Supply chain finance systems need to think globally
In an increasingly global economy, more and more companies find themselves working with partners, clients and suppliers from many different countries.
That raises plenty of considerations, from navigating different time zones, cultures, currencies to legal differences.
Companies must consider this when selecting a supply chain finance or dynamic discounting solution, the vice-president of a company providing such services said.
Prime Revenue’s Oliver Belin explained a standardized approach to a multinational system makes little sense.
“Because of different currencies and legal systems, developing a proper system takes a special collaborative approach.”
Supply-chain financing and dynamic discounting are increasingly popular solutions for companies wishing to generate more suitable cash flow patterns.
Those systems can be extremely complex, as while one company has their own individual network of suppliers and customers, each one of those suppliers and customers has their own too. There will inevitably be some overlap, but also many new companies, and before long, an intricate web of connected companies is created.
Should a key company or two in that chain experience a cash flow challenge, the effects can quickly spread through multiple chains. That is the glass is half empty side.
Half full is that early payment of invoices can spread equally as fast. Companies with the ability to do so can pay certain invoices early, in exchange for a discount.
Companies receiving the early funds potentially gain many advantages. They can pay their suppliers early, meet payroll, or cover emergency expenses.
Without these options a company may be forced to turn to more expensive loan options, assuming they qualify.
Mr. Belin explained that with supply chain financing, all companies involved have to agree to participate. Not everyone knows such options exist, so education is crucial to learn about supply chain financing and its benefits.
“The traditional way is for representatives from larger companies to speak with others in the chain to say ‘we have this new financing program and here is how it works,'” Mr. Belin said.
Prime Revenue also educates companies based on their level of familiarity with the concept, Mr. Belin added. Some companies are quite aware of the option and know how it works. Others have more of a general awareness and just need to know what is different about Prime Revenue. Some have no idea and need to see videos, calculations and have the cash flow implications explained to them.
Then it comes time to determine which members of the chain to include. Mr. Belin said some considerations include geography and product type.
The next set of decisions revolves around what part of the system the company wants to alter. They may want to change payment terms or perhaps pricing.
Mr. Belin said Prime Revenue’s software analyzes each supplier of a partner client. He cited the example of a large North American food manufacturer with global product sourcing. They might have 60-day payment terms.
They buy their chocolate from Switzerland, where common terms are 30 days. Should no changes be made, the Swiss supplier may have to wait two full terms for payment.
The Swiss company also supplies the North American company’s competitor. A well designed system can accommodate other supplier terms in order to provide an optimal revenue pattern.
In summary, Mr. Belin said there are many considerations for a company thinking about implementing a dynamic discounting or supply chain finance system, but he spoke of five highlighted on Prime Revenue’s white paper “Top 5 features of supply chain finance”.
Any solution must be global in its scope. It must employ multiple languages and currencies.
It must also be flexible in its incorporation of multiple bank systems.
While Prime Revenue can design a solution incorporating both self-funding and third-party funding methods, they recommend self-funding, which generally provides more control.
Superior onboarding capability is important because the easier you make it for companies to join the more that will do just that.
The fifth is analyzing your suppliers. Large buying organizations have multiple supplier payment terms and their can be implications to changing them.