As passionate practitioners with many years of experience in Supply Chain Finance, we saw early on the failure of most Supply Chain Finance providers to fulfill potential results for their clients.
So, back in 2015, we founded SCF Strategies, a value-added services and consultancy firm in the belief that most of the market's Supply Chain Finance providers were not offering the necessary knowledge through services to their corporate clients required to drive results and impact in working capital. They delivered either funding (banks) or technology (Fintechs). At best, some banks delivered both when it came to Supply Chain Finance program implementations.
But even combining the two is still not a recipe for program success. Banks want to lend money. This is their core business and they are exceptionally good at it. On the other side, most Fintechs want to sell subscription or transaction based software access. This is their core business and "services" is a dirty word in terms of their valuation since pure SaaS revenue is valued far higher than services revenue.
After more than fifteen years of directly originating, implementing and managing over 100 Accounts Payable Finance programs - today exceeding $150 billion in trading volume, yielding more than $2 billion in outstanding balance sheet utilization from some of the world’s largest SCF programs, we know that success requires so much more.
The team at SCF Strategies considers technology and funding as “enablers” of a successful Supplier Finance program but there are more important factors. The real value comes from a series of standardized processes integrated with the technology and fueled by funding capacity. In fact, we would go so far as to say that without these processes properly executed, a Supply Chain Finance program is at very high risk of failure when measured against the anchor buyer’s objectives.
One specific example of the void in program origination and management knowledge is a US-based Fortune 500 retail organization, which shall remain nameless. The company chose a top tier banking partner to provide both the Supply Chain Finance technology platform and up to $1 billion in funding for the program as needed.
Out of the box, the bank allocated $250 million in balance sheet to the program, set up the technology and built the data integration between the anchor buyer’s enterprise resource planning (ERP) system and the banks’ technology platform.
Once all the “plumbing” was installed - after several months - the teams set to work on onboarding suppliers with a compelling offer of early payment in exchange for a small term extension. The discount rate established for the Supplier Finance facility based on the credit strength of the buyer was below 75 basis points (.75%), far below the cost of capital of most suppliers in the program.
Fast forward to today, the program has proven to be a complete failure in the eyes of the company itself and the bank. The current credit line utilization is less than $25 million with fewer than 25 suppliers onboarded.
So why did the program fail? Well, to start with, no amount of funding, nor the most elegant technology will deliver results on their own.
While the program contained the proper basic ingredients, the Supply Chain Finance provider didn’t have the requisite knowledge and experience to coach, counsel and collaborate with the client on the execution of the program. The internal procurement teams within the buyer organization were not trained properly, with no real commitment and internal communication from the top management. In addition, the spend and the suppliers were not analyzed properly – at best the top 20 suppliers – leaving the procurement teams alone without proper insight in terms of payment term extension opportunities and bringing suppliers onboard.
As result, the Supply Chain Finance program was not designed based on the buyer’s goals and the individual suppliers’ characteristics, but on a generic approach purely focusing on funding and technology platform, leaving millions of dollars of trapped working capital in the supply chain. You simply cannot make up for bad practice, skipping steps and leaving out the most critical success factors.
The value of SCF Strategies is in its experience as a partner and coach. As an industry-leading, specialized consulting firm with a specific focus on Supply Chain Finance value added services, we can avoid bad practices, fill in the missing steps. With a true understanding of buyers and their suppliers, we can design and implement a fully successful Supply Chain Finance program that exceeds expected results.
Financial institutions and corporations rely on our advisory and enablement services founded on actual, in-depth, program level experience. We provide objective, subject-matter expertise in all areas of Supply Chain Finance. We've developed, refined and codified best practices for an entire industry, and used it to supply insightful know-how that can turn clients’ working capital initiatives into results, bottom line. Our clients choose us because we have hands-on experience in the market helping build the right solutions that drive real value for our clients.
The only way to truly deliver meaningful value is to define success as achieving exceptional results for clients that have a lasting impact on their business and their clients. And that requires a partner who understands the business objectives of our clients and their commitment to achieve them. Equally important, is to understand the natural reluctance and motivation of their suppliers. Add in the right technology, the right funding, and we can design a successful Supplier Finance program.
But the key to bringing value to our client is to become that collaborative partner, thereby achieving meaningful, enduring impact. This principle has remained the cornerstone of our company and the services we provide to our customers.
If you are interested in partnering to create a successful Supply Chain Finance program, we would like to personally invite you to engage with us in a no-nonsense evaluation of your current capabilities benchmarked against best-in-class standards. Contact us directly at firstname.lastname@example.org.