Leveraging Technology on the Buy-Side in Planning for Higher Interest Rates and Restricted Bank Lending

interest rates

Throughout this series, we have explored the role that the risk of rising interest rates and reduced bank lending to small and medium-sized business is likely to play in driving up supply risk and some of the foundational procurement-centric technologies that can help. (See The Impact on the Supply Chain and A Technology Foundation to Reduce Supply Risk.)

Today, as we conclude this exploration as the final installment of this series begins, we’ll highlight just a few of the trade financing techniques and technologies that can help procurement organizations play a leadership role in proactively preparing for and addressing supply risk.

In this cursory exploration, for the sake of argument, let’s segment various techniques into 3 categories of suppliers: highly strategic suppliers, or those we cannot afford to become insolvent or have financial-related challenges that lead to reduced performance levels; moderately strategic suppliers; and “vendors,” meaning everyone else. It is the first 2 groups, if we apply an 80/20 set of criteria, that are those we should care most about. Finally, please note, this segmentation is not the one that technology vendors or others typically apply to trade financing approaches. Providers like to think in terms of supplier size rather than strategic importance, an approach that is precisely the wrong way to think about supply risk.

So first, let’s consider strategic suppliers. Strategic suppliers may be large – and may qualify for traditional supply chain finance and approved trade payables programs, which often have somewhat onerous on-boarding and framework requirements that typically limit their appeal to all but a small percentage of a company’s vendors. This makes them difficult to apply to all but a handful of vendors. In addition, often a company’s largest suppliers are not the most strategic.

Let’s face it – Grainger, Staples, CDW and Dell are not strategic in the same way as a supplier that produces a highly specific material, part or component that cannot be switched out to another vendor without months, quarters or even years of supplier development initiative. Even a supplier that provides less than $1 million per year in various goods or services to a company can be highly strategic and difficult to switch out.

So if we consider that “strategic” and “spend size” often do not go hand-in-hand, then supply chain finance approaches aren’t a good place to start from a supply risk perspective overall. This in turn should bring us to programs that either leverage a supplier on-boarding and e-invoicing model at the core to capture a broader-set of vendors or those which do not require either. In the former category, there are numerous options, perhaps the most widely adopted for invoice discounting specifically of which is Taulia. (Others for consideration include Ariba, Tungsten, Tradeshift and numerous others.) In the later category, C2FO is perhaps the best known.

But there are other options as well, such as working with a traditional bank with a portfolio of solutions that it can bring to clients (OEMed by third parties) beyond just traditional treasury management products. Note: Your results may vary dramatically, as most banks have incomplete portfolios and those that do typically fail to educate the field enough to sell what they have successfully.

In addition, a range of specialist trade financing providers that bring technology  – but are technology agnostic – that can incorporate bank and non-bank financing options are beginning to garner significant program traction. Greensill fits perfectly into this category and has quite a unique perspective given that its founding management team came from the supply chain finance world at Citi and also brought P2P experience to bear. Prime Revenue, while more a technology provider at the core, also has a true portfolio approach and a deep understanding of the banking and capital markets intersection of trade financing – and has moved far beyond just offering supply chain finance options.

As our analysis continues, we’ll turn our attention to what we term “moderately strategic suppliers” and the long-tail of those suppliers which may be large in spend but lack the same level of strategic value to the business.

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