SMEs and Supply Chain Finance: between benefits and adherence difficulties

February 7, 2023


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Much has been said about Supply Chain Finance (SCF) and the benefits this type of financing brings to all parties involved.  

Nevertheless, the success of an SCF program depends, among other factors, on the participation of as many suppliers of the companies that initiate these programs as possible. 

Well, while it is true that the benefit these programs bring is easily recognized by large suppliers, the same cannot be said when the proposal to join these programs is aimed at a more modest-sized supplier who, in most cases, sees the proposal to join an SCF program as a tool through which the customer can lengthen the payment terms of its invoices.

The question that arises, then, is to understand how best to present the proposal to suppliers and what aspects are taken into consideration by suppliers to accept and adhere to it. 

In other words, what are the factors that lead a small/medium enterprise to accept the SCF program proposed by its client? 

There is no single answer and it all depends on the specific cases. However, the various analyses conducted allow us to identify some categories or groups of issues, namely:

  • The economic benefit that accepting an advance payment generates:  
To understand the actual economic benefit, it is necessary to carry out some analysis that not all suppliers are able to conduct. It is therefore necessary to accompany the latter in the evaluation process, providing all the necessary support so that the supplier perceives that, by entering into a Supply Chain Finance program, in addition to strengthening ties with its customer thus making this relationship long-lasting, it will be able to take advantage of certain payments and obtain liquidity in a fast and easy way, without committing its credit capacity.
  • The time for the client company to approve the invoices: 
Since this involves financing invoices whose payment will not be disputed, but only having the financial capacity to wait for their payment, the supplier must be reassured that the Buyer has adopted and will execute a sufficiently rapid vetting process to avoid further time extension.
  • The opportunity cost:

The supplier must be able to compare the benefits of this solution with those brought by an alternative financing method (one that does not result in a deferment of payment times). 
In this category, it should be noted that in cases where the supplier is very small and/or in an uncertain economic situation, the comparison may not be possible due to the inability to access other working capital financing solutions.

When comparison is possible, the provider should find, for example, that, through SCF programs, the applicable rates will tend to be more competitive than those that would be applied to him with other solutions, also taking into account the presence of costs implicit in the different solutions (inquiry fees, account keeping, etc.) which, especially in the case of transactions of small amounts, can substantially change the cost of the individual transaction.

  • Implementation costs:
Implementation costs should be as low as possible. These costs include not only those related to the eventual use of a digital platform, but also so-called operational costs (for example: costs due to changing the billing or payment reconciliation process). 
As can be guessed from the categories listed above, the provider will not only take into account economic criteria.

In effetti, sono ugualmente pertinenti: 

  • The communication process

The more fluid, transparent, and detailed this process is, the greater the provider's interest;  

  • Focus on the mechanism of Supply Chain Finance

suppliers (particularly small ones) often need training on the product itself, and it is worth emphasizing the spirit of collaboration behind the initiative and the positive impacts this solution represents;

  • Trust:  

As anticipated, the supplier tends to think that the only purpose of implementing this type of program is to lengthen invoice payment times and, as a result, will only result in greater economic pressure. Therefore, it is critical to demonstrate the necessary openness and willingness to provide all clarifications (with the cooperation of all Buyer departments) so as to assure the supplier that everything will be implemented with the intent of creating value for all stakeholders in the process. 

At TXT WCS, thanks to our team's expertise, we are well aware of the obstacles that a buyer faces and the specific needs of suppliers; to meet them, we have developed the SCF Polaris marketplace that enables a buyer's working capital management in a centralized and transparent manner. 

We collaborate with the Buyer and its suppliers throughout the lifecycle of SCF programs and are an active part of the supplier onboarding process, thus enabling the overcoming of difficulties encountered by suppliers throughout the proposal evaluation process, bringing greater clarity to the objectives of the collaboration and strengthening their confidence in the choice made. All with the support of the most advanced technology, at a competitive cost.