Supply Chain Finance: Realising your working capital potential

06 April 2017

In recent years, economic volatility and the lengthening of supply chains through globalisation has increased the challenge for businesses to remain financially sustainable. This has had drastic implications for managing working capital and liquidity; with consequences for cash-to-cash cycle time and the performance of supply chain operations.

In order to minimise their exposure to risk, companies are likely to compensate by increasing their inventories to ensure satisfactory customer service levels and also securing extra financial funds to make sure that they can meet payment obligations. At the same time, availability of funding is scarce.

Supply Chain Finance (SCF) can be a solution for optimising the financial supply chain and creating win-win situations, if implemented properly and in the right circumstance.

 

What is SCF?

SCF provides short term credit, which can optimise working capital for both the buyer and seller. The buyer could enjoy optimised payment conditions (aligned to local regulations), whilst the supplier has the option to have their approved invoices paid early at – often - lower cost of financing, which is based on the – often stronger - credit rating of the buyer.

 

What are the challenges?

Whilst most organisations appreciate the importance of selecting the ‘right’ SCF provider and solution, there are a number of other areas that need to be addressed in order to set the right foundation for a successful program.

Key issues we have come across, amongst others, include:

  • Lacking an independent and robust business case - which bears the risk of overstating the potential benefit, risk of internal buy-in when not done cross-functional, as well as lacking a clear picture of suppliers ‘needs’
  • Limited Procure-to-Pay readiness assessment - which could lead to failing to offer rapid invoice approval, resulting in fewer days for financing for the suppliers and thus the attractiveness of the SCF programme
  • Selection of SCF provider without a robust tender - the buyer will only reach an optimal solution if they test responses and engage providers in thorough negotiation
  • Lastly, the success of the programme roll out is highly dependent on senior sponsorship - CFO, CPO and ideally CEO, cross-functional involvement from the start (no silos), in-depth training on internal and external changes and early wins i.e. success stories to further drive the programme

Implementing a new SCF programme is challenging, with various agendas of the parties involved.  If implementation doesn’t go well, immediate repercussions will be costly.  Longer term, this can impact upon the integrity and stability of the supply chain.

 

How can we help?

With operational industry experts, we work with businesses to design, implement and deliver successful SCF programmes – from understanding the market, to helping develop the business case and supporting the SCF provider selection through to looking at end-to-end cash-flow improvement. Importantly, we’re completely independent and look at SCF in the context of a wider Working Capital assessment.

Stages of the process:

  • Business case development
  • SCF programme conceptualisation and design
  • Selection of SCF funding and technology providers and pricing negotiations
  • Programme implementation
  • Ongoing review – health check

For further information, please contact

Daniel Windaus, Lead Partner - Working Capital Management,  daniel.windaus@pwc.com

William Extra, Supply Chain Finance Lead, william.b.extra@pwc.com 

 

References:

Extra, W. Templar, S., Findlay, C., 2016. Examining the Supply Chain Finance Landscape. 25th International Purchasing and Supply Education and Research Association conference 2016, 20-23 March, Dortmund, Germany.

 

Daniel Windaus | Working Capital Management Partner
Profile | Email | +44 (0)7725 633420

More articles by Daniel Windaus

 

William Extra | Operational Restructuring Senior Manager
 Profile | Email | +44 (0) 7803 455 643

More articles by William Extra

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