We often talk about how there is huge potential for supply chain finance, and so there is. Every day, businesses in supply chains provide a vast opportunity here, waiting to be leveraged.
But that full potential cannot be realised simply by having ‘more of the same’. There is, understandably, a lot of emphasis on reverse factoring with tier 1 suppliers and that has been a great success at getting finance into the hands of suppliers in a timely fashion. Indeed, there is still considerable scope for growth of this tool for the benefit of a corporate’s immediate suppliers.
But what about the future? Supply chain finance is not yet fully integrated upstream and downstream. It barely reaches beyond the first tier of the supply base. It should be reaching much further than that and, in so doing, de-risking not just individual suppliers but the whole of the supply chain.
Technology is the key enabler in getting supply chain finance permeating through multiple tiers of the supply base. The technology is already here to make this happen – but we have to make more use of it. And we have to think about how to standardise platforms, harmonising them in a way that everyone can get the real-time data that they need, regardless of which platform any particular player is using.
Technology can give us the necessary transparency of supply chain partners. It can give us the ‘smart finance’ and ‘smart payments’ approach that should be part of our vision of the future of inclusive supply chain finance. With technology we can onboard more and more suppliers further and further upstream. In particular, technologies such as blockchain and ‘smart contracts’ will influence future material and financial flows in supply chains. Automated contract tracking and service level monitoring enables autonomous processes and will, for example, speed up transactions as well as reducing financing costs.
The need for more collaboration
Obviously, next to technology, more collaboration is needed across the whole supply chain. That probably requires a change in mindset, which has to start within the corporates. We need corporate procurement and finance functions to fully open their minds to the new digital era and its possibilities.
And we need procurement to be able to speak the language of finance if those functions are going to work together fully and fruitfully. It’s no longer enough for procurement to be good negotiators. E-auctions and other technology tools are reducing the need for tough-talking buyers who can hammer suppliers on price. Procurement should be liberated by the use of technology, freeing it up to devote its resources to value-adding solutions such as supply chain finance. This will be crucial for the development of procurement, increasingly under threat from the automation of many of its routine tasks.
Status-based receivables finance
Collaboration needs the active participation of all the other players, too – the finance providers and the technology companies in particular. Last year we launched an initiative called status-based receivables finance, in which the Supply Chain Finance Community, Fraunhofer IML and Innopay worked together to see how quite simple solutions for onboarding suppliers could be pushed across Europe.
We started in the Netherlands, but we need to develop a similar proof of concept in other countries. That needs the willingness of corporate partners in other countries to really work together with us. Currently, we are looking for partners in Germany, Italy and perhaps Finland, too.
E-invoicing is the starting point of the proof of concept we developed. E-invoicing has been around for a while. It can be an enabler for a full finance solution that works across the whole of the supply chain.
Building on the e-invoicing element to create solutions for the whole of the supply chain requires an openness and willingness to standardise key components of the technology. Of course, that creates a conflict between the competitive drive to innovate and develop the best technology, on the one hand, and the value of having certain common industry standards, on the other.
The supply chain network
If we consider the supply chain as a network – when we think about how competing corporates in any one industry source from many of the same suppliers, for example – it is clear that there is huge benefit from innovation that works across multiple supply chain finance platforms.
Ultimately, it will be corporate demand that will drive the innovation and standardisation: if the corporate demand is there, the market should rise to the challenge. The prize for corporates will be that the easy, simple logic behind supply chain finance – which has proven its worth to many tier 1 suppliers – will bring benefits to all players, stabilising the supply chain up- and downstream, ensuring that suppliers are able to deliver the goods and services that their customers need.