In today's complex business landscape, companies grapple with an array of challenges, making the need for effective supply chain financing more critical than ever. Rising interest rates, soaring raw material costs, and tightening credit have created enormous financial pressure. Supply chain disruptions, geopolitical unrest, shortages in the supply chain, and the lingering issue of excess inventory further compound these financial challenges. And this is on top of the relentless shift toward prioritising ESG (Environmental, Social, and Governance) and sustainability by investors, consumers, and employees. All these challenges have created the perfect storm, leaving many companies to wonder how to best navigate through this complex environment.
Supply chain financing (SCF) emerges as a beacon of hope, offering a multi-faceted solution. It provides suppliers with the essential capital needed to ensure the uninterrupted flow of goods and services while enabling key buyer strategies such as enhancing working capital, reducing costs and reducing supply disruptions. Moreover, it can preserve cash through working capital improvement programs, enhancing the company's ability to weather unexpected shocks. However, many supply chain financing programs fall short, hindered by limited adoption, insufficient global or regional banking coverage, and inadequate tools for supplier onboarding.
To reap the maximum value and positive impact on your organisation and your supply chain, consider these five must-haves when evaluating a supply chain finance solution:
1. A Single Global Supply Chain Network Platform
Simplicity and financial efficiency are paramount in today's business landscape, and automation plays a pivotal role. A single global network platform is essential for streamlining operations, improving efficiency, and fostering collaboration among all buyers, suppliers and banks and ensuring seamless and cost-effective management of the supply chain financing program on a global scale.
2. Multi-bank Network
A best-in-class solution provides a multi-bank network encompassing a mix of global trade banks, regional banks, and various financial institutions to support the liquidity requirements of your entire supplier base. This diverse network offers global coverage, varied risk capacity, and healthy competition among banks. Multiple banking options translate to competitive rates for suppliers and increased participation in financing programs. As companies diversify their global sourcing, a well-connected global network of banks becomes indispensable to support the evolving needs of your supply network.
3. Comprehensive Supplier Onboarding
Standalone supply chain finance solutions often fall short in terms of supplier adoption, limiting both working capital improvement and the overall financial health and resilience of your supply chain. While solutions frequently focus on the larger suppliers due to high volumes and strategic relationships, it's often the smaller suppliers that need financing the most. A capable digital platform should offer services to onboard all suppliers, including the long tail of smaller suppliers. Bonus points if the solution segments the market and matches the right type of banks to each supplier, and considers the countries of origin for goods. An adaptable onboarding process, coupled with experience in dealing with suppliers of all sizes and banks, fosters greater program adoption, strengthens buyer-supplier relationships, and fortifies the supply chain network.
4. Sustainable Supply Chain Finance
In an era when ESG tops corporate agendas, responsible supply chain networks are imperative. Once a company establishes an ESG program with its suppliers, supply chain financing becomes a potent strategic tool for driving performance. Sustainable supply chain financing incentivises suppliers to enhance their performance within a buyer's ESG program. Suppliers can access financing at preferential rates based on their ESG performance, using the interest savings to invest in resource-saving technologies, solar panels, compliance monitoring personnel, and more. Look for a supply chain finance solution that offers sustainable financing options, providing a lever for established supplier ESG programs or gradual integration as new initiatives unfold.
5. The Right Team Matters
Selecting the ideal supply chain financing solution goes beyond technology; it necessitates a proficient team. Seek a team with a blend of banking and global trade expertise, backed by a track record of working with financial institutions and suppliers worldwide, regardless of their size. They should possess a deep understanding of the nuanced financing requirements within complex global supply chains and excel at efficiently onboarding suppliers. Furthermore, dedicated teams should possess the knowledge to cater to suppliers across diverse geographies, ensuring that your SCF programs seamlessly align with corporate goals, ultimately ensuring success in the ever-evolving landscape of supply chain finance.
In summary, although many companies are struggling to deal with the complexities of the current business environment, supply chain finance can help them navigate these challenges a little bit easier. When evaluating options, it's important that companies choose a best-in-class supply chain finance solution built on a single global supply chain network platform with a pre-existing multi-bank network, comprehensive supplier onboarding programs, and supported by the right team to address their unique needs.