The Intersection of P2P, Supply Chain Finance and Risk Mitigation (Part 3)

Please click here for Part 1 and Part 2 in this series.

There are a range of more advanced tactics companies can pursue to leverage P2P and supply chain finance approaches not only to intercede when suppliers need capital, but to monitor risk factors as well. We could wrap all of these approaches under the moniker "big data meets P2P and supply risk," but the reality is that you don't need to be a BI or OLAP whiz to make some of these strategies work. Rather, just as you would do in commodity forecasting using a basic regression approach, you need to figure out what AP, payment and discount factors are correlated with an increase in supply risk -- which requires examining your own internal programs (e.g., did extending payment terms in 2008 help contribute to three supply disruptions we realized during bankruptcies in the recession of 2009??) as well as supplier behaviors themselves.

As we suggest in our P2P Compass series research brief, E-Invoicing Comes of Age -- Discovering What's Possible From the Latest Electronic Invoicing/Invoice Automation Capabilities, aside from the successful administration of basic discounting and advanced supply chain finance programs, in more advanced use cases, companies are starting to leverage insights from electronic invoicing and invoice automation programs to play an important role in forecasting, managing and mitigating different forms of supply risk. This visibility is also helping finance and procurement organizations to work more effectively together in considering leading and lagging indicators of supply risk, many of which may be not be available via third-party sources of vendor risk (e.g., D&B SER) or credit data with sufficient warning.

Analytics that can help detect, for example, changes in patterns related to early payment discounts, DSO monitoring (at the same time as a declining credit score) and other individual or correlated factors that may provide early warning signals with enough runway remaining to take action. What's really cool -- pardon our informal enthusiasm -- about these approaches is that we have more data than ever before to sort through and mine. For example, we can now monitor supplier actions when they come into a portal environment, and examine, based on data patterns over time, if a consistent pattern of activities (e.g., checking on receivables frequently, requesting discounts, or the like) is correlated with an increase in risk by looking at both bankruptcy data historically and if certain activities are leading indicators for D&B and other credit ratings weeks or months down the line.

If you're curious an e-invoicing, P2P and supply chain finance foundation to drive supply risk management, we encourage you to download: E-Invoicing Comes of Age -- Discovering What's Possible From the Latest Electronic Invoicing/Invoice Automation Capabilities .

- Jason Busch

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