Keys to Successful Supply Chain Finance Implementation

In this article, Kaylee Karumanchi, a former practitioner of a Fortune 100 manufacturing company’s global SCF program, details buyer resource requirements for successful implementation.

 

In the classic supply chain finance (SCF) model, a buyer extends payment terms to its suppliers to achieve a significant working capital benefit, with the offer of a program to improve suppliers’ days sales outstanding (DSO). Suppliers can utilize the program, which leverages the creditworthiness of the buyer, to mitigate the negative impact of extended terms.

 

SCF providers commit significant resources to ensure the success of the program. However, the single most important factor to achieving program goals is the buyer’s engagement. SCF initiatives, while generally led by Treasury, are a multi-departmental effort. Dedicated resources and strong collaboration across the departments that SCF impacts can make a significant difference in program success. The following section details resource requirements buyers may consider when participating in an SCF program:

Buyer Resource Requirements

Procurement

 

Among the Procurement team’s most indispensable tasks is to segment and prioritize the supplier population for SCF. Procurement’s intuition, knowledge of suppliers’ financial health, suppliers’ plans for capital expenditures, and forecasted spend go far beyond the analysis of an SCF provider.

 

Factors often considered by Procurement include:

 

  • Supplier’s financial health. Can a supplier benefit from the program? Are margins on products sold to the buyer already slim? Does the supplier frequently reach out to the buyer for working capital support? Does the buyer already provide the supplier financial support?
  • Supplier’s payment terms history. Has the supplier recently undergone payment terms changes? Has the supplier historically had non-standard payment terms?
  • Buyer’s sales and inventory forecasts. Does the buyer intend to ramp or slow business with certain suppliers based on sales and operations plans (S&OP)? Will the buyer find alternative sourcing or divert a percentage of business from a large supplier? Will a buyer enter into any new supplier relationships?
  • Sourcing. Is the supplier a single source, sole source, or difficult to replace supplier? Is there flexibility to change suppliers, and if not, will payment terms extension adversely affect supplier performance or the supplier relationship?

 

Treasury

 

Treasury is the central point for program coordination. They manage bank relations, quarterly reviews on program progress and accounting buy-in. In addition, Treasury’s input is needed for: program pricing, determination of working capital benefit and uses of said benefit.

 

Either Treasury or Procurement may act as a point of contact for suppliers, though Procurement is responsible for negotiations. Often times, Treasury assesses supplier financial health, determines eligibility requirements alongside their SCF provider, coordinates with accounts payable and determines the correct accounting treatment alongside their auditor.

 

Accounts Payable Coordinators

 

Accounts Payable (AP) and Procurement are often the source of supplier names, their respective vendor codes and the facilities they supply.

 

On an individual supplier basis, AP will be required to enact payment type changes (SCF vs. non-SCF) at a vendor code level. For each supplier, based on number of facility locations and supporting ERP systems, the supplier may be assigned more than one vendor code and may be on multiple accounts payable systems. An AP team member, alongside Procurement, will need to approve payment type change within the system to ensure the correct approved invoice file is transmitted to the SCF provider. AP will also need to coordinate onboarding timing with the SCF provider for each vendor code located on each accounts payable system. Accounts payable systems may (or may not) share the same AP coordinator, which means multiple individuals may manage these payment type changes. Failure to coordinate timing with the SCF provider can result in file failures and inability for suppliers to choose invoices for discount.

 

It is therefore critical that the buyer’s internal SCF program champion remains closely aligned to AP.

 

IT Integration and Support

 

Large corporates often have cumbersome accounts payable systems due to a large number of facilities and entities under their umbrella. Each accounts payable system, even if provided by a standard ERP system provider, will often be customized to fit the needs of the user. For this reason, any enacted payment type changes (to the SCF provider instead of the supplier) to support an SCF program, will usually involve modification to the AP system by IT. These IT changes usually come at an internal charge to Procurement or Treasury and may be time-consuming based on the capacity of the IT team, the ERP system, and the level of customization. Each enacted change will be required likely more than once, as buyers often use multiple accounts payable system company-wide.

Final Words and Recommendations

Buyers may take the following steps to improve the likelihood of success:

  • Dedicated resources to achieve strong collaboration across multiple departments, including an internal SCF champion to coordinate departments
  • Communicate department-specific benefits, such as assurance of supply for Procurement and reduction in supplier account maintenance for accounts payable, to achieve organizational buy-in
  • Participate in SCF provider-led training sessions, even for mature programs (and especially with Procurement), on program specifics and benefits
  • Strong collaboration with the SCF provider for supplier discussions on program benefits
  • Participate in regular updates with the SCF provider (preferably bi-weekly to monthly) to review program status and supplier onboarding progress
  • Participate in quarterly updates to review program next steps and opportunities with: the bank relationship team, program management, and product sales specialist of your SCF provider

 

Empowering suppliers to fully realize the benefits of the program is a day-to-day process that requires substantial resources.

