6 Key Trends Impacting Buyer-Led Early Pay Techniques

In Busting Payable Finance MythsGlobal Business Intelligence conducted over thirty interviews with corporate treasurers who have implemented various programs and are thinking about implementing various programs to provide deeper content than press release type information.  As we move more and more into a digital and smart supply chain, initiatives to enable early pay for a broader segment of a company’s suppliers is increasingly becoming a reality.

So what did we see as the 6 trends?

 

Trend 1: Managing Multiple Solutions

Evaluating working capital opportunities with supplier finance techniques starts with understanding the complexity around spend categories and the ordering and payment processes.  Buying intercompany compared to buying consumables on an Amazon-like cloud system versus buying via contract manufacturers involve different ordering processes, technologies, approval processes and even payment and early pay finance opportunities.  This does not even factor in the complexities around jurisdiction, tax (eg. think transfer pricing) or reconciliations (intra-company transactions versus third party).

According to our discussions with treasurers and banks, more companies are starting to take a wider integrated approach when it comes different early pay programs and embedding that in their RFP.  While still early days, we expect that trend to continue.  This creates its own set of technology and operational challenges – see graph.

Figure: Key Components to Address for an Early Pay Offering

Trend 2: Supply Chain Finance Attempts to go Beyond Large Investment Grade Companies and Bank Funding

SCF is an established bank product for the large investment grade clientele of global and regional banks like Citibank, JPMorgan, HSBC, Santander, and others.  Besides more of the same with these programs, GBI is seeing two trends in this area – pushing programs downstream and extending programs outside of OECD countries.

There is a keen interest to push supply chain finance opportunities to larger, less well rated middle market companies, ie, either bringing self-funded early pay finance or more likely third party funded supply chain finance techniques popular with the larger, public and quality rated companies.

The second trend involves more programs being deployed in jurisdictions outside of OECD countries, including Latam, the Middle East and Asia.  These programs do not necessarily involve hundreds or thousands of suppliers but they could be very important to the company.  This also presents unique challenges, for example, in onboarding and KYC, platform selection requirements, Government requirements, and payments. For example, the liens registration process for receivables differs by country.

Trend 3:            From Self-Funding to Hybrid Models  - How the Role of Funding Early Pay Programs is Changing

Before, both self-funded and third party funded early pay finance were limited to a subset of suppliers.  For example, pcards are typically focused on those suppliers issuing invoices <5K and supply chain finance focuses on large strategic spend suppliers.  Now, techniques enable companies to offer early pay finance to their total supply base using the latest data science and artificial intelligence tools that can enable you to offer Early Payment to every supplier and use either your own source or others cash.

Next week we will look at the other three key trends.

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GBI has produced five Supply Chain Finance Guide publications (prior publications in 2007, 2009, 2012, 2014, 2016).

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