Category Archives: Finance

Let’s Get One Thing Clear: Like All Financing, Supply Chain Financing Benefits the Lender, Not the Buyer or the Seller

While there might be arguments that some form of Supply Chain Financing (SCF) would benefit all parties in a fair world, it’s not a fair world, as it’s run by greedy capitalists, but that doesn’t mean we have to make it more unfair, or complain about laws being proposed to limit unfairness.

But that’s exactly what a recent article in the Global Trade Review on how the Supply Chain Finance Industry Hopeful EU will Soften Late Payment Rules is pointing out. The EU SCF industry is crying foul when there really is no foul.

The article, which notes that even though an EU Parliament committee is pushing for greater flexibility around the regulation on combating late payments that puts in place a stricter maximum payment term of 30 in both business-to-business (B2B) and government-to-business (G2B) transactions (versus the current 60 days), unless companies negotiate payment terms of up to 60 calendar days and both agree to those extended terms in a contract, there are some parties that are still not happy. (Even when the new regulation even allows for companies trading in “slow moving or seasonal goods” to collectively agree to extend terms up to 120 days in a contract.) (For completeness, we should also note that the forthcoming legislation will enforce accrued interest and compensation fees for all late payments.)

However, some parties believe that payment terms should be twice that as they risk restricting liquidity and interfering with companies’ contractual freedoms. The former statement (restricting liquidity) is complete and utter bullcr@p. The latter statement (restricting contractual freedoms) is a valid point if there are currently no restrictions on payment requirements in local laws, but, guess what, all contracts must adhere to the laws and directives of the countries in which the companies operate, and countries / unions have a right to modify those laws and directives over time to what they believe is in the best interest of the greater (not the lesser) good. And when a recent Taulia research report found that 51% of companies polled are typically paid late, something needs to be done.

The point being whined about … err … made is that shortening mandatory terms without agreement to 30 days and with agreement to 60 days would mean SCF lenders would see their returns slashed, and potentially remove any incentive to offer programmes in the first place. And while it’s true they would see their returns slashed from predatory lending, taking advantage of suppliers who need money now from buyers who want to keep their bank accounts as cash flush as possible (even when not necessary to meet internal operating costs), it doesn’t necessarily mean they have to see their returns slashed from a finance perspective. They could still provide suppliers with loans (at fair interest rates) secured by the equipment the supplier buys or the products produced (which they could seize if they feared lack of payment and then the buyer would have to pay the lender for the goods’ release). Or, if buyers liked unnecessarily fat bank accounts, they could lend the buyer cash with the buyer’s illiquid assets as collateral. And while this is more traditional finance, what’s wrong with that?

Allowing buyers to screw suppliers (when those buyers can afford not to) just hurts everyone in the long run. Suppliers have to borrow, usually at predatory interest rates, to make payroll, which increases their overall operating costs. In return, their costs go up on all future contracts. A buyer might squeeze out a slight gain (in its high interest investments vs. paying the supplier or in its stock price based on correlation that a higher than expected bank account is higher than expected growth), but the buyer will just end up paying more in the long term (and then passing that cost onto us consumers). And the only party winning in every transaction is the SCF vendor who gets 2% to 6% on all the short term cash it provides, which is very safe because someone’s going to take that product. And, FYI, even 2% on a 60 day term, works out to over 13% a year (because by the time the supplier submits, the SCF approves, and the money gets transferred, that’s usually at least 5 days). And the rates are only that good when the supplier has more than one SCF option. When the supplier doesn’t, it’s probably 4%, or 26%+ per year, which is likely 40% higher than the organizational credit card, and nearing predatory lending territory! And while it’s not as bad as the 40%+ some suppliers will be saddled with in hard times when all they can get is the local loan-sharks, it’s still not something we should accept.

So bravo to the EU Parliament and shame on anyone complaining about legislation mandating fair payment terms, especially to SMEs. After all, it’s not banning SCF vendors from helping them in other financing ways, or even negotiating an agreement to auto pay every 60 day invoice in 6 days (for 2% of the transaction value) when you know these suppliers are all going to have 60 days shoved down their throats by big businesses.

Marketplace Madness is Coming Because History WILL Repeat Itself

Over on LinkedIn, Jon The Revelator asked what 2005 could tell us about Procurement AI in 2024, reminding us that major ERP companies have tried multiple times to move “down market”, there’s (still) no dominant player in the pure “Procurement” sector (with a number of big firms showing up in a slice-of-the-pie analysis (and most analyst market maps), and many names that were around in 2004 are names most of today’s practitioners have never heard of.

And, as part of the conversation (check the comments), Jon asked if history will repeat itself. (i.e. Will many of today’s players disappear? Jon listed a dozen names that are no longer in existence.)

the doctor‘ answer, MOST DEFINITELY!

