How to get the most out of supply chain financing

Even though supply chain financing has the potential to free up much needed cash that can help companies grow, many supply chain finance programs fail to maximize their potential, Tom Roberts said.

Mr. Roberts is the senior vice president of marketing for supply chain finance company PrimeRevenue. We spoke about PrimeRevenue’s report Beyond the bank – How to get more working capital from supply chain finance.

Tom Roberts

Tom Roberts

Some supply chain finance programs do not go far enough. Instead of being the main cog in an ongoing working capital strategy they only provide short-term financing. Another issue is companies go to banks, who mainly rely on credit rating and pay little heed to cash flow patterns and other unique traits of individual companies.

There are five steps companies can take to maximize the effectiveness of their supply chain financing program while turning it into a working capital solution, Mr. Roberts said.

The first is to benchmark supplier terms and identify maximization opportunities. Look at which companies can yield the most benefit. In order to identify those companies you need to have access to and properly interpret several unique data sets. Your analytics have to be strong.

Mr. Roberts used the example of an early stage Canadian energy company with thousands of suppliers and global reach. Those suppliers will have terms ranging from 30 to 120 days and may want to renegotiate terms would they be affected by industry volatility.

“Where do you start with thousands of suppliers ranging in size and product types?” Mr. Roberts asked.

The second step is to properly prioritize suppliers for on boarding into the program. Gets some easy adds and generate momentum.

“With thousands of suppliers you cannot just start anywhere,” Mr. Roberts said.

A solution is to take a group and begin to list the reasons why they have good potential to be included in a supply chain financing program. Keep doing that and present lists of invoices to a buyer and let them decide o their merits.

The third step is to craft specific messages to specific suppliers based on their needs, the economic impact of the move and the value of the capital being deployed.

“You have to construct messages to suppliers based on industry needs,” Mr. Roberts explained. “Most other organizations are not particularly adept at that.”

Prime Revenue’s procurement teams are good at addressing price, cash flow and payment terms, Mr. Roberts said. They can also work with clients to help them become more adept at discussing with suppliers.

Personnel in charge of promoting the program have to be thoroughly trained and have continuous access to the right data.

The final step is to continuously monitor the success of the program, which when properly done includes deep dives into the data. Prime Revenue has more than 12 years of data accumulated and that is invaluable in helping companies make informed decisions, Mr. Roberts said.