 

Author

Kaylee Karumanchi

Vice President, Global Trade and Supply Chain Finance

Bank of America

Key Takeaways

  • The single most important factor to achieving program goals is the buyer’s engagement.
  • SCF initiatives, while generally led by Treasury, are a multi-departmental effort. Dedicated resources and strong collaboration across the departments that SCF impacts can make a significant difference in program success.
  • Empowering suppliers to fully realize the benefits of the program is a day-to-day process that requires substantial resources.
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<p>Bank of America, N.A. is a subsidiary of Bank of America Corporation, operating in India. Bank of America provides the following banking products in India: working capital and term loans, structured finance, export finance, global cash management, trade products, foreign exchange services and currency solutions. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC.</p>

<p>Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (&quot;Investment Banking Affiliates&quot;), including, in India by DSP Merrill Lynch Ltd, which provides the following services in India: Research, Equity Sales &amp; Trading, Futures &amp; Options, Electronic Trading, Equity Capital Markets, Debt Capital Markets and M&amp;A. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured . May Lose Value . Are Not Bank Guaranteed.</p>

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<p>Bank of America Corporation and its affiliates do not perform in any jurisdiction banking activities that are reserved by local law to licensed banks, except in those jurisdictions where its banking affiliates have procured the necessary licenses.</p>

<p>Unless otherwise indicated, all services/products are conducted on an offshore basis for Latin America. Some or all of the products may not be available in certain jurisdictions and are subject to change without notice.</p>

<p>This document and its content are for information purposes and shall not be interpreted as banking or financial intermediation, business solicitation and/or public offering of any kind.</p>

<p>Ouvidoria Bank of America Merrill Lynch<sup>1</sup> | DDG: 0800 886 2000</p>

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<p>&quot;Merrill Lynch&quot; is the trademark that Bank of America Corporation uses in the Republic of Argentina for its capital market, financial advisory and investment businesses, which are conducted by and through Merrill Lynch Argentina S.A.. This entity does not conduct any activities subject to banking license, such as capturing deposits from the public.</p>

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<p>Bank of America N.A., Oficina de Representacion (Colombia), is a representative office in Colombia of Bank of America N.A., supervised by the Superintendencia Financiera de Colombia and authorized to promote in Colombia select products and services that</p>

<p>Bank of America N.A. provides outside of Colombia. Neither Bank of America, N.A., nor its Representative Office in Colombia, is authorized to carry out in Colombia any activities that are reserved by Colombian law to locally licensed banks.</p>

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<p>Bank of America Corporation does not have banking affiliates, branches or bank representative offices in any other jurisdiction in Latin America.</p>

<p>Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc., Merrill Lynch, Pierce, Fenner &amp; Smith Incorporated and Merrill Lynch Professional Clearing Corp., which are registered broker-dealers and members of FINRA and <a name="SIPC_1" id="SIPC_1"></a><a name="SIPC_1" id="SIPC_1"></a>SIPC, and in other jurisdictions, by locally registered entities.</p>

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<p>“Bank of America” and “BofA Securities” are the marketing names used by the Global Banking and Global Markets divisions of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, National Association, Member FDIC. Trading in securities and financial instruments, and strategic advisory, and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and Members of <a href="https://urldefense.proofpoint.com/v2/url?u=http-3A__www.sipc.org_&amp;d=DwMGaQ&amp;c=SFszdw3oxIkTvaP4xmzq_apLU3uL-3SxdAPNkldf__Q&amp;r=2-fdgqioXatVWN7aFbSrqqkIYS5e0AUsJriu71sulck&amp;m=DBWIn-g2hYkuBG-NP9mIQlXUMy1O5C6CsV6Zbz7RuDA&amp;s=QBhgdm8GdLo4qQza4wJIwqBVCE5Zws6wYDzPiEwfOZQ&amp;e=" target="_blank" style="color: blue;" class="t_track_hyperlink_in_text" data-bactmln="hyperlink_in_text_[sipc]_[https://urldefense.proofpoint.com/v2/url?u=http-3A__www.sipc.org_&amp;d=DwMGaQ&amp;c=SFszdw3oxIkTvaP4xmzq_apLU3uL-3SxdAPNkldf__Q&amp;r=2-fdgqioXatVWN7aFbSrqqkIYS5e0AUsJriu71sulck&amp;m=DBWIn-g2hYkuBG-NP9mIQlXUMy1O5C6CsV6Zbz7RuDA&amp;s=QBhgdm8GdLo4qQza4wJIwqBVCE5Zws6wYDzPiEwfOZQ&amp;e=]">SIPC</a>, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA.</p>

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<p>"Bank of America" and “BofA Securities” are the marketing names used by the Global Banking and Global Markets divisions of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation including Bank of America, National Association, Canada Branch (BANA CB ) which is an authorized foreign bank regulated by the Office of the Superintendent of Financial Institutions. Deposits with BANA CB are not insured with the Canada Deposit Insurance Corporation.&nbsp; BANA CB shall not impose undue pressure on, or coerce, a person to obtain a product or service from a particular person, including bank and any of its affiliates, as a condition for obtaining another product or service from BANA CB.</p>

<p>Trading in&nbsp;securities and financial instruments, and strategic advisory and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation including in Canada by Merrill Lynch Canada Inc. which is a registered broker-dealer regulated by the Investment Industry Regulatory Organization of Canada (IIROC) and a member of the Canadian Investor Protection Fund (CIPF).&nbsp; Merrill Lynch Canada Inc. is registered as an Approved Participant of the Bourse de Montreal.</p>

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