To be more precise, the doctor is predicting twice the percentage of (fire-sale) acquisitions and out-of-business/shut-downs over the next eighteen (18) months compared to usual. What does this mean numbers wise? He usually removes a few dozen vendors from his database every year (which is about 5% of the number of vendors in the Source-to-Pay+ [S2P+] space, as captured in the Sourcing Innovation Mega-Map), and expects that within eighteen (18) months, he will need to remove a few few dozen vendors from his database, which translates into 10% or more, or a number of vendors that is closer to 100 than 50! That’s significant.

Why? A number of reasons, which include, but are not limited to:

1) A lot of the smaller 1 or 2 module pure-play VC funded companies that took (too much) money before the Silicon Valley Bank failure and are not yet profitable are now in a bad situation given that VC funding is still recessed, PE is now looking for close to 300K/FTE for a “good” investment, and these smaller companies are not there as enterprise Procurement software acquisition for the last two years has been recessed (due to overall market fears of recession), and, in addition to sales being down, buyers have been risk averse and newer / smaller players have, in general, being doing worse than they were doing during COVID (when companies were desperate for solutions that were pure SaaS) and just pre-COVID (when companies were more willing to try smaller plays in what they thought was a globally stable economic environment).

2a) A number of smaller plays were started by consultants with no funding, no real sales team, and no marketing support and they just can’t get traction through the noise (or funding).

2b) A lot of smaller plays were started by Procurement practitioners with little or no funding, the same sales and marketing problems, and a bigger disadvantage because they only know their problems, and maybe the problems of a small peer group they meet with in their local organization’s monthly meet-up, and they don’t know the problems in general, what sells, and what doesn’t. This makes funding for them hard (as smart investors know that Procurement experience alone only goes so far), and sales and marketing harder (they were buyers, not sellers; and they don’t understand that the message they needed to hear is not one that will cut through the noise and reach buyers who aren’t as experienced and enlightened as they are).

And when you start to break down Source-to-Pay+, you find that …

3) There are way too many “tech without a cause AI plays” … with no real, demonstrateable value, and, in reality, no future. (Especially since anyone from the Golden Era remembers that all the rebel without a cause managed to do was get his friend killed.)

4) A lot of the carbon “calculators” offer no new functionality (and thus no new value). Most good DIY (do-it-yourself) spend analytics application providers can help you build one in 15 minutes (no joke! — give Spendata a call, for example). Furthermore, you need good data for them to work, so if you don’t have integrations to good data and systems with better data, what’s the point?

5) Moving on to classic sourcing, every developer and their dog can whip up eRFX functionality in a matter of weeks and there is no differentiation there anymore if you’re just another eRFX. So you have a slightly different take on a UX. Well, guess what, that don’t impress me much … and the doctor ain’t alone in that viewpoint.

6) Moving onto classic CLM, if the platform doesn’t support deep analytics, negotiation support, or something that makes it more than an e-filing cabinet, it’s going, going … gone. Way too many over-glorified document management solutions out there to survive, especially at a price point beyond a few hundred per named user per year (given how many freeware/shareware/end-consumer document platforms exist in the open-source repositories).

7) There’s over one hundred (100) SXM plays. OVER ONE HUNDRED. Given that SXM is a CORNED QUIP mash, and you need different types and depths of solution for organizations of different sizes in different verticals, there’s room for two to three dozen. But one hundred? Forget it! Especially since if all your solution ends up being is a glorified SaaS (relational) database, there’s no value there.

8) While there is a desperate need for analytics, and not enough true analytics players, first generation solutions that are nothing more than pre-generated static (OLAP) reports are about to go the way of the dodo. Real-time, dynamic, customizeable analytics are what’s needed today.

9) Standalone ePro is going to go. Given that there are dozens of P2P solutions, and a growing number of P2P solutions with built-in payment support, why would you want old-school ePro, which doesn’t help the average organizational user or get tail-spend under control.

10) AP without full I2P support, integrated payment support, or integrated P-Card support or value beyond classic AP is also going to go. There are dozens and dozens of these solutions (including dozens that started during COVID because people needed to do business entirely online, and since there appeared to be an opportunity for anyone who didn’t do their research beyond, which is more people than you’d think, see The Biggest Mistake founders in S2P+ keep making after two decades, too many of these were started). The market just doesn’t need that many!

11) Stand-alone Intake(-to)/Orchestrate solutions. The current poster children of the space will soon have a fall from grace (and only the smart will survive)! Call me Scrooge if you like, but there’s a logic behind why I’m developing a bah-humbug attitude towards most of these. And it goes something like this.


  • Pay For View if modern procurement solutions are completely SaaS, then they should be accessible by anyone with a web browser, so why should you have to buy a third party solution to see the data in those applications? wouldn’t it make more sense to just switch to modern source to pay solutions that allow you to give variable levels of access to everyone who needs access instead of paying for two solutions AND an integrator?


