Author: Pete Loughlin

Finally the penny has dropped. Automating the purchasing process and controlling spend more closely by using modern technology reduces cost compared to following a manual or paper based process. This could save between 5% and 20% of procurement expenditure according to the EU commission. That means that the EU could reduce its public procurement spend of €2 trillion and save a massive €100 million. And all this can be achieved in 4 years – apparently. That’s a huge amount of money. 150 large hospitals could be built with that so it’s worth aiming for before anyone gets excited – and I hate to be the bearer of bad news – it isn’t going to happen.

Historically, Supply Chain Finance was very much supplier led. The aim was to extract value from unpaid invoices. By selling the outstanding invoices to the bank, a supplier can receive payment immediately. Of course there is a cost involved but faced with a wages bill due next week and an large order that needs fulfilling yesterday, immediate payment can be highly valuable even at what might be an equivalent annualized cost in excess of 20%. In it’s place and at the right time, it’s a powerful tool but it works best for suppliers with high values or volumes of transactions.

Supply chain finance is increasingly seen as a source of significant saving. By using supply chain finance tools and techniques, whether that’s simply managing payment terms better or whether it is by using more sophisticated techniques like dynamic discounting or reverse factoring, significant commercial benefit can be derived. Treasury managers are taking it more seriously but in many cases they are ignoring one of the biggest sources of saving and it’s right under their noses.

Supply Chain Finance Free White PaperSupply Chain Finance and Working Capital Management are important tools for any business and in 2012, there are compelling reasons why now is the time to adopt financial supply chain management tools in earnest and today we are delighted to make available a new white paper "Supply Chain Finance - extracting value from the supplier tail" There is an economic perfect storm. A combination of constrained liquidity – business struggling to maintain a line of credit – and very low interest rates. This makes it less attractive for businesses to hold on to cash but very expensive to borrow. The ability for a buying organization to leverage Supply Chain Finance is predicated on the assumption that you are able to manage accounts payable efficiently and effectively, which in turn is reliant on purchase to pay process being sound. This is rarely the case and poor P2P processes can be a serious blocker for some areas of spend. But not all areas of spend are created equally. For some categories of spend the balance of power between the buyer and supplier can make strategic relationships untouchable and, where hard core supply chain process are in place, the complexity of the P2P process makes it difficult to manage.