7 Hacks To Build A Scalable Supply Chain Finance Program#supplychain #fintech #tradefinance #supplychainfinance #digitization #digitaltransformation
A supply chain finance program which can be scaled up to achieve long term growth takes a lot of hard work and practical execution skills. Running such a program involves strong analytical skills, robust planning as well as clear, well-defined objectives right from inception.
A willingness to synergize on-the-go, determination to execute everything down to the minutest detail in mission critical mode and having a knack for problem solving and troubleshooting would go a long way in the success of a supply chain finance program.
Here are seven simple hacks which could be used to build a scalable supply chain finance program:
1. Well Defined Objectives / Internalize Objectives Well In Advance
Primarily, supply chain finance programs exist in order to ensure optimization of working capital for suppliers (sellers), especially ‘deep-tier’ smaller suppliers, in partnership with third party financers like banks or non-banking finance companies as well as corporate anchors (buyers). This fundamental objective should always remain the highlight.
Secondly and importantly the objective should be creating value for both corporate anchors and financial partners.
Narrowing on these fundamental objectives is critical and would help long ways in ensuring the scalability of supply chain finance programs.
2. Internal Buy-In / Get Rid Of Wrong Assumptions
It pays to get basic assumptions right.
It is often assumed that the payables and treasury department is solely responsible for running supply chain finance programs, but instead all teams dealing with suppliers have to be fully and actively involved in implementing a supply chain program, if it has to succeed.
All supplier-facing teams right from the corporate anchor’s procurement team to info-tech (IT) teams of all stakeholders would have to plan, synergize, as well as work together towards a common objective.
3. Supplier Engagement / Engage With Suppliers
As soon as the onboarding process is over, it would be ideal to kick off a joint synergistic effort by the supply chain finance platform, the corporate anchor and the financial partner to actively engage as well as handhold suppliers at every step for the first 3 months of kickoff. A comprehensive engagement strategy put in place well in advance to implement such active engagement with suppliers for the initial three months would help ensure that suppliers are at ease as well as earn their goodwill.
After the initial phase of active engagement, a more passive as well as automated communication effort may be enough to engage suppliers. During this phase, suppliers could be engaged periodically with attractive offers and promotions.
A formal communication strategy must be put in place to actively engage and inform suppliers of the program, its features, and advantages. Automation of marketing efforts by using tools such as e-mail marketing and personalized messages along with invoices could boost their reach.
Such a step would help supply chain finance programs achieve scalability.
4. Partnering With Suitable Financiers
A supply chain finance solution provider’s financing partners could range from banks, non-banking financial companies (NBFCs) or financial institutions. Such partners play a very critical role not only in bringing in capital, but also in structuring products as well as their overall execution, besides scaling up supply chain finance programs.
For instance, if a supply chain finance provider has to cater to the Middle East market, it would be necessary to have a finance partner with long established credibility in offering Sharia compliant financial products and services. Similarly, if a Japanese bank offers loans at practically zero interest, it would be prudent for supply chain finance providers to at least explore the possibility of tying up with it to take such a facility to other parts of the world.
Financiers also contribute very significantly to supplier engagement to better explain products, their features, as well as address with FAQs, if any, in the minds of suppliers.
It would make sense for smart supply chain finance providers to do everything to leverage all unique skills and specialties of their financing partners and find a suitable match.
Be selective about choosing them with care. The wider the range of options available to suppliers, the greater is the chance of a supply chain finance program achieving long-term scalability.
5. Target The ‘Long-Tail’ Or ‘Deep-Tier’ Suppliers
It is relatively easy to focus on high value Tier-1 suppliers who tend to have stronger balance sheets. Hence, there is no dearth of supply chain solution providers competing to cater to them, leaving the smaller suppliers starved of working capital because of their limited availability of data on their creditworthiness.
The real challenge lies in empowering small-ticket size or ‘deep-tier’ suppliers consisting of the ‘long tail’ of the supplier ecosystem, since this category of suppliers still finds it difficult to raise capital. Since it is relatively difficult to cater to ‘deep-tier’ suppliers, there are very few supply chain finance solution providers which are equipped to cater to them.
Yet, if supply chain solution providers could cater to this ‘deep tier’ supplier ecosystem, it would certainly bring value to their financing partners or banks in terms of getting them a larger base of clients.
Besides, catering to a high volume of low-ticket size suppliers could prove beneficial to reduce the efforts of corporate anchors’ payables team in terms of payment follow-ups, settlements, as well as reconciliation. Catering to ‘deep-tier’ suppliers also contributes towards making supply chain programs truly scalable, which is precisely what Veefin’s supply chain solution enables.
6. Built-In Credit Checks / Incorporate Credit Check Processes
Credit checks are a vital part of keeping supply chain finance programs functional and information technology is a key enabler by providing transparency to all stakeholders.
Digitizing the process by enabling electronic purchase orders, electronic invoices and electronic modes of payment have ensured that all stakeholders have access to the same version of the truth regarding transactions, and enable credit checks.
Digitization of all processes ranging from invoicing, documents management, matching of invoices and purchase orders, their reconciliation and approval, automated accounts and payables management, as well as multi-bank connectivity can prevent fraud.
Supply chain finance solution providers have designed electronic platforms which enable suppliers to see their invoices, payments and receivables online as well as ask for accelerated payment on these receivables.
For a supply chain program to be sustainable in the long run, it is necessary to have such in-built modules to perform regular credit checks within the ecosystem of the platform.
Supply chain finance solution providers like Veefin have the capability to integrate with buyers’ ERP systems. This enables buyers’ ERP systems to send approved invoices automatically to supply chain platforms. After invoices are received, supply chain platforms may automatically notify suppliers, who may login to such platforms, select invoices they wish to finance, and issue purchase requests.
Such integration also enables automated auditing of data to detect any discrepancies, as well as notify users when any are found.
In order to facilitate cross-border and cross-currency transactions, supply chain solution providers comply with open protocols like the Society for Worldwide Interbank Financial Telecommunication (SWIFT) ISO 20022 financial messaging standards.
7. Leverage Technology
The role of technology cannot be overstated, whether it is in the design of the supply chain finance platform, the onboarding process, underwriting, engaging with stakeholders, giving more options to suppliers, or carrying out automated credit checks.
A recent study by Gartner has suggested that innovative technologies like Artificial Intelligence (AI) and Machine Learning (ML) are set to disrupt existing supply chain operating models more significantly very soon.