount interest rates are often 2% to 3%. However, by using the supply chain finance system that we provide, it is possible to lower the current discount interest rate to around 0.7% to 1.2%.
The appeal of supply chain finance
–In supply chain finance, there are also “bulk factoring services” provided by banks, but what is the difference between them and these services? The appeal of supply chain finance
Kokura Bulk Factoring is a system in which a bank stands between the parent business and subcontractors and provides discounts and on-time settlement services for electronically recorded claims. In addition to the advantages of electronically recorded monetary claims, such as reducing the administrative work required to issue bills and not incurring stamp fees, discount interest rates are determined based on the creditworthiness of the parent business, which significantly reduces the interest burden compared to bills. It is possible to suppress it. The appeal of supply chain finance
However, since banks provide it as a service, the discount rate is mostly based on the short-term prime rate of 1.475%. On the other hand, under our supply chain finance system, interest rates are determined solely by the creditworthiness of the parent company without being tied to the short-term prime rate, which allows us to further reduce discount interest rates for subcontractors. In addition, by acting as a payment agent for the parent business, it is possible to reduce administrative costs for the parent business. The appeal of supply chain finance
Building even more advanced financing methods
–So it’s a financing method that takes full advantage of the benefits of electronically recorded monetary claims.
Takashi Ogura, President and Representative Director of Tranzax
OguraNo , electronically recorded monetary claims are nothing more than infrastructure. This will only reduce administrative costs. The key point of the supply chain finance provided by our company is that it utilizes this infrastructure to eliminate systemic distortions. The appeal of supply chain finance
As I have said many times, the standard interest rate at which major companies borrow from banks is TIBOR, while small and medium-sized companies use the short-term prime rate. There is a difference of more than 1% between these two interest rates. Normally, small and medium-sized enterprises should be able to set interest rates that take into account TIBOR and credit, but for some reason, this has become “disconnected” from the standard interest rate. In other words, this interest rate difference was the bank’s excess profit. The appeal of supply chain finance.
There are other distortions as well. For example, bank exchange fees. When exchanging Japanese yen for dollars, the buying price is generally the mid-market price (that day’s standard rate) plus 1 yen. However, in most FX (foreign exchange margin) transactions, the spread (difference between the buy price and the sell price) is less than 1 sen. It is distorted that only banks set such high fees, but this 1 yen fee itself is still the same as it was set in the era of the fixed exchange rate system of 1 dollar = 360 yen shortly after the war. It’s because there is. The latest exchange rate is 1 dollar = 112 yen, so the fee has tripled since the 360 yen era.
――It seems like there is room for venture companies like your company to get involved with services that exploit such distortions. The appeal of supply chain finance.
Looking at the Kokura Corporation Corporate Statistics, the balance of accounts receivable is approximately 200 trillion yen, but Densai Net’s electronically recorded monetary claims balance is only about 4.4 trillion yen. Even if you add up the electronically recorded claims managed by megabanks, it would be about 7% of the balance of accounts receivable. However, if we look at the past, paper bills accounted for 60% of accounts receivable in 1990. In other words, there is still plenty of room for electronically recorded monetary claims. We believe there is a great need for supply chain finance, which has a lower cost burden than bulk factoring services provided by mega banks. The appeal of supply chain finance.
We are also proceeding with the construction of even more advanced financing methods. If this becomes a reality, the financing environment surrounding parent operators and subcontractors will change dramatically.
–What kind of thing is that?
Ogura ”PO Finance (Purchase Order Finance)” is a system that turns purchase orders into electronically recorded claims, further speeding up the speed of converting them into cash. Currently, payments are made via electronically recorded claims when the parent business receives the product, but this will be accelerated to the ordering stage. We are currently in discussions with the Financial Services Agency, the Ministry of Justice, the Small and Medium Enterprise Agency, the Federation of Credit Guarantee Associations, and others to implement this scheme. The appeal of supply chain finance.