May 17, 2023
Worldwide Supply Chain Finance volume reached nearly $2.2 trillion in 2022, up 21% over the year before. This means Procure-to-Pay and AP Automation firms have a trillion-dollar opportunity to add Supply Chain Finance as a service for their customers. This article explores what Supply Chain Finance is, why it’s important, and how firms can benefit from offering this valuable new service for their customers. We’ll also examine successful case studies of Procure-to-Pay and AP Automation firms partnering with Supply Chain Finance providers.
What is Supply Chain Finance?
First, some definitions. Supply Chain Finance (SCF) is a buyer-led program that offers early payment to suppliers, with funding from a third party.
The mechanics are straightforward: The buyer’s SCF program allows its suppliers to opt for early payment of its invoices, less a small discount. The early payment is made by a third-party funder (usually a bank or fintech firm); and the funder is paid in full by the buyer on the invoice’s original due date.
It differs from traditional financing methods by leveraging the buyer’s creditworthiness to provide easy financing options for suppliers. Overall, supply chain finance plays a crucial role in procurement, helping businesses optimize their cash flow and increase efficiency throughout their supply chains.
Supply Chain Finance is just the latest iteration of Invoice Finance — the practice of early payment that has existed for over 4,000 years — from ancient Mesopotamia, to the Medicis of the Renaissance, to the Industrial Revolution of the 1800s, to today.
Why is Supply Chain Finance Important?
Supply chain finance is important for both buyers and suppliers in the procurement process as it enables them to optimize working capital management. By using supply chain financing solutions, buyers can extend their payment terms while suppliers can receive early payments at a lower cost of capital. This helps improve cash flow and enhances the financial stability of both parties involved.
Furthermore, supply chain finance adds transparency to the procure-to-pay process by providing real-time data on invoice status and payment due dates. This allows for better communication between buyers and suppliers, reducing the risk of disputes or delays in payment. Ultimately, incorporating supply chain finance into their services can give procure-to-pay and AP automation firms a competitive edge in an increasingly crowded market.
Access to lower cost of capital, mitigating supplier risk through early payment options, and increased negotiating power with suppliers are just a few of the benefits that buyers can enjoy when utilizing supply chain finance. By partnering with firms that offer supply chain finance as a service, executives at procure-to-pay and ap automation firms can help their customers improve financial efficiencies and better manage cash flow.
Here are some key benefits for buyers:
- Access to lower cost of capital
- Mitigating supplier risk through early payment options
- Increased negotiating power with suppliers
Supply chain finance helps corporate buyers unlock trapped cash in their supply chains, creating value for both the buyer and the supplier. By offering this service to their customers, procure-to-pay and ap automation firms can position themselves as leaders in financial innovation while driving growth in their own businesses.
Improved cash flow management and stability, ability to access funding at lower rates than traditional financing options, and the opportunity for growth and scaling through increased financial flexibility are just some of the benefits that supply chain finance can offer suppliers. This innovative solution allows suppliers to receive early payment on their invoices from their buyers’ financing partner. As a result, suppliers no longer need to wait for extended periods for payments or turn away new business opportunities due to lack of funds.
By partnering with a supply chain finance provider as part of their service offering, procure-to-pay and AP automation firms can provide their customers’ suppliers with these valuable benefits while also enhancing their own value proposition in the market. Below are some of the key advantages that implementing supply chain finance can bring:
- Improved cash flow management
- Reduced operational costs
- Increased efficiency in invoice processing
- Minimized credit risk
- Access to capital at lower interest rates compared to traditional financing options
How Can Procure-to-Pay and AP Automation Firms Benefit from Supply Chain Finance?
Procure-to-pay and AP automation firms can benefit greatly by offering supply chain finance to their customers. In partnering with firms that offer this service, they can add value for their corporate buyer customers by providing a new financing option for their suppliers. This not only strengthens the relationships between buyers and suppliers but also helps to mitigate risk in the supply chain.
Furthermore, adding supply chain finance as a service can help these firms differentiate themselves from competitors in the market. It provides an additional revenue stream and positions them as a one-stop-shop for all procurement needs. As such, procure-to-pay and AP automation firms should seriously consider incorporating supply chain finance into their offerings to tap into this trillion-dollar opportunity.
Adding Value for Customers
Reducing the cost of financing for suppliers, improving cash flow management for buyers and sellers, and providing real-time insights into supply chain risks are just a few ways that adding supply chain finance can bring value to customers. By partnering with firms that specialize in this area, procure-to-pay and AP automation firms can offer their customers access to lower-cost financing options while also helping them manage cash flow more effectively. Additionally, real-time insights into potential risks within the supply chain can help businesses make more informed decisions about supplier relationships and other critical areas of their operations.
Partnering with Supply Chain Finance Firms
Partnering with supply chain finance firms can provide significant benefits for procure-to-pay and AP automation firms. By collaborating with these financial institutions, P2P and AP firms can offer their customers a comprehensive suite of services that includes supply chain financing solutions. This partnership allows these companies to leverage their existing accounts payable data to provide valuable insights into the buyer’s transaction history, which in turn helps suppliers access affordable financing options. With the right partner, P2P and AP automation firms can expand their service offerings while delivering greater value to their clients.
