Digital supply chain finance
Treasurers and CFOs know the basic supply chain finance product.
Digital supply chain finance is new - and it significantly elevates the capabilities and performance of the basic product.
It is a very simple idea - explained here in 2 minutes.
Basic supply chain finance - a win-win
The banks and platforms who provide the basic supply chain finance solutions broadly all work in the same way:
Invoices get approved for payment by the buyer in its accounting system.
The approved invoice list is sent to a platform where the suppliers involved can ask for early payments. These are duly made by a bank, allowing the buyer to pay later.
It is a win-win system:
suppliers receive their money more quickly, paying the interest
buyers get additional working capital at no cost
So what's not to like with basic SCF?
Most corporate treasurers and CFOs report a mixed experience with the basic supply chain finance product:
Supplier utilisation is low because early payments are not very early. That's because the product relies on the existing ERP process to approve invoices. These processes are typically quite slow and only operate post-delivery.
Most suppliers are not eligible for the program because of a lack of automation. Finance teams and banks limit participation as a result - and the smaller suppliers that would really benefit from early payments are excluded.
So there's plenty not to like. A lot of effort but results can be disappointing.
A leading platform recently reported that only 8% of the invoice volumes that it processed were being funded.
Digital supply chain finance - what's the big idea?
Supply chain finance is a "win-win" product, but only if it works properly.
How do we make it work better?
The big idea is to get suppliers to digitize their documents so that information is quickly available to drive the process:
The approval process goes faster
Early payments become truly early; and
Buyer processes can be automated - so all suppliers are included.
Digitisation - how does it speed things up?
Invoice approvals take time because the invoice approval process needs data. And data simply is not available quickly.
And that's fine if invoices are being paid over 30 / 60 / 90 days. But this approach does not support early payments.
What we need is a way to get data quickly from suppliers so that approval decisions can be made fast to enable payments to be made.
That's where digitization comes in.
Digital supply chain finance is based on supplier data provided (and warranted) at shipment by the supplier.
Suppliers ship
Suppliers provide (and warrant) data to the buyer about their shipment
Invoices can then be instantly approved with high levels of automation, and
Early payments are truly early with all suppliers included.
Digital supply chain finance: proven at scale
The benefits of upgrading your SCF programs to digital are significant.
This is proven at scale to work - and customers using digital supply chain finance typically generate additional savings (versus traditional SCF) of 1% or more on the goods that are involved.
Call us now to find out more - we are happy to explain digital supply chain finance and how the benefits are realised.
Click this link to book a quick call.