How can banking solutions help strengthen your supply chain?

Could banking solutions that improve your suppliers’ financial stability be the answer?

As your production and manufacturing business continues to face disruption and uncertainty, keeping your supply chain strong is critical to your success. It puts your business in the best position to drive profits, growth and innovation, while becoming more sustainable.

And the key to a healthy production chain? Strong relationships with your suppliers. The right partnerships help you secure a steady supply of the right services and materials in the right quantity. And most importantly, at the right price.

To make your supply chain as effective as possible, you may need to provide financial support and stability to your suppliers. This means reliable cash flow, flexible financial options and mutually beneficial payment terms. We spoke with a number of businesses globally about how they use different banking solutions to strengthen their supply chains.

Is your financial strategy for suppliers forward-thinking enough?

It used to be the norm for treasury departments to just delay payments to suppliers, keeping cash in the business for longer. As the group treasurer at a global corporate manufacturer told us: "Obtaining longer terms for supplier payment helps with how our balance sheet looks."

But these tactics are no longer advisable. Because while you might see short term gain, you could be damaging supplier relations in the long term – leading to a potentially disrupted chain. As you put pressure on your suppliers to extend payment terms, you could be affecting their liquidity. That upsets their ability to produce. And unless they can find their own short-term financing (which can be tricky to obtain), you could see your supplies run dry.

It’s very difficult for smaller companies to get working capital. If you need enough money to set up your supplier operations short term, it is hard to get financing.


Put simply, if you squeeze your suppliers on payment terms, you could be risking the productivity of your supply chain – thereby jeopardising your ability to produce and meet demand.

In today’s uncertain world, and as businesses worldwide continue to feel the effects of the COVID-19 crisis, it’s more important than ever to recognise the importance of your supplier relationships. As the finance and purchasing lead at a mid-size logistics equipment manufacturer tells us, “Ours is a fast-paced business with daily and weekly targets. Our suppliers are critical to our business – we make sure we invest in the relationships and develop improvements in partnership with them.”

Do your current banking tools let you provide suppliers with cost-effective funding?

With the right supplier finance management solutions in place, you can increase the efficiency of your transactions and payment terms. This helps to reduce the cost of funding for both you and your suppliers.

Despite these benefits, however, business leaders don’t always understand how such financing solutions can help their business.

We implemented a supply chain finance programme as a result of an external supplier coming in who directly engaged my company’s C-suite. Our team had considered supply chain finance programmes before but hadn’t really been sold on its overall value or usefulness to our company. It was only when the CEO and CFO were taken through the benefits, not just my team, that the company bought into it.

Group Treasurer, global corporate in the construction industry

A supply chain finance programme is an automated solution that helps you simplify your payments to suppliers – both cross-border and domestic. It provides suppliers with greater payment assurance they’ll get their money at a pre-agreed time. This may allow you to negotiate better terms, which are beneficial for both of you. So, your key suppliers get their hands on their cash when they need it. And you can optimise your days payment outstanding (DPO). A real win/win for both of you and, by combining with a purchasing card programme, you can finance more of your supply chain.

There’s also another benefit, as you can effectively lend funds to your suppliers. You can offer early payment on invoices in the form of a loan – but at a much lower rate than they’d have to pay for traditional financing. This gives them access to much needed cash to keep their own operations moving. Plus, it enables them to decrease their own days sales outstanding (DSO).

See how Union Copper Rod (UCR) uses a supply chain finance platform to extend its DPO

Supply chain financing works because your banking partner is effectively taking a risk on you, not on the supplier. When you approve payment on an invoice, you’re promising to pay the bank back at the end of the credit term. So, your suppliers can access cash at a more competitive rate. And because everything is automated, they can get their money just a day after submitting invoices. It’s quick, easy and highly beneficial for both of you. And it helps you to cement strong supply chain partnerships.

What else could you be doing to increase the efficiency of supplier payments to protect your business?

All supply chains are at the mercy of disruption. It could be a change in consumer or buyer demand – as was seen at the height of the COVID-19 pandemic – or a sudden lack of raw materials. There could also be financial issues affecting any of the partners in the chain. Indeed, should a supplier suddenly find themselves short on funds, and unable to produce materials, your whole chain could grind to a halt. To prevent this, you can help your suppliers to secure funding with letters of credit, or guarantees that you’ll order and pay for their products.

Working with cross-global partners can also cause problems – especially when foreign exchange (FX) rates shift, making resources more expensive and affecting your bottom line. However, with the right platforms in place, you can manage FX and cash management in near real time. So, you can hedge payments to avoid costly conversion rates and buy when they’re more in your favour.

Finally, you can help to reduce issues with partners all along your chain by adopting a variety of digital payment options. Rather than traditional invoice and payment methods, you could adopt newer innovations like mobile wallet credit cards, smart phone payments or other digital innovations. It can streamline your payments process and help you and your partners access funds quicker.

Are you investing in the most effective supply chain finance packages for your suppliers?

Working with the right banking partner can put you in a great position to set up effective banking solutions and offer finance packages to your strategic suppliers. This in turn can help you build a strong supply chain and strengthen relationships. So, could financial solutions help you improve the performance of your supply chain? And if so, should they combine a range of features like flexible funding, preferential pricing or enhanced credit terms to help get suppliers on board?

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