In times of uncertainty, businesses tend to look inwards. Decisions are made to reduce outgoings, capex and R&D projects are shelved, and costs savings are made where possible. Invariably, suppliers are caught up in the cash conservation initiatives, as businesses tend to push out payment terms to improve days payable outstanding (DPO) figures. But this view can be short-sighted as these suppliers are also navigating the same turbulent waters. By simply changing the view and working together, businesses across the full length of the supply chain can thrive.
Supply chains in the Scandinavian market are currently registering the highest levels of trapped working capital in comparison to the rest of Europe, according to a recent Nordea survey. As well as this, supply chain finance (SCF) programmes in the region are not yielding returns, with limited supplier adoption. It’s clear that something needs to change. By fostering clear commercial objectives that include suppliers and building a healthier dynamic which eliminates inefficiencies, businesses will be able to tap into this trapped cash and improve profit margins. But the big question is: how do companies achieve this?
Historically, most programmes which release cash from the supply chain have been delivered by large cumbersome banks. Whilst these banks have geographic presence, they are more limited in technology and innovation. This is where fintechs come in. What fintechs can deliver are solutions that cover all suppliers, not just the traditional 20 -100 top suppliers. They can also avoid lengthy bank-style KYC processes, which results in more suppliers enrolled in a shorter space of time.
These new style fintechs are highly efficient in invoice processing, which results in a reduction in time taken to receive, process and approve invoices – creating a much broader window of opportunity where suppliers can take early payment. Furthermore, fintechs have started to provide greater visibility and transparency over cash positions in an otherwise manually intensive and opaque procedure. As well as gaining a much larger window of opportunity to take early payment, suppliers also see their invoices approved quicker and see a reduction in discrepancies.
Fintechs can achieve deep technical integration to facilitate the seamless exchange of information and provide insights into how programmes are performing. Leading solutions provide the capability to use AI to predict supplier behaviour. They also use visualisation techniques so that the sharing and understanding of information can be achieved with no extra effort.
Introducing the cash flow revolution
Remarkably, this technology is changing internal relationships as well as external relationships. For example, finance, treasury and procurement can all work together towards common goals, all of which greatly improve company performance. As well as this, I have heard of many suppliers that have been asking their principal buyers to install this technology; not only for greater visibility, but for the certainty and stability of their own cash flow.
This is the start of a cash flow revolution. Not only is this technology creating game-changing shifts in the way businesses think about cash flow and working capital, but it is also one of the keys to driving real business success in 2019 and beyond.
Lars Beckman is CEO at CORE Process. Lars has extensive experience in start-up fintech businesses, international internal corporate banks and business development, as well as being a project/customer manager and running large projects. Lars also has deep experience of investment and risk committee work.