Electronic Presentment & Payment in supplychain finance
Written by Oliver Belin, (pictured, right) author of Supply Chain Finance Solutions: Relevance – Propositions – Market Value and Business Development Executive with PrimeRevenue, a leader in supply chain finance
Supply chain finance (SCF) and electronic invoicing are not new concepts, but they have certainly made a big splash within the corporate finance pool as a way to reduce costs in the supply chain and optimize working capital. Integrating SCF solutions with e-invoicing has caused a shift in the marketplace because competition is no longer between one company and another, but among the stake holders across the entire supply chains.
The need for companies to protect their precious supply chains is becoming more of a concern with the environmental disruptions that affect the logistical supply chain as well as the impact credit market paralysis caused by the economic crisis. Combining the benefits of SCF and e-invoicing has been a game changing strategic adaptation within the market environment for preserving the value in the supply chain under the current fragile state of the economy.
The Rules Have Changed
Businesses and more recently governments worldwide are increasingly turning to electronic invoice presentment and payment (EIPP) solutions to enhance information and financial flows within corporate supply chains. Associated payments can take many forms, encompassing retail payments, FX and securities settlements, bank-to-bank transfers, remittances and other cross-border payments. Business-to business (B2B) payments in particular depend upon significant information flows between suppliers and buyers, however, these information flows cannot be efficiently facilitated through the narrow bandwidth electronic funds transfer (EFT) systems provided by banks.
Optimizing the Flow of Financial Information
In response to this capabilities gap, corporations are focusing on EIPP solutions to optimize the flow of financial information within corporate supply chains. These solutions integrate payment systems with accounting systems which hold accounts receivable (A/R) and accounts payable information (A/P) and facilitate the transmission of integrated payments and remittance information. This provides a valuable foundation upon which working capital optimization solutions such as Supply Chain Finance can be implemented. The continuing evolution of payments convergence and the development and adaptation of EIPP has also been widely recognized as a key enabler in reducing processing time and financial labor in today’s supply chain.
From Paper to Electronic Settlements
Paper based payments are moving towards electronic settlements and mobile payments are on the rise. Through the integration of e-payment and invoice approval workflow in their settlement process companies can enhance operational efficiencies, reduce cycle time for invoice approval through payment, and enhance the information and financial flows within the supply chain. Wider adoption of EIPP solutions is increasingly being driven by the working capital optimization opportunities offered by SCF providers such as PrimeRevenue. The effectiveness of SCF solutions in optimizing working capital within corporate supply chains is significantly enhanced by the more efficient invoice approval processes achieved through EIPP.
Prevalence of Electronic Payment and Invoicing in Supply Chain Finance
The global supply chain and enhanced focus on process optimization increases the importance of e-payments. The business case for the prevalence of EIPP solutions is co-active, the move from paper-based to electronic payments is happening today. There is a critical mass of business transactions dematerialized and available in electronic format feeding Supply Chain Finance services. Companies are taking a second look at EIPP as they begin to evaluate long-term efficiencies for their financial supply chain.
EIPP as the New Standard in the Virtual World
More and more e-business stakeholders (customers, suppliers, policy makers, etc.) will favor organizations and businesses that make their virtual transactions easy to manage and maintain, as well as safeguard their information zealously. Just as computerized banking altered the financial horizon about a decade ago, EIPP is establishing a new norm in virtual commerce. Far from being just an emerging trend in the industry, electronic payment and invoicing is on the fast track to becoming the standard and preferred way of doing business in the virtual world. Companies who recognize this will reap the financial benefits and earn the loyalty of virtual consumers all over the world.
Whether among the brick and mortar stores or in the virtual marketplace, competition drives business, and innovation is the fuel of competition. As more and more industries establish their virtual presence and engage their public exclusively along online marketplaces, the system that recognizes and supports this reality is the system that will survive and take the lead. EIPP solutions are clearly proving to be an integral part of a successful Supply Chain Finance platform.
About Oliver Belin
As Business Development Executive with PrimeRevenue, Oliver Belin works with strategic partners to strengthen and expand the value delivered to the organization’s world-class client base. Prior Oliver worked for leading institutions in SCF. In 2008, Oliver founded Swiss Commercial Capital, a company specialized in trade finance solutions, which was acquired by Macquarie Bank. In 2011, he released the book “Supply Chain Finance Solutions”, published by Springer Verlag.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”