Using Supply Chain Financing To Fuel Growth

Working capital management is one of the most critical tasks in any organisation. The complexities increase if you are a large organization with multiple supplier partners who are all critical to the ecosystem. 

There is a lot of focus not just on managing it efficiently but also driving more value from it. Can working capital management drive growth? is the question most astute finance professionals are dealing with today. Among the several solutions at their disposal, supply chain finance seems to be a favourite. Especially because the rewards greatly outweigh the risks. 

The world of supply chain rests on the fine balance between the supplier and the buyer. While the supplier-buyer relationship can be viewed as a zero-sum game, supply chain finance is the peacemaker. It enables value creation for all parties involved. 

FinTech has been the revelation in this value creation. FinTech allowed organisations to manage their supply chain finance more effectively and strategically. FinTech coupled with AI solutions e you to drive value by making smarter choices with ample information at hand. This piece looks at how FinTech + AI in supply chain financing is enabling organisations to manage working capital more efficiently and drive growth. 

Dynamic Scorecard

While making credit available for your buyers/ distributors, there needs to be a proper assessment of risk. AI-driven FinTech solutions help profile the buyers under consideration and give a detailed, dynamic scorecard, updated in real-time. This benchmarking helps in deciding the amount of credit to be given to which buyer. 

On the other hand, a dynamic scorecard provides an understanding regarding suppliers’ reliability and financial sustainability in the longer term. This reduces the risk of disruption by pre-empting the situation and diversify the supplier base in time. These scores are derived from several sources e.g. the financial statements, ledgers, and demographic data points. With this analysis and predictive capabilities that AI provides, you will be able to hedge the risks better enabling the buyers to access liquidity when they need it. 

Funds the entire financing requirement

The ecosystem matters for you and not just financial statements. Having a stable supply chain helps you manage your inventory, production, and distribution. Next-generation AI-based supply-chain financing solutions allow the entire financing requirements for sellers or distributors to be covered. 

Without SCF, sellers or distributors will have to rely on banks and financial institutions for liquidity who typically fund about 75-80 per cent of working capital requirement. The SCF route, provides up to 100 per cent financing, at about 25 per cent lower costs. This can be a great boon for your supplier’s cash flow, allowing them to better service your needs. 

This is important post-Covid as economic activity gathers pace and several businesses with solid fundamentals still struggle as they lack immediate access to liquidity.

Savings in terms of procurement costs

One of the biggest benefits that Tech and AI-Driven SCF offers is that it can positively impact the procurement cycle by enhancing supplier efficiency and reliability. 

Supply Chain Financing is also great for buyers. Since the suppliers receive the invoice amounts in advance, the buyer can negotiate discounts. This helps reduce procurement costs by 1.5 to 2 per cent. AI-based SCF solutions monitor a wide range of supplier-side variables and balance the cost of capital to benefits both the buyers and suppliers. The insights derived from the tech solutions help you direct your efforts towards the right suppliers and spot bad partners. 

Reinvesting idle capital for higher returns

AI-powered SCF platforms allow your organization to reinvest idle capital to help suppliers meet your needs, which translates into significantly higher returns. 

The returns generated are significantly higher than the conventional treasury fund yields, augmenting your reserves by an additional 4-6  per cent compared to other risk-free investment options.

Conclusion

There is no doubt that working capital management is a critical part of supply chain management. It acts as an enabler for the entire ecosystem around you. Several corporations are signing up for supply chain financing solutions to streamline their overall operations. Many leading organizations from automobiles, Engg, auto components, FMCG, and food processing industries have already started implementing SCF programs with help of FinTech’s.

FinTech solutions powered by AI help you make data-backed decisions, predict bottlenecks, intervene proactively, and create a more stable ecosystem with your suppliers and distributors. 

The author is CEO at Cashinvoice

DISCLAIMER: Views expressed are the authors' own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.