There has never been a more absurd situation than exists now between procurement and supply chain practitioners and finance team members. On the one hand, there are countless programs attempting to unify and extend payment terms to suppliers, to the greatest degree possible. Such activity can have a negative procurement interest on supplier relationships while increasing supply risk, especially with lower tier suppliers, where visibility into financial health and stability is often lacking but where the trickle down effect from payment term extension ultimately comes home most to roost. Yet on the other hand, we have access to a truly amazing array of new technologies that accelerate and provide visibility into approvals and trade documentation, combined with what appears to be a near limitless supply of third-party capital, which is willing to invest in and fund both receivables and payables financing programs. Collectively, the combination should drive down the cost of capital for early payment programs, accelerating the flow of cash in the supply chain.
There has been a big effort on the part of a number of vendors to find ways to bring trade in the digital era. One of the recent successes has been around the electronic Bill of Lading (eBL). A quick reminder of what purpose the B/L serves is : it is evidence that a valid contract of carriage exists it is a receipt by the carrier confirming goods received match descitpion, and it is also a document of transfer (but is not a negotiable instrument) There are a few vendors that have made much progress moving this document to an […]
There is an argument that banks are not making their SCF programs easy enough to implement. Paula Da Silva, SEB head of Working Capital, went so far as to say not only are we not user friendly, we are not Apple where you just download an app. Her point focused on the cumbersome and time consuming process of setting up a supply chain finance program and then going around to a respective subset of vendors to use a portal. Can we make these reverse factoring programs App Friendly as Da Silva suggests or is she caught up in this fintech […]
Banks have a massive opportunity in delivering purchase-to-pay (P2P) and tech-enabled trade financing solutions to clients. Some are already taking the plunge. Many others remained mired in a credit-only world. Yet they all have a tremendous amount to lose if they don’t get these programs right in the coming years, as alternative lending and treasury service models take flight – and as technology providers, consultancies and outsourcing firms become more strategically positioned to influence CFOs and treasurers generally, potentially marginalizing banking relationships. But in our experience, most banks have not yet started to ask the right questions to understand both the risk and opportunities posed by tech-enabled e-invoicing, P2P, approved trade payables financing (supply chain finance), reverse factoring, invoice discounting, broader card (not just corporate card), payment and other offerings, among others.
Technology vendors and procurement organizations often ask us about the steps banks are taking to deliver integrated purchase-to-pay (P2P) and related programs as part of their solution portfolios. The answer is actually a bit depressing: Most banks are doing surprisingly little today, and the programs they do offer in the trade financing area tend to rely loosely on technology at best. In fact, we can count the number of banks and their client-facing organizations with an in-depth knowledge of such solutions on a single hand. The sad part, of course, is that banks have a huge opportunity to participate in the new world of fintech – and have far better relationships to drive the adoption of solutions – not just their initial sale – within their current client base, especially the middle market.
Standard Chartered recently produced a very good report titled Global supply chains: New directions. There is some good stuff in here and if you have the time definitely worth the read. In it, they talked about some of the manufacturing changes that will impact supply chains, such as: Robotics could challenge the low-wage model while 3D printing could bring a shift to customized products, made locally. The centre of gravity of low-cost manufacturing looks set to trend west from coastal China, inland and to ASEAN, India and eventually Africa. Services trade is likely to grow fast as digital technology advances. […]
Banks continue to sell Trade Finance as a great product line and one that is getting unduly punished by regulators. Their argument centers on a few key points. First, Trade is Main Street, not Wall Street – We are different Trade finance involves the production and movement of tangible goods. This is especially important with emerging and developing economies, where companies may not have the balance sheets to access credit or the leverage to achieve favorable payment terms from overseas suppliers. This is where banks, insurance companies, export credit agencies and other government bodies (eg. Small Business Administration) step in […]
Last week I wrote a piece around how the middle market struggles to find a fit with eInvoicing. A recent study by HSBC Hidden Impact – The Vital Role of Mid-Market Enterprises found that in the U.S., middle market companies (defined as having annual sales between $50 million to $500 million) Number 55,700, representing the largest number of any country in the world including China Support 16.5 million jobs, including many high value positions in the professional services sector Provide a massive $2.2 trillion economic impact, making these businesses a vital part of the US and global economy HSBC reported […]