Winners and Losers
Investors and analysts have long asked for greater transparency into Supplier Finance programs. They feared that a lack of information could mask risks within a corporate buyer’s balance sheet. The need for transparency grew even more urgent as Supply Chain Finance grew from a niche financing tool to a multi-trillion-dollar mainstream practice.
Big winners include ratings agencies like S&P, Fitch, and Moody’s, along with investors and shareholders generally. Banks, non-bank lenders and other debt financing providers likewise benefit from enhance disclosure.
Of course, the increased disclosure requirements come at a cost. Tracking and presenting details about Supplier Finance programs represents a new burden for buyers who offer their suppliers these programs.
It’s worth noting that most, but not all, Supplier Finance programs will be subject to disclosure. For example, IFG’s signature Digital Supply Chain Finance operates differently from other Supplier Finance programs. It does not require the buyer to make any changes to its normal payment processes: no IPU, no extension of terms. Additionally, IFG does does not require the buyer to confirm the validity of invoices with either positive or negative confirmation.
The entire program was built from the ground up to avoid the pitfalls of traditional SCF programs that have generated controversy and attracted regulatory scrutiny. As such, IFG’s DSCF does not fall under the three-part test described by FASB, and is exempt from the new buyer disclosure rules.
Choosing the Right Partner
When it comes to adding supply chain finance as a service for your customers, choosing the right partner can make all the difference. Here are some key factors to consider when evaluating potential partners:
- Understanding the partner’s experience in supply chain finance: Look for partners who have a deep understanding of how supply chain finance works and have experience working with companies similar to yours.
- Evaluating the partner’s technology capabilities: Ensure that your partner uses cutting-edge technology that will integrate seamlessly with your existing systems and provide real-time visibility into financing options.
- Reviewing the partner’s track record with previous clients: Request references from current or former clients, ask about their experiences working with this particular supplier of supply chain finance services.
By carefully considering these factors, you’ll be well-equipped to choose a trusted and reliable partner for providing top-notch supply chain financing solutions to your customers.
Case Studies: Procure-to-Pay and AP Automation Firms Successfully Implementing Supply Chain Finance
Procure-to-Pay and AP Automation firms are successfully implementing supply chain finance, as seen in case studies from companies A and B. By partnering with firms that offer Supply Chain Finance, these companies have added value to their customers by providing a new service that complements their existing offerings. With access to accounts payable data from corporate buyers, procurement and invoice automation firms can tap into the trillion-dollar opportunity of supply chain finance for the benefit of all parties involved in the transaction process.
Company A has been at the forefront of enabling supply chain finance for their customers through various innovative solutions. By implementing dynamic discounting programs, they have helped their clients optimize cash flow while providing a win-win situation for both buyers and suppliers. Additionally, partnering with banks and financial institutions has allowed Company A to offer funding options that meet the needs of their diverse customer base.
In addition, Company A is leveraging blockchain technology to ensure secure transactions throughout the supply chain finance process. This helps reduce fraud and enhances transparency in the overall process. Through these efforts, Company A continues to expand its offerings in supply chain finance and help its customers realize significant benefits.
- Implemented dynamic discounting programs
- Partnered with banks and financial institutions for funding options
- Leveraged blockchain technology for secure transactions
Integrating supply chain finance solutions into existing AP and procurement systems is a key offering from Company B. With years of experience in the industry, they have developed an expertise in seamlessly integrating this service with their customers’ current workflows. Additionally, they offer supplier onboarding support and training to ensure a smooth transition for all parties involved.
By offering supply chain finance as a service, Company B has helped its customers improve their working capital management, reduce financing costs, and increase supplier satisfaction. The scalable and fast platform provided by Company B has also enabled them to handle large transaction volumes with ease, making it a valuable addition to any procurement and invoice automation firm’s suite of services.
Overall, the success stories of Company A and Company B demonstrate the significant potential for Procure-to-Pay and AP Automation firms to add supply chain finance as a service for their customers. By leveraging their access to accounts payable data and partnering with firms that offer supply chain finance, these companies can tap into a trillion-dollar opportunity while providing added value to their customers. involved.
One of the standout features from Company B is their ability to provide real-time visibility into invoice approval status through their supply chain finance solutions. This level of transparency allows corporate buyers to make informed decisions about payment timing and gives suppliers greater confidence in managing cash flow. By partnering with Company B, procure-to-pay and AP automation firms can provide value-added services to their customers while increasing revenue streams for themselves.
The potential for supply chain finance is enormous and should not be underestimated by procure-to-pay and AP automation firms.
Understanding how supply chain financing works can help executives at procure-to-pay and AP automation firms identify opportunities for growth and differentiation in an increasingly competitive market. By focusing on collaboration between suppliers, buyers, financiers, and technology providers while also prioritizing data privacy concerns will set companies up for success in this rapidly evolving industry.