What buyers and suppliers need to consider when financing the supply chain (part 2)
Tuesday, 12 May 2015
In Part 1 of my blog ‘What buyers and suppliers need to consider when financing the supply chain’ I suggested that the starting point for any such project should be the automation of key finance and P2P processes.
Ad van der Poel
Senior Vice President, Financing Services
In Part 1 of my blog ‘What buyers and suppliers need to consider when financing the supply chain’ I suggested that the starting point for any such project should be the automation of key finance and P2P processes. From here you are then able to start thinking about payments and how to cleverly combine this with funding, timings and discounts to generate working capital gains. The next step is to consider the many financial services available to buyers and suppliers and the role B2B Networks have to play.
Multiple financial services
There are many different kinds of financial services that begin with an approved invoice or purchase order. From an Accounts Payable perspective, a buyer can choose between many different payment methods to execute the actual payment; think about card payments, ACH or wire payments – and in some places around the world, even cheques! What’s more, with new B2B methods like PayPal, why not just use this?
To add to the complexity, buyers are able to fund payments in a number of ways. They can be cash rich and fund it from their own available liquidity as is often used with dynamic discounting. Or they can use third party funding; either via a credit card payment, a supply chain finance scheme or forfeiting.
From an Accounts Receivable perspective a supplier can also choose between many different payments or rather receivable methods. Not just the ones mentioned above – but also direct debit collections or bill payments. For funding, a supplier can agree to join a supply chain finance program offered by the buyer but they can also take the initiative by doing invoice financing or even factoring.
Many of these options are based on the fact that companies do open account trading with each other. Should one or both parties want to have more assurance then they can use additional services such as letters of credit or the new Bank Payment Obligation as developed by SWIFT or even take out a credit insurance.
Many other options of financial services are possible. And I am certain many are yet to come in the next few years.
The role of the B2B Network in the Financial Supply Chain
One of the major challenges with financing services in the supply chain is the accessibility and usability of such schemes.
For many of the financing services mentioned above, the buyer and/or the supplier will need to upload data to a separate platform, possibly in different file formats. This is time consuming and involves them stepping away from their daily environment to make this work. They are not integrated into the broader tooling to support working capital and only cover part of the payables or receivables portfolio. Additionally, signing up to these service can be cumbersome and may not be offered to all client segments.
B2B networks such as the Basware Network, the largest open B2B commerce network in the world, make accessibility to these services much easier. It takes into consideration that an organisation is both a buyer and supplier. When such a service is offered on top of the information that is already going through the network it makes it more accessible to everyone and increases ease of use.
The network already knows who the buyer is, who the supplier is, the transaction history between the two trading partners, what has been ordered, what has been invoiced, where there are credit notes and it knows when the purchase order or invoice has been approved. All of this data is relevant for offering the right financial services at the right place at the right time. Just-in-Time financing.
In conclusion, there is a strong case for suggesting that when these three elements – process automation, assessment and selection of the many financing options available and the inclusion on a B2B network – are considered and combined, the real benefits of financing services, for both buyers and suppliers is recognised. For example, better working capital and process efficiency gains will be achieved when the financial services are automatically making use of the structured data available in a B2B network. Furthermore, by considering all of the financing services available (as opposed to limiting yourself to just one), all of your needs are more likely to be addressed – resulting in greater benefits for all.
In my upcoming blogs I will talk more in detail about the different financing services. Keep an eye out for those coming shortly!