16 February 2007 | Paul Snell
Demand for Supply Chain Finance (SCF) is growing strongly in Europe, but lags behind the more mature US market, according to a new study.
Under SCF terms suppliers are paid by financial institutions rather than by buying organisation.
This benefits suppliers, who are paid more swiftly, as well as buyers, who are able to extend payment terms. It also enables lenders to achieve higher margins.
The survey, by working capital consultancy Demica, found that although Europe was behind the US, it was likely the market would pull ahead if the challenges of cost, changing internal processes, supplier involvement and security were addressed. According to Demica, most banks now offer SCF services.
The motivation for buyers and suppliers to use SCF is to avoid a "tug-of-war" that exists with buyers wanting to extend payment terms (73 per cent of the companies surveyed), and suppliers wanting to be paid swiftly. The automotive and food and drink sectors are under the most pressure to extend payment terms.
But the survey also said that procurement chiefs must collaborate more closely with CFOs and finance departments, as many still believe it is not a procurement responsibility.