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18 March 2011 | Lindsay
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.