I attended the Second Supply Chain Finance forum in December, 2014 and it was interesting to see all different, sometimes contradictory, perspectives from different stakeholders in the field; Buyers, Suppliers, Fund Providers and Platform Providers.

In a nutshell, Buyers are not very much motivated to onboard the majority of suppliers because of high onboarding costs and the fact that the gains from SCF program will be evened out by the onboarding costs. (See diagram above). Facing all the difficulties, the SCF programs do not have the expected popularity amongst big buyers.

On the other hand, Suppliers especially the smaller ones, are suspicious about the SCF programs because they see it as a means that buyers squeeze them even more by extending payment terms. With high margins that banks charge, there will not be enough gains for smaller suppliers to be motivated to join the program. In addition, bigger suppliers, most of the times, have enough financial resources so that they do not need to join such programs in the first place.

As the third stakeholder in the SCF programs, Banks have limited information about suppliers’ financial profiles which results in higher cost of funding for suppliers due to higher perceived risks, thus, it is less attractive for SME’s to join SCF programs that are initiated by banks. Since, buyers are not actively pursuing SCF programs in big scale either, on national level, the SCF programs have not gained enough popularity as they should.

Platform Providers, who are linking all different parties here, were pushing their solutions as something “nice” and useful for the economy, which is correct in essence but they were missing the point that buyers are not willing to give this “nice” thing for free to suppliers, so in the end it seemed Buyers are the main bottleneck in making SCF programs make a leap.

I think a successful SCF program should not have only sound financial justification; rather, it should be more about supply chain resilience backed by a positive financial business case. When a buyer uses an SCF program to make its supply chain more robust, they will start looking beyond payment terms and suppliers will have all the motivation to improve their performance and reduce their working capital as well.

When supply chain resilience is the goal, existing collaboration tools can be extended in scope to cater for SCF related processes as well and automate the compliance procedure. Buyers can free up a proportion of their Working Capital by including few big suppliers in Reverse Factoring schemes and use the freed up capital for Dynamic Discounting towards smaller suppliers who are probably more in the need of capital in the first place.

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