An Internal Checklist for Procurement: Are You Ready to Implement a Trade Financing or Invoice Discounting Program?

procurement checklist

With an increased awareness over reducing supply risk and implementing working capital programs, the world of trade financing is increasingly coming to procurement and supply chain organizations. In addition, many procurement organizations are entering new levels of maturity with their purchase-to-pay (P2P) programs and systems that can serve as a foundation for a range of trade financing initiatives, starting first with approved invoices as a trigger for early payment.

But trade financing can appear complicated from the outside. And procurement organizations have often played a supporting role – at best – in implementing programs to date. These programs have ranged from approved trade payables financing (supply chain finance) with a small subset of large suppliers to long-tail programs – rightly or wrongly – leveraged card programs to reach an increasing set of smaller suppliers.

But there are many more techniques and approaches to enabling trade financing than these 2 models alone. To assess whether you’re ready to take the plunge in developing and implementing a broader trade financing strategy with a procurement-centric (i.e., holistic supplier engagement that balances a range of elements) model in mind, ask yourself the following questions:

  • How encompassing are our P2P programs today? Are we just tackling indirect spend (and if so, at what level)? Or are we capturing a broader percentage of PO and non-PO spending in a manner that is integrated with electronic invoice capture and payments?
  • Does accounts payable (A/P) report into procurement or have a dotted line relationship into procurement?
  • Does procurement have a set of metrics on which it is measured that align it with finance-centered outcomes (e.g., revenue, working capital management, etc.)?
  • Do we have a competence in – or understanding of – supplier on-boarding activities and how to scale such programs effectively?
  • Have we invested in supplier management tools that include supplier enablement, data collection and master data management – or does a third party do this for us?
  • Do we have a card program in place that is based on a predefined supply base segmentation approach? If so, have we measured supplier satisfaction with this program and do vendors feel they have been accurately placed into a specific program?
  • Have we looked at the intersection of supply risk management, payment terms and working capital throughout the supply chain? Do we understand our strategic supplier’s sources and access to capital (e.g., banking relationships)?
  • In recent years, have we extended payment terms in our supply base without a full understanding of its impact on specific supplier’s supply risk ratings and balance sheet impact?
  • Have we conducted either small-scale or targeted pilot programs (e.g., by geography) in the areas of either supply chain finance or invoice discounting?
  • Do we have a center of excellence (CoE) that will take responsibility for key aspects of any trade financing program design, implementation, training or ongoing management?

Collectively, these questions represent only a partial list when it comes to assessing overall trade finance readiness, but how an organization answers them can be directionally telling. As a rough guide, if you answered “no” to more than a third, then it is worth stepping back and considering a range of core strategic and operational priorities and investments as well as targeted programs before pursuing a broad-scale set of trade financing investments.

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