Growing Demand for Supply Chain Finance — Expert Insight from Trade Financing Matters

The growth in popularity of Supply Chain Finance (SCF) has been largely influenced by the globalisation and the ever-increasing complexity of the supply chain -- especially in industries such as automotive, manufacturing and the retail sector. Supply chains today can literally stretch from one side of the globe to the other, creating pools of multinational buyers facing a wide-ranging group of suppliers from many and diverse countries. More and more organisations are latching onto the huge value in optimising the working capital that resides within their supply chains. By adopting SCF solutions both buyer and supplier can benefit from that working capital: using invoices as security for raising capital means suppliers can get their hands on their money earlier, and buyers can pay later, or choose to pay early and receive discounts (depending on the model chosen).

It sounds like a simple solution to the age-old problem of cash flow and waiting for validation or credit references. Little wonder that many big names, like Tungsten, Crossflow Payments, Taulia, Tradeshift and Oxygen Finance, have jumped at the opportunity to fill that space. And as Peter Smith remarked in Supply Chain Finance at eWorld – the past and the future, they can probably offer more than the traditional banks with their capability to link e-invoicing with technology-enabled dynamic discounting and SCF. The event was chaired by the CEO of C2FO, which claims to be the “world’s market for working capital.” We are fortunate to have a finance and working capital expert here within our Spend Matters community who knows the SCF models inside-out and the big organisations using them, and he has written extensively on C2FO and the world of supply chain finance. 

C2FO teams with Fifth Third Bank

To start at the beginning of the year, back in January David Gustin of Trade Financing Matters wrote
'C2FO teams with Fifth Third Bank,' which gives us the background to C2FO achieving its first banking triumph when it announced a licensing agreement with Fifth Third Bank to offer a unique working capital solution to Fifth Third clients. David tells us what makes C2FO different from other vendors operating in this space and then highlights what its challenges were (at the time). It's worth checking back with Trade Financing Matters to follow how the market and C2FO have evolved since. 

C2FO brings their Auction Market to the UK

A couple of months later David reported that C2FO had partnered with KPMG to introduce C2FO to UK businesses. KPMG's Chairman in the UK commented, "... C2FO will provide a much-needed non-bank source of working capital finance to suppliers and will help many small firms stabilise their supply chains. I believe this will prove a really interesting addition to the increasingly diverse mix of funding available to businesses, particularly SMEs."

Banks struggle to deploy supply chain finance technologies

Swiftly following this David wrote about the dilemma facing banks over not only how to provide supply chain finance to their clients but what technologies they would need to support their infrastructure. He saw trade as becoming "just another specialized lending product," and gave us an insight into what the banks are having to consider: how to integrate trade finance with their other bank lending areas, and how to take advantage of this key growth area.

The State of Supply Chain Finance Programs: Seven Quick Facts

Having carried out discussions with organisations that had rolled out Supply Chain Finance (or Approved Trade Payable) programmes with their supplier base, in this post David reports on the feedback he had from the programmes many months down the line. He furnishes us with seven quick facts from his learnings. He then offers some strategic advice to corporates thinking of following the same route.

So You Need a Supply Chain Finance Platform

To round off, David provides us with a post that goes deep into answering all those hanging questions over what to choose and where to start. "If you are a large corporate looking to add early payment functionality to your existing infrastructure, there is no simple point A to point B progression. It really depends on what you are setting out to do, your current infrastructure, and how you would like to do it (use others’ balance sheets to fund suppliers, your own cash, or a hybrid model)." He delves in length into the various options and scenarios with sound advice and pitfalls to watch out for.

This is a seriously compelling series of themes that any senior procurement professional will find of great interest if they are serious about the undoubted benefits that SCF could bring to their organisations.

And one last word: if you are interested in further learnings, like how the model for the C2FO market has gained significant momentum over the past 6-plus years, or what makes it different from alternative lenders, its strengths and its weaknesses, or what is the ultimate upside present in this particular model, then David can answer all those questions in his white paper from Trade Financing Matters, free to download. 

 

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