Case Study Of Supply Chain Finance And Credit Risk Management In L Group

With the rapid development of China’s economy, the competition among enterprises becomes more and more intense. According to the "China Enterprise Credit Risk Report 2013" released by Coface company shows that more and more companies use credit transactions, commercial credit application range in commodity trading process becomes more widely. But the overall commercial credit risk of Chinese enterprises is also increasing, corporate credit management activities have become increasingly important.To the core of enterprise supply chain,with the development and expansion of the entire supply chain, upstream and downstream SMEs face increasing financing needs to support the business continues to expand. How to expand the business, while transferring the credit risk became the core business needs to think about. However, due to their lack of size and ability to repay these liability, seeking financial support by themselves is very difficult. Financial institutions use the credit of the core business the to assess the stability of the entire supply chain, design processes to meet the financing needs of the entire supply chain, Thus the upstream and downstream business financing needs are met, while recovering core business receivables is guaranteed, the credit risk is transferred to external financial institutions, and financial institutions obtain income through the provision of interest margin.The supply chain financing projects begin from the core business, during the operation of credit to provide information required by the core business and provide specific recommendations. So making advice from the view of supply chain core enterprise in the credit management is of great significance.L is a company in the information industry, diversified development of large enterprise groups. In 1998, L company set about establishing credit management department. Experienced from scratch, from single to complete the development process, L Company gradually formed a comprehensive credit management system. L company’s sales through the level 1 distributor and level two dealers carried out, Mostly are small or medium scale enterprises, financial strength is weak. L Group in order to help finance the downstream distribution channels, transfer their credit risk, Start building the supply chain financing projects in China since 2002. Supply chain financing project is now running a total of three, L corporates with banks, finance companies and Internet financial institutions which are different type of external financial institutions. Three projects are different in collateral requirements, account of expenses, operating procedures.L Group’s supply chain finance projects have diversity, through cooperation with various financial institutions to achieve the purpose to meet the financing needs of different downstream channel, while improving credit management effectiveness. The supply chain financing projects are also closely integrated with the daily operating activities. Obtaining information about the financial position of project participants, transaction information and historical repayment records of continuous data through operations management activities, using these data make adjustments to the credit situation financing body. L Group treats the supply chain financing as a tool for credit risk transfer, but this tool also bring new credit risk management. In the process still occurs case of downstream channel financing using fund unauthorized, bad debts caused by the outbreak of the credit risk, and bring loss to L group. The outbreak of the credit risk in the supply chain financing illustrates the supply chain financing provides opportunities for credit management also new challenges. In L Group supply chain financing projects, joint responsibility for repayment commitment, as well as the truth of information collected by credit rating can’t be guaranteed these two aspects pave the way for the emergence of bad debts.Credit management activities is an important management activities of the enterprise, Supply chain finance core business in order to gain a competitive edge, we must stand in the height of the supply chain to study credit management, Using the achievements of the supply chain management to improve the credit management. Therefore, how to manage the risks of supply chain financing and how to guard against it become a serious problem, the purpose of this article is also here. By introducing L Group’s supply chain financing projects and analysis, we find out the opportunities and challenges brought to L group by supply chain financing. And evaluate the advantages and disadvantages of L Group’s existing supply chain financing management. Getting inspiration from the case analysis and proposing appropriate solutions about how to manage the new credit risk in the supply chain financing, giving help to improve credit management of the core in the supply chain.