Joint working vital to supply chain finance

18 March 2011
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18 March 2011 | Lindsay Clark

Collaboration across management functions is key to getting results from supply chain finance, a research firm has found.

A survey of 145 finance professionals by the Aberdeen Group found that “enterprises which actively collaborate with executive management in their supply chain finance initiatives see both quantitative and qualitative benefits”. For example, cash conversion – from invoice to payment - is four days shorter compared with other firms, the report found. 

While demands to retain cash within the business for as long as possible and the risk of supplier default are the two greatest pressures on supply chain finance, businesses still saw value in it, particularly when supported by a third party finance provider, the research found.

“When third party relationships are effectively managed, buyers can lengthen payment cycles, suppliers can receive funds quickly at a discounted rate, and the facilitating intermediary profits by receiving full payment at the end of the maturity term,” it said.

According to the survey, the top 20 per cent ‘best in class’ organisations processed invoices more rapidly than the rest of the field, but also managed to extend the days payable and got the lowest prices by using supply chain finance.

But collaboration between business functions was necessary to make supply chain finance work. “Although buy-side processes dominate the current discussion of supply chain finance, the intersecting of purchasing, sales, accounts payable and accounts receivable all impact overall enterprise performance,” the report said.

It is also necessary to link supply chain finance with knowledge of suppliers. This could mean understanding which suppliers were at risk, and either extending self-financed early payments or finance from a third party. “Without this knowledge, arms-length dealings with the at-risk supplier many follow traditional (and non-productive) avenues focused on driving purchase prices lower and extending payment terms beyond what the supplier can agree to,” the report said.

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