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High interest rates, economic uncertainty and disclosure rules appear to be dampening demand for payables finance programmes, though receivables finance remains robust, research by Demica has found. 

Bank representatives report a drop in demand for buyer-led supply chain finance (SCF), with suppliers potentially withdrawing from programmes due to higher costs and external pressures, according to Demica’s survey of nearly 200 professionals across 31 markets. 

More respondents identified receivables discounting as having higher growth potential than payables finance, a reversal of the previous year’s results. 

“Banks have experienced reduced demand for payables, some of which we can attribute to a maturing of the market,” says Demica, a London-headquartered SCF platform and technology provider. The survey was carried out between November and January, and the findings published this week. 

“Interest rates may have had their effect here too and continue to influence thinking about 2024,” Demica says. “Suppliers may withdraw from programmes when they deem the cost too high.” 

The majority of respondents cited interest rates as the biggest drag on asset growth. Higher cost of funds “made companies more sensitive about debt, reduced business growth and led to a reduction in working capital requirements”, Demica says. 

Although hikes in interest rates make supply chain finance facilities more costly, they also raise the cost of alternative sourcing of financing. 

However, some industry insiders raised concerns last year that there could be a “tipping point” where the cost of financing programmes outweighs the benefits, prompting suppliers to seek an exit. 

These pressures are unlikely to ease in the short-term, with the report predicting relatively high interest rates are likely to persist in many economies during 2024 as central banks respond to “stubborn” inflation projections. 

The survey also found that more than a quarter of respondents believe rule changes requiring corporate buyers to disclose details of supply chain finance programmes in their financial statements have decreased demand for payables finance. 

That finding is in keeping with last year’s survey, where 26% of respondents expected the reforms to dampen payables demand – although just 5% cited the rules as a major challenge to their business. 

“Last year’s low figure was surprising, given the administrative consequences of these new rules,” Ajinkya Bhave, head of product delivery at Demica, says in the report. 

“The increase is likely to be a welcome sign that more people in supply chain finance are paying full attention to the changes. If they fail to, the rules could pose a significant challenge to the expansion of payables.” 

Payables finance uptake also faces historic problems around long customer acquisition cycles and challenges onboarding or educating suppliers, the report says. 

“Payables has historically been the most popular product, generally outperforming receivables finance,” says Eric Li, head of competitor analytics, banking research at Coalition Greenwich. “However, we may be seeing a change in the market.” 

Other drags on supply chain finance growth cited in the report include geopolitical uncertainty, including the conflict in the Middle East, cited by 44% of respondents as a negative factor. The same proportion cite economic uncertainty as a negative influence on asset sizes. 

However, respondents remain optimistic about growth during the year ahead, with more than four-fifths expecting the value of assets held to rise in 2024. 

Receivables finance demand also remains stable, with banks in most markets looking to further expand their offerings. 

Receivables are increasingly seen as “an important financing tool for treasurers, particularly at sub-investment grade corporates who are under liquidity and cost pressure”, the report adds. 

“Looking ahead, 2024 is set to be a year when the persistence of high interest rates will focus banks on working capital solutions as a highly effective alternative to traditional credit,” says Demica chief executive Matt Wreford. 

“With political uncertainty continuing, supply chain finance is a lower risk option through its direct link to a visible commercial activity.”