  • Solution Sprawl while orchestration is supposed to help with solution sprawl, it’s yet another solution and only adds to it. Wouldn’t it make more sense to invest in and switch to a core sourcing and/or procurement platform with a fully open API where all of the other modules you need can pull the necessary data from and push the necessary data to that platform?


  • Where’s the Beef? Talk to an old Pro who was doing Procurement back before the first modern tools began to be introduced in the late 90’s and they’ll tell you that they don’t get this modern focus on “orchestration” and managing “expenses” and low-value buys because, when they were doing Procurement, it was about identifying and strategically managing multi million (10, 50, 100+) categories where even 2% made a significant improvement to the bottom line, and way more than 10% on a < 100K category.
  • Where’s the Market? This is only a problem in large enterprises — right now, many of these I2O solutions are going after the mid-market who are eating it up because of ease of use, but as soon as they realize the emperor has no clothes, and there’s no support for real strategic procurement (yet alone strategic sourcing) and you have to go out and buy more platforms, what’s going to happen? The reality is that the mid-market is better served by a federated catalog management / punchout platform, and will likely be better served still by a new breed of e-commerce B2B solutions for end-user Procurement (which is being led by providers like BlueBean. Which will only leave the enterprise space, and, more specifically, the enterprise players who are stuck with older generation solutions (due to sunk costs, etc.) that don’t integrate well or have modern bells and wizards.

And so on. The market is over crowded, most of the providers are struggling, funding has dried up for all but the best (who haven’t been overfunded already) [and already profitable with true long-term growth capability], and there’s no room for the rest.

History will repeat, and those who don’t follow best practices and avoid mistakes will be the first to fall.

Finance and Procurement Need to Collaborate, but Sometimes the Relationship Needs to go Beyond the Financial Viewpoint

A recent article over on Financial Executives on Why Finance and Procurement Need to Collaborate For Success made some very good points …

The article in question, which noted that how companies approach expense management will become a top priority with the economy heading into uncertain times summarized an interview with Matthew Smith, CFO & CoFounder of finetune, a full service expense management firm focussed on select complex categories (such as uniform rental, waste & recycling, pest control, energy & utilities, and security) for large clients. In addition to the baseline assessment, sourcing, implementation, and ongoing management (which many BuyDesk operations will do), they also do regular auditing, which is key to ensuring you get what you pay for because, as Matthew said, where the rubber meets the road in expense management is what happens after the contract is signed.

Matthew believes that expense management does need to be its own thing and that there has to be a coordinating element between the affected functions, which always includes Procurement (which is responsible for placing the order and managing the contract) and Finance (for paying the bill) and then the department(s) that are using the goods or services being procured. Especially since the vendors will give up a lot in the negotiations, and then do their best to get it all back through change orders and off contract-purchases of items not covered under the contract. In addition, analytics is becoming critical, but most organizations have bad data. However, without the necessary expertise, the data won’t be clean and the right calculations can’t be done. Procurement can identify the good data and Finance can identify the key analysis that needs to be done. (Not ChatGPT, which is hallucinating and getting all those bad answers and producing false information. Matthew’s words, but the doctor couldn’t agree more.) Furthermore, without a good understanding of the entire situation from multiple sides, you don’t know when incentive are good or bad.

Expense management is a key area where Finance and Procurement needs to collaborate because it takes both departments to prevent overspend, and the article was a really great deep dive in this respect, but it’s not the only area. Working capital management is also key. Managing expenses is a great start, but the goal should be improved working capital management. If both departments work together, and with other organizational departments, to appropriately predict demand and utilization, and optimize payment terms, then the organization can do accurate cash-flow forecasting and working capital can be optimized. And that can truly only happen when both departments collaborate.

Aspects of the Tax Efficient Supply Chain

Many companies overlook function-based tax planning where the supply chain is involved. Considering that tax reductions, or even tax payment delays in Free Trade Zones can save a company millions and millions of dollars, and free up millions more in working capital, tax considerations should play a major role in your supply chain, and in your supply chain finance, efforts — especially now that tariffs are skyrocketing and you need every source of savings you can find.

When you consider that tax-planning affects both supply chain steps (including supply, distribution, retail channels, and customer delivery) and supply chain management processes (including procurement, EDI, merchandising, financing, branding, and asset management) and that it applies both above-the-line (taxes that impact operating income) and below-the-line (taxes that impact income-based taxes), it has far reaching implications. Furthermore tax issues permeate every aspect of identifying, acquiring, importing, transporting, distributing and selling goods and tax planning can impact almost every aspect of the supply chain. This means that tax savings can be almost anywhere. Some of the possibilities that have been noted on this blog in the past include the following:

  • Procurement
    Ownership of the transaction is key as it allows the taxpayer to determine the subject matter, value of each component, and the appropriate jurisdiction, because the right balance can minimize tax.

