Last fall I introduced Supply Chain Finance (SCF) to this blog and noted that a supply chain finance solution is a combination of trade financing provided by a financial institution, a third-party vendor, or an enterprise itself, and a technology platform that unites the trading partners and the financial institution electronically and provides the financing triggers based on the occurrence of one or several supply chain events. Then, I started the year off with a review of an article from the Supply Chain Manufacturing Review on Managing the Financial Supply Chain.
The article noted that today’s supply chains complicate financial flows and cash management and leverage global supply chain visibility to control and optimize the financial flows of a business value chain which is essential for the long-term viability of companies that have outsourced manufacturing or are sourcing globally. It also noted that global outsourcing complicates the value exchange process, increasing the quantity, velocity, and complexity of inter-enterprise financial transactions while decreasing the number of financial transactions handled within the four walls of the enterprise and reducing the visibility into the timing of payments while introducing a higher degree of risk.
As a result, the article concluded that it is vitally important, particularly from the financial perspective, to analyze all of the costs associated with an outsourcing decision before committing to a contract and that you should consider strategies to lower your suppliers’ financing costs, and thus your overall total cost of ownership. These strategies include:
- early payment programs
- inventory ownership solutions
- virtual consignment financing with assignment of proceeds
But strategies are not the only thing you can use to tackle your supply chain finance woes. These days, technology also exists to support you in your decision making process. For example, as announced mid-march, PrimeRevenue has just released a new version of its SCF Platform, which offers new functionality related to payment offset information flows critical to retail, diversified manufacturing, high-tech and automotive markets.
PrimeRevenue offers an online payables visibility solution that allows a buying organization to upload electronic output from its Accounts Payable (AP) system with approved payables data and a supplier to log in and view the amount and payment maturity date for each of the approved receivables. The Supplier can then sell the receivables early at a discount and receive cash for any, or all, of these receivables at any point in time (up to the maturity date). The solution allows payment cycles to be reduced to as little as 48 hours in an automated, secure service that runs over a virtual private network (VPN). Essentially, it’s a simple type of Electronic Invoice Presentment and Payment (EIPP) system, but one that allows the supplier to choose when they get paid, and one that achieves the early payment programs option for a supply chain finance solution. (Other companies in the EIPP space include Avolent, Acquirex, Bottomline Technologies,
Harbor Payments, and
Osiris Innovations Group.) It’s not the most sophisticated solution that one could devise, but this type of solution could be a great start for companies without any supply chain finance solution. I’m sure we’ll be hearing more about PrimeRevenue and other companies in the EIPP space as the year progresses, especially since a Demica study just found that 73% of large corporates are looking to extend payment terms with their suppliers in 2007.