Supply Chain Finance

This is an important piece of research. For the first time, independent evidence points to a rapid growth in the adoption of e-invoicing and a significant change in the motivation for implementation. A wide range of organizations, from SMEs to large global businesses were surveyed in 2012 to understand their experiences and aspirations for payment technologies. Some of the results of the research  are, to be frank, predictable, while others were a surprise. Overall, the research paints an optimistic picture for technology vendors and their clients who are benefiting from their solutions.

One of the interesting things about the debates around financing models is the notion of paying “early” and the use of paying “early” as a negotiating tactic to secure a discount. The obvious question is “early” in relation to what?  The answer is usually “early” in relation either to existing terms and conditions or to custom and practice. It may possibly be “early” in relation to an uncertain payment date – I heard recently of one company which simply settles accounts on an annual basis.

In 2012, the supply chain finance debate became louder and more relevant to more businesses. It’s been described as the perfect storm – the combination of constrained liquidity and very low interest rates means that the gradient between the business “haves” and “have nots” has become steeper – and banks and investors love steep gradients. Supply chain finance is not new but new approaches are emerging based on new and innovative use of technology. In the past, the banks were the only players and they would only play with the big boys. For it to be profitable, the numbers had to be big and the cost of entry was high. But now, as collaborative supplier networks and the associated technology have matured more complex deals can be managed and the cost of entry has plummeted. Increasingly, businesses as well as individuals are turning not to the banks, but their peers for financial support.

Change is often accompanied by changes in language. Not just new words to describe new things but old words change their meaning as their original meaning becomes less exact. The evolution of language is natural but like all change, some find it harder to deal with than others as they stubbornly cling to old terminology. Those who remember the sexual revolution of the 60s and 70s will certainly have heard old fuddy-duddies saying “but ‘gay’ means happy”. I used to think they were feigning confusion in an attempt at humour but no, they really were struggling to come to terms with the evolution of language as the world moved on. The mobile telephony revolution of the last twenty years has been accompanied by characteristic evolution of language. Whole new words and acronyms joined the English language as abbreviations were developed as SMS shorthand. But still, the fuddy-duddies insist on grammatically correct text messaging, refusing to embrace it or worse, trying to use it and getting it wrong. David Cameron famously thought “lol” meant “lots of love” – it’s a common mistake amongst SMS fuddy-duddies. One of the worst social media faux pas I know was the fuddy-duddy that sent the text message: “Just heard the sad news about your mother. Sorry for your loss. lol”.

This week we're delighted to welcome John Mardle as a guest writer. John delivers CashPerform’s working capital optimisation programme and brings a new perspective to the supply chain finance discussion. The level of trade finance required today globally outstrips what can be achieved even by syndications that pull together all the banks. The pool is just not big enough in terms of the figures needed to support global trade. Could pension funds plug the gap?

Some companies in our industry might encourage you to “hurry up” while you’re in the procurement phase but maybe it’s because there’s something they don’t want you to stop and think about. For example, the question of business models. In what we do, you have two options. The first is pretty simple: make your money from enterprises in proportion to the value you create for their business. That means putting in a solution that makes their supply chain more efficient and accompanying it with the processes and technology that makes suppliers want to use it too. The second is a bit more old-fashioned, a bit less elegant, indeed, somewhat parasitic. This way involves using the enterprises you’re supposed to be helping as a direct sales route to their suppliers, where you’ll make most of the money. Basically turning your customer into your sales channel and pushing the majority of the financial burden down the supply chain to the guys it’s going to hurt most.