Simon Cooper, the CEO of Corporate, Commercial & Institutional Banking in Europe & the Americas, believes that globalization remains relevant. In a competitive landscape, however, financial institutions must pay attention to every link in the supply chain to avoid disruptions.
Sustainable trade practices are crucial for survival and success in the supply chain finance (SCF) ecosystem, where banks and suppliers have a symbiotic relationship.
According to the Future of Trade 2030 report, 89% of chief financial officers recognize the importance of implementing practices that promote accessibility, transparency, speed, and security in advanced supply chain finance within banking.
The Current State of Supply Chain Finance
Traditional Banking Models in Supply Chain Finance
The supply chain finance (SCF) model has been a longstanding practice in the banking sector. Its impact on businesses was, however, limited due to manual transaction processes. SCF aimed to ensure smooth financial flow without blockages.
In this model, both suppliers and purchasers benefit from a consistent cash flow. The challenge, however, lies in the time-consuming nature of the process. Transactions often take longer than expected.
The advent of cloud-based SCF platforms brings exciting possibilities. Collaborative partnerships between businesses and supply chain finance companies can now operate seamlessly. A digital financial services platform helps companies enhance working capital, reduce cash flow volatility, and mitigate risks associated with SCF.
Addressing Challenges and Opportunities
Implementing technology-based SCF in banks only partially revolves around its technical aspects. There are legal implications that should be taken into consideration. Without legal frameworks, there will be roadblocks in utilising new technologies.
Regulation is essential in implementing new solutions in the banking industry. Digital adoption is only possible with the financial infrastructure to cater to the transformation.
FinTech will be instrumental at this stage as it will play a crucial role in making the bank experience as seamless as possible. Banks consider fintech as a partner rather than a competitor, and with proper execution, these two institutions can become interoperable.
Technological Integration
Banks find it difficult to broaden their offering without electronic digital procurement tools to make buying and selling much more accessible for companies. New SCF solutions have advanced analytics to help banks understand their buyers and suppliers. With data accessibility, banking industries can have meaningful discussions with their clients and review strategies for better solutions.
Banks have learned to merge sourcing, shipping and financing to speed up procurement services. When banks are ready to welcome more target sectors, eliminating repetitive processes and driving growth will no longer be elusive.
Why Is Supply Chain Finance Important?
Better Experience
Banks are gradually replacing traditional systems as part of their preparation to provide digital experience to purchasers and suppliers. What do next-generation platforms look like?
For digital platforms to be innovative, they must have intuitive user experience design, modular architecture, omnichannel services, and robust security features.
Advanced SCF solutions provide value-added services to facilitate financing for companies to gain access to new market opportunities.
Seamless Interoperability
Upgrades reduce risk and costs while delivering efficiencies. However, you can only reap this benefit when core internal processes cover essential services such as payment gateways and liquidity management. While replacing legacy systems is risky and expensive, having a collaborative partner can guarantee a smooth transition.
Seamless interoperability involves integrating enterprise resource planning (ERP) systems into banking platforms to reduce manual intervention, prevent human errors and automate data exchange. The system will use standardised data formats to enhance compatibility across difficult platforms for a more secure financial ecosystem.
Direct Client Relationships
The relationships that banks have with suppliers should establish profitability and value. Once banks cultivate this kind of relationship, they must manage it to flourish. Advanced SCF solutions ensure success in supplier relationship management by reducing costs and increasing efficiency.
Launching the Supply Chain Finance Programme
For banks looking to launch an SCF programme, the first thing to remember is to determine markets that can benefit from SCF. At the same time, suppliers are one of the sectors that SCF targets: not all suppliers benefit from the programme. Virtual or purchasing cards are more suitable for suppliers with lower annual spending than SCF solutions.
To join an SCF programme, they must comply with documentation requirements such as articles of incorporation. Being part of this programme would mean suppliers will receive payment once the invoice is approved.
For the purchasers' side, they are the ones launching one segment of the supply chain. They address any challenges associated with the programme, and the involvement of multiple departments will be necessary for its execution. At this stage, banks are critical to the success of the implementation.
Before bringing banks onto the platform, it is essential to focus on supporting suppliers in analysing whether the cost of transaction fees outweighs the benefits of having improved cash flow. Flexibility is also crucial, especially when banks face ongoing inflation and disruption.
Facilitating Growth
The primary focus of SCF is longevity, strength, and performance. Through SCF, large companies look at suppliers from a new perspective. Banks tapping into SCF can obtain additional funding at a lower cost. In the traditional procurement process, these companies must use their credit lines to get additional funding, which is one of the challenges that SCF was able to address.
Conclusion
Technology integration, especially using advanced analytics, helps growth-oriented banking industries provide omnichannel services, opening more enormous doors to suppliers and purchasers for new market opportunities. In making SCF accessible to everyone, considering a few things, including the cost-benefit ratio to ensure flexible solutions amid disruptions and inflation, will ensure successful implementation.
With supply chain finance products being a powerful tool for growth, banks can foster a renewed perspective on their relationships between purchasers and suppliers. Banks serve as financial facilitators and instruments for redefining traditional procurement processes by cultivating enduring relationships and offering cost-effective funding solutions. Adaptability remains an integral part of these financial institutions' success as supply chain finance in banking grows.
If you are ready to embark on a transformative journey, POINTRADE will guide you through building a resilient and efficient strategy to ensure sustainable growth. Book a demo or schedule a consultation to learn more about what POINTRADE can do for your business.