    • in many states, intangible assets are not subject to property tax — thus, including a warranty cost in a capitalized asset unnecessarily increases a company’s property tax base
    • in many states / jurisdictions, electronically downloaded software is not subject to sales tax
    • disconnecting volume or contract inducement payments from the purchase of the underlying property can cause sales or property taxes to be overstated
    • appropriate planning can often reduce customs and duties
  • Brand Management
    Brand management also has tax implications.

    • the determination of where branding occurs in the supply chain, and thus where value is added, determines the situs of taxability and the value of goods for import, export, and tax purposes
    • the ability to license and protect IP associated with the brand often impacts the jurisdiction of income taxation
    • the situs of where IP is held impacts the tax costs of dispositions
  • Merchandising and Marketing
    Critical in retail operations, they carry their own tax implications.

    • site selection determines property tax
    • capitalization of store design costs have tax implications
  • Finance
    Finance structuring can have significant tax implications.

    • the capital structure of a legal entity can impact its franchise tax profile
    • internal leverage can reduce state income taxes in some jurisdictions
  • Customer Relationship Management
    There are tax implications in building an infrastructure to compile and store customer information.

    • there are state income tax implications wherever such data is stored and maintained.
    • an ability to license and protect IP impacts the jurisdiction of income taxation
    • capitalization of CRM software has property tax implications
  • Distribution of Asset Management
    Distribution management is more than just minimizing logistics costs.

    • an incorrect valuation of inventory can lead to higher taxes
    • some jurisdictions have sales tax exemptions for transportation equipment in inter-state commerce
    • distribution activities that are not separated into separate legal entities can expose a company’s major profit centers to unnecessary multi-state income taxation
  • Retail
    • the employee-intensive nature can lead to process-based payroll tax incompliance and / or unnecessary over-payments
    • state income tax savings can often be found on international distribution assets
    • inefficiently designed gift-card programs can cause unnecessary escheatment of funds

Furthermore, this might just be the tip of the iceberg in tax savings opportunities available to your supply-chain based business. Especially when you consider the numerous benefits of tax-efficient procurement, which include:

  • prevention of incorrect or duplicative taxation
  • matching subsequent rebates or discounts with original purchases to reduce the overall taxable purchase price
  • structuring the transaction to fit within a statutory or regulatory exemption
  • unbundling taxable items from non-taxable items
  • identifying taxes that can be reclaimed

In addition, tax-efficient procurement will:

  • improve the sales tax audit trail and reduce the time required to respond to audits
  • allow for more efficient refund claims when errors have been made or the corporation is entitled to a tax rebate / refund
  • greater certainty regarding tax requirements

So get tax efficient. And maybe you can at least counter all of the duties and tariffs being imposed in the trade war.

Good Working Capital Management is More than Just Timing Payables and Receivables

A few years ago we ran a post on the essence of good working capital management. We noted that, at least from a basics point of view, all one really has to do is:

  • Get a grip on receivables.

    When are the customer payments for sales due? The reimbursements from suppliers for reaching volume tiers due? The tax rebates?

  • Get a clear picture on fixed payables.

    What is the average monthly payroll? Overhead? And projected supplier invoices?

  • Get a good estimate of average disruption costs.

    If a receivable isn’t received on time, what’s the impact? Especially if it could impact a supplier payment schedule which needs to be maintained to insure timely supply.

This is the foundation, but in today’s unstable and unpredictable business environment, that’s not enough to maximize working capital management. To maximize working capital management, one has to maximize the value of the capital. In order to maximize working capital, you need to know when to use capital for internal costs, for supplier payments, and for investments. This means one also has to:

  • Understand the value of early supplier payments.

    Not just the value of the early payment discount, but the overall value to the supplier. If they don’t have to borrow at a cost of capital two or three times the buying organization, and then pass that cost on to the buyer in their overhead, that’s a big potential savings to the organization — even if they have to borrow.

  • Understand the organization’s cost of borrowing.

    If the organization can borrow at a low interest rate of 3% or 4% a year in their home market, whereas a supplier can only borrow at a high interest rate of 12% to 20% in their market, the organization can save by borrowing. But you don’t borrow just to save on costs, you borrow to profit. If you can accelerate production and accelerate profitable sales, borrowing is sometimes a pittance. And if you have good investment opportunities, that could also be a good reason to borrow.

  • Understand the organization’s investment opportunities.

    How much from accelerating production? Improving the process? Investing in R&D? Investing in subsidiaries.

Then, when you have all of this information, you do one more step:

  • Build a Working Capital Optimization Model

    and run it. Input all the receivables, payables, disruption costs, early payment opportunities, borrowing opportunities, and investment opportunities and let an optimization-backed cognitive system help you put a plan in place to not only manage working capital, but profit from it.