Supply Chain Financing Toolkit

November 9, 2016 Chris Doxey

Supply chain financing (SCF) has been heralded by executives for its ability to lower overall supply chain costs. In one report, PricewaterhouseCoopers goes so far as saying that SCF enables increased stability and efficiencies for both the buyer and the supplier.

ap expert Chris Doxey discusses how supply chain financing improves working capital

What is an SCF solution and why is it important?

Simply put, SCF enhances working capital for both parties in a transaction. By using technology to connect buyers, sellers, and financiers, SCF can reduce supply chain risks and has the added benefit of strengthening business relationships—after all, the lifeblood of any business relationship is money.

Note that SCF is unlike traditional supply chain enhancement techniques. Those traditional techniques, such as factoring, early payment discounts, accelerated terms, or deferred payments help only one party in the transaction. This one-sided approach also places excess and unnecessary strain on the opposite party.

SCF, then, fosters collaboration and benefits all sides of the transaction—a truly win-win situation.

Who benefits from an SCF solution?

The buyer. Approaching the negotiating table with a bag full of cash is a huge bargaining chip. Being empowered with easily available capital is the next best thing. This allows buyers to enter negotiations on better terms.

The seller. The sellers’ cash flow is markedly improved since they’re no longer waiting 30, 45, or even 90 days for payment. This reduction in days sales outstanding (DSO) helps improve cash forecasting as well.

The financier. Financial institutions aren’t in the business of giving money away. By facilitating the exchange of funds, the financier stands to gain a fraction from the transaction. In most cases, the financier operates within the margins. The financier-backed solution is less costly overall when compared to standard financing exclusively between a buyer and seller—such as a net-90 term.

The platform. The technology companies who create the platform that enable buyers, sellers, and financiers to win needs some skin in the game. The platform-providers earn its share from the margins—which again, is oftentimes much less than a traditional two-party transaction.

What are the steps to consider when implementing SCF?

  1. Who’ll take lead? Which departments should be involved—this is often accounting, procurement, and treasury.
  2. Analyze the gains—if any—that would materialize by implementing supply chain financing. Oftentimes you need the perspective from several departments to get a holistic view of the outcome.
  3. Communicate, communicate, communicate.
  4. Consider alternatives. After conducting research, does it still make fiscal sense to continue with SCF? Are there additional cost-savings?
  5. Reach out to existing banks or financial institutions. Are they in the SCF game?

About the Author

Chris Doxey

Chris Doxey, CAPP, CCSA, CICA is an independent management consultant providing Internal Controls and Business Process Best Practice Solutions. She has extensive experience in procurement, accounts payable, internal auditing, internal controls, Sarbanes-Oxley compliance, payroll, logistics, financial systems strategy, and financial integration at Digital, Compaq, Hewlett Packard, MCI, APEX Analytix, and Business Strategy, Inc. She was recruited to assist MCI (formally WorldCom) recover from their internal control challenges. She has a bachelor's degree in English, a bachelor's in accounting, a master's in business administration, and a graduate certificate in project management. Chris has written numerous articles and published two handbooks: AP Leadership Skills and Implementing a Controls Self Assessment Program for Your Accounts Payable Department.

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