Supply Chain Finance Delivers But Only When Finance is Aligned with Procurement

Recent economic volatility has underscored companies’ need for cash. Combined with the major levels of corporate debt, it’s no wonder business leaders are applying a more scrutinous eye to cash flow. In the U.S., nonfinancial companies rated by Moody’s are sitting on nearly $6 trillion of debt.

For this reason, the popularity of supply chain finance continues to rise. Not long ago, Global Business Intelligence reported that one out of five companies surveyed uses supply chain finance. I’m willing to bet that number is higher today.

The First Rule in Supply Chain Finance Program Success – It’s Not Just About Finance

So, how can you ensure the success of a supply chain finance program? As more companies use this lever to improve their financial position, it’s a fair question to ask. My first response to this question is to remember the first rule in supply chain finance program success is that it’s not just about finance.

 The success of a program is largely dependent on the stakeholders involved – particularly as it relates to the dialogue between procurement and finance. Let’s be honest. The relationship between these two groups can be tenuous at times. Often, finance lacks an understanding of what it takes to manage key supplier relationships in today’s business climate. Meanwhile, procurement’s bottom-line impact remains difficult to measure.

With supply chain finance, the gap between finance and procurement often becomes more apparent. Finance may be adept at setting the mandate to improve working capital and choosing a supply chain finance partner to facilitate the program, but it’s the procurement team that quarterbacks the execution (and success).

Too often, finance stakeholders overlook this reality – especially during partner selection. Fiscal and legal requirements typically dominate the conversation. But once these boxes have been checked, much of the success of the program will depend upon how well their partner of choice will support the procurement team as they secure supplier participation, handle objections and onboard suppliers.

For this reason, it’s important that finance stakeholders include “procurement support” as a key criterion as they evaluate supply chain finance partners. Here is a short list of questions finance should ask:

• How will the partner help procurement protect supplier relationships as they roll out a cash flow improvement initiative?

A supplier payment term extension is a necessary part of any cash flow initiative and often a tough pill to swallow. Your supply chain finance program partner should assist with messaging development and training, negotiation and objection handling, escalation plans and outreach protocol.

• What kind of training will procurement receive for supplier onboarding?

Asking suppliers to participate in a supply chain finance program is one thing; getting them to the point where they can leverage all the benefits of supply chain finance is another. Procurement must be able to easily set suppliers up as well as train suppliers on self-service. 

• How will the partner work with procurement to strategically target suppliers?

The most successful chain finance programs are typically rolled out using a phased approach. Your partner should be adept at helping you come up with the right strategy. Depending on the unique characteristics of your business, suppliers can be segmented according to industry, geography, size or other determining factors such as trade volumes and supplier payment term benchmarks. This obviously requires deep supplier and financial data analysis, but it also requires an understanding of the nuances in your organization’s supplier relationships. For example, a growing mid-size supplier with a critical need to fund innovation could be as strong of a program participation target as a larger supplier with which you currently do more business. 

• How will procurement be supported as the supply chain finance program grows and evolves?

The work required to run an effective supply chain finance program doesn’t end when the program implementation phase is complete. In fact, most programs expand. It’s important for finance stakeholders to anticipate this expansion and the support procurement will need to sustain program momentum. For example, is 24-hour global support available? Which languages will be supported? These are just two examples of future partner requirements that could have bearing on the long-term success of a supply chain finance program.

The merits of better cash flow can’t be overstated in today’s economic environment. Finance executives from billion-dollar global enterprises to the mid-size niche are turning to supply chain finance to keep their business strong despite any deterioration in market conditions. Those that can maximize the impact of supply chain finance on their business will be rewarded. For many, that starts with approaching supply chain finance with a procurement perspective.