Date post: | 13-Sep-2014 |
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Economy & Finance |
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Moving Treasury from Cost to Profit Center with Supply Chain Finance
Powered by AITE Group
Enrico Camerinelli, Senior Analyst, Aite Group
Abhinav Saigal, Director of Supply Chain Finance, Kyriba
July 11, 2013
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What is Supply Chain Finance?
• SCF is defined as:
“the use of financial instruments, practices, and technologies to optimize the management of the working capital and liquidity tied up in supply chain processes for collaborating business partners.”
Moving Treasury from Cost to Profit Center with Supply Chain Finance
• Survey findings snapshot
• Importance of SCF solutions as a critical tool for corporate customers
• SCF solutions
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Survey Findings
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Survey Findings
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Survey Findings
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Importance of Supply Chain Finance
• CFO and Treasurer can employ variety of supply chain finance techniques to:- Help the company meet its working capital objectives
- Provide liquidity to the supply chain
- Manage counterparty risk
• Two solutions gaining traction in the buyer-led SCF space- Dynamic Discounting/Dynamic Payment Terms
- Payable Financing/Reverse Factoring
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Supply Chain Finance
Details of Dynamic Discounting
• Buyer sets and offers dynamic payment terms to its suppliers• Allows suppliers to control payment timing and manage their cash
flows• Opportunity for buyer to earn discounts on its entire spend, not just
pre negotiated discount terms from a small percentage of suppliers
A win-win for supplier and buyer
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Benefits – Dynamic Discounting
Supplier
In control of payment receipt, can request payment at any point of invoice term, depending on working capital needs
Alternate source of working capital finance
Visibility of approved invoices and payments to better manage working capital needs
Buyer
A valuable tool for cash optimization - Alternative for investing short term excess liquidity
Earn above market, risk free returns on annual spend by paying suppliers in advance
Minimize counterparty risk from improved financial health through the supply chain
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Functional Workflow - Dynamic Discounting
1. Purchase order
�
2. Delivery3. InvoiceBuyer Suppliers
�
8. Payment of non-discounted invoices at maturity
4. Approved invoices
6. Request for early payment
7. Early payment
Supply Chain
Finance Platform
5. Dynamic payment discount offer
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Supply Chain Finance
Details of Payables Financing (aka Reverse Factoring)
• Bank discounts invoices Buyer has approved for payment
• Bank pays supplier early
• On due date of invoice Buyer pays the bank full value of invoice
A win-win-win for Supplier, Buyer, Bank
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Benefits – Payable Financing
Supplier
Receive payments for 100% of invoice value, less any financing charges
Reduce DSO
Opportunity to discount receivables at a better rate than other trade finance options by leveraging buyer’s credit
Buyer
Keep or extend payment terms without negatively impacting Supplier’s cash flow
Manage DPO metrics to enhance working capital
Minimize counterparty risk from improved financial health through the supply chain
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Functional Workflow - Payable Financing
1. Purchase order
�
2. Delivery3. InvoiceBuyer Suppliers
6. Notification of available financing
7. Request for financing
8. Financing payment
�
Banks
Supply Chain
Finance Platform
9. Payment of financed invoices at maturity
4. Approved Invoices
5. A
vaila
ble
Fina
ncin
g
Moving Treasury from Cost to Profit Center with Supply Chain Finance
• The Treasurer’s expanding tool box
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Growing presence of SCF in the Treasurers’ tool box
Moving Treasury from Cost to Profit Center with Supply Chain Finance
• SCF technology for Treasurers
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Technology ObjectivesIntegrated SCF solutions in TMS must have the following requirements:
1) Bank agnostic/Multi-Bank2) Reverse Factoring and Dynamic Discounting on the same
platform3) Global reach4) SaaS solution5) Ease of use (including for suppliers)6) Automation
Supply Chain Finance Technology
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Technology Objectives1) Bank Agnostic/Multi-Bank
Flexibility and neutrality from bank platforms Many banks may not individually be able to support financing
needs of the program Enables utilization of banks with strengths in regions Should be as easy to connect to multiple banks as to one bank
Supply Chain Finance Technology
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Technology Objectives2) Reverse Factoring and Dynamic Discounting on one platform
Visibility to cash and cash forecasts Flexibility to utilize both solutions as business needs demand
Supply Chain Finance Technology
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Technology Objectives3) Global Reach
Technology should facilitate program’s geographic reach• Supply Chains are global; so should the Supply Chain Finance programs
Technology support for the Buyer and Suppliers is critical• Multi-currency• Multi-geography• Multiple time zones
Supply Chain Finance Technology
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Technology Objectives3) SaaS Solution
Access by all parties Minimized support Eliminates IT involvement Improves ability to distribute key information and reporting
Supply Chain Finance Technology
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Technology Objectives4) Ease of Use
Supplier ease of use absolute necessity -> encourages supplier participation
Examples of ease of use:• Minimal mouse clicks• Intuitive interface • Structured workflow
Supply Chain Finance Technology
Less training required
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Technology Objectives5) Automation
Goal is to improve productivity to ‘create time’
Delivers visibility of invoices and process to buyer, suppliers, and banks
-Timeliness is key to success of a program-Straight through processing (STP) includes ERP integration
Without automation, likely not possible to manage the program -Never mind the team’s scalability to achieve global benefits
Supply Chain Finance Technology
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Wrap-up
SCF solutions are not a banking tool Surveyed level of adoption of reverse factoring and dynamic discounting demonstrates
the need of buy in by corporate treasurer
There are many key internal and external stake holders that influence supply chain finance programs• Within an organization Treasury, Procurement, and Accounts Payable, as well as
Suppliers and Banks, are all key stakeholders in a supply chain finance program
Successfully implemented supply chain finance programs provide many benefits• Improved Working Capital, better returns on excess cash/liquidity, Risk Management are
some of the core benefits
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White paper
Download our complimentary white paper “Treasury Management Systems & Supply Chain Finance” to learn more at:
http://bit.ly/kyribaSCF
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kyriba.com
linkedin.com/company/kyriba-corporation
kyriba.com/blog
twitter.com/aitegroup
aitegroup.com
aitegroupblog.com
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