The Network Effect: Improving Working Capital in the Supply Chain
maandag, 22 jun 2015
I attended CFO Day in Amsterdam recently and heard quite a bit of lively discussion about how CFOs can drive change and innovation. The theme of the event was Putting Your Business in the Fast Lane and of course, speed and business agility were frequently mentioned.
Vice President, Global Product Marketing
With increasing global and competitive pressure, CFOs are – or should be - laser-focused on improving working capital to drive growth and innovation. But while the speed and success of business transformation often depends on cash availability, current working capital may be ‘hidden in the balance sheet,’ tied up in paper-based payment processing and manual workflows.
In a popular break out session, Basware's Ad van der Poel joined Joost van Beem from Heineken and Vincent Geerts from Loder’s Croklaan on stage to discuss how B2B networks can help speed up cash in the supply chain to fund transformation.
There are essentially four ways to improve cash flow in the supply chain: 1) improve inventory cycle time (DIO); 2) pay suppliers less (discounting); 3) pay suppliers later (DPO); and 4) collect payments faster (DSO).
We learned from our research “Creating Payment Energy ” last year – conducted with over 1,000 strategic global decision makers - that 84% of companies pay their suppliers late. Interestingly, most of the time this is not because the funds aren’t there, it’s because the funds don’t make it through all of the processes in time, with an opportunity cost of time, money and early payment discounts.
In other words, payment friction has a high price tag. Companies that are able to eliminate payment friction in the supply chain and streamline payment processes are more agile and better able to optimize working capital.
Minimizing payment friction is where open B2B networks like the Basware Network can help. With more than a million active participants buying and selling every day, transactions are captured in rich detail, improving cycle times and cash flow. This is where you start to see what we call ‘The Network Effect.’
The network knows who the buyer is, who the supplier is, the transaction history between these two trading partners, what has been ordered, what has been invoiced, and when the purchase order or invoice was approved. All this data is relevant for offering the right insight and service at the right place at the right time.
Buyers and sellers both benefit from the network effect because it creates a virtuous circle of improved collaboration, higher discounts and increased profit. Suppliers have reduced receivables risk, enabling them to grow the business and pass on savings to customers, while buyer payment programs and working capital strategies scale across the business.
B2B networks like the Basware Network also make accessibility to business services like e-Invoicing, dynamic discounting, and invoice factoring much easier for buyers and sellers, eliminating costly payment friction and freeing up cash to drive growth and innovation.
The value available to be unlocked is potentially quite high. According to our Creating Payment Energy research, businesses estimated that they could save 14 per cent on average of overall supplier spend with optimized payment terms. That’s not a bad return on investment for process improvement and networked supplier programs.
There are many solutions available on the market today to manage global supply chain processes, connect buyers and suppliers and access alternative financing services but managing each of these components separately can also create payment friction.
Basware is helping financial leaders connect the dots, bringing together the power of best in class Purchase-to-Pay solutions, global market reach with the Basware Network, and financial agility with Basware Financing Services.
It’s a new paradigm for unlocking value in the supply chain. By improving processes and spend visibility while leveraging the right mix of payment strategies it is possible to improve cycle times, get paid earlier, pay later AND pay less, all at the same time!
If you’d like to learn more about the steps finance leaders can take to optimize working capital and improve financial agility, you can watch our new video Welcome to a New Era of Financial Agility with Networked Purchase-to-Pay.