Supply Chain Finance
Few terms have as many different meanings as “supply chain finance”. But don’t blame the marketers for what remains a very commonsense offering for many platforms.
Every form of “supply chain finance” no matter how you define the term, is about helping suppliers get paid earlier in the order-to-cash process at an interest rate that makes sense for the lender and borrower (the supplier). Factoring, P-cards, dynamic discounting, reverse factoring, etc. are all just variants on this theme based on three variables:
- Who is lending to the supplier
- How much risk the lender is assuming in collection from the buyer
- The legal rules around the transaction if something goes wrong
For supply chain finance providers, I often end up addressing one, or more, common issues:
Trust and Adoption
Supply chain finance solutions require buyers and suppliers to make changes to their payment processes. These changes require great product design and marketing to establish trust.
Data Relevant to Risk Assessment
The better the data provided to lenders to assess risk, the better the marketplace functions. Platforms owners have to architect their product to collect and surface this information.
Adding Procure to Pay Functionality
Most supply chain finance providers have to consider what portion, if any, of the PO to Invoice process to automate. Owning the procure to pay process may some day make the supply chain finance process a commodity, but extending into the procure to pay business is a major commitment.
About Supply Chain Finance
Credit arbitrage at invoice level. Buyer contracted, supplier contracted.
Here are some examples: