Shared Services Center can tap into networked supply chain financing to generate new profits from the entire expenditure
Tuesday, 30 Jun 2015
“However, many are at the early stages of implementing process efficiencies and very few are thinking about a top level working capital/cash strategy.” – Ad van der Poel, SVP of Financing Services, Basware
Product Marketing Manager
In my previous blog posting I brought up the strategic supplier relationships and the importance of giving up defensive cash management strategies for better supplier relationships. However, no matter how much Shared Services Centers would prefer, it is not feasible to manage working capital from the long tail of suppliers using the same methods that are applied to strategic suppliers.
How could SSC provide value to their customer organizations and improve the bottom line results of every player in the supply chain?
The key is in the networked Purchase-to-Pay enabling new financing services
Simply put, buyer-sponsored financing programs, built on the top of business commerce networks can dramatically improve working capital. As shared service centers have been automating the purchase-to-pay process, and can accept and process supplier-initiated discounts, they can propose generic discount programs that span across the entire supplier base of the buying customers.
With buyer-sponsored programs, shared services centers can offer a multitude of options for both buyer organizations, as well as suppliers. In essence, buyer organizations can choose to pay later, or pay less, both without occurring detrimental effects to the supply chain. These benefits are far greater than those unlocked through optimized working practices in the shared services center.
While it is daring, SSC leaders should strive to enable the financing services to deliver benefits to their own customers and keep elevating the value of SSC. Shared services centers can and should look to large sophisticated commerce networks to secure the right support in implementing these innovative financing services.
In buyer-sponsored programs, the commerce network in the centerpiece
Should a buyer organization wish to pay later, the payment solutions in the commerce network allow an intermediary to settle payments to suppliers on time, and for the buyer organization to pay later. In this scenario, the buyer pays a small premium to the intermediary.
If the buyer wishes to pay less, they can offer a dynamic discount term to suppliers. Suppliers who accept a small discount, will be paid earlier.
In both cases, suppliers not only get paid on time, or ahead of time – they also gain better visibility to the receivables, and enjoy easy remittance reconciliation.
According to our research commissioned with MasterCard, the savings potential from overall financial expenditure can be as high as 14% if all customer invoices are settled on optimum payment terms in their business.
Working capital gains are the pinnacle of the Shared Services Center journey
The benefit of maturing a shared services center to this stage is that the daily activities no longer involve clerical invoice processing. The shared services center can now excel far beyond distributed financial and procurement management: SSC personnel can now spend their time analyzing process efficiencies, spend distribution over supplier base, payment terms in system and in real life, and have in-depth discussions with business consultants to identify improvements that can benefit all customers at once.
Automation of the P2P cycle is a hard dependency for the innovative financing services
No matter how appealing these working capital gains may sound, to make full use of the discount programs, functional and process maturity have to be top-notch. According to our study, although only 31% of the business stated that their process bottlenecks do not compromise their ability to access supplier discounts, only 1 out of 4 businesses have highly automated processes with fully optimized systems to manage invoice payment effectively.
With this level of automation comes a whole new level of business responsibility. As the shared services center now essentially impacts the bottom line - through working capital optimization - the business value of the decisions made by the SSC is more far-reaching. The SSC is held responsible for their decisions regarding working capital optimization. For shared services centers to maintain this level of value, they need good partners who can continuously help SSC leaders find the next area for optimization.
Progressive Shared Services Centers need a capable business partner
Best practices are created from excellence in purchase-to-pay and e-invoicing. They deliver stakeholder value to shared services center customers without causing disruptions or over-complicating matters. Shared services centers need a trusted partners that can guide the SSC as it evolves from a functional and process-centric department into a true business partner to their business units and customers.