for suppliers is that they want to convert their inventory to cash as
early as possible, with buyers wanting the exact opposite, to optimise
their cash positions by stretching the payment terms.
Supply chain financing purportedly does exactly that, providing a
win-win situation for all parties involved; the buyer optimizes
working capital, and the supplier generates additional operating cash
flow and thus minimizing risk across the supply chain. Supply chain
financing seems like an optimum solution for both suppliers and
buyers, however it does come with its own list of issues.
The movement of physical goods has been constantly making advances
with technology, making it possible to track the exact location of the
product and accurately forecast how long it will take to reach the
destination and finally informing the supplier when the product has
reached its destination. This greater visibility within the supply
chain enables corporates to have more control over their business and
stay ahead of the competition.
The same cannot be said for financial data, which consists of a lot of
paper and manual intervention, in essence it has remained the same as
it was decades ago. Even with the implementation of electronic
resource planning (ERP) solutions, corporates continue to have poor
visibility on their cash position. More often than not, CFOs and
treasurers do not rely 100 percent on the information they have on
their ERP, still having a strong reliance on manual intervention and
spreadsheets. The majority of Asia requires at least a week to
consolidate their cash flow analytics for their regional office.
Although Payments can take place in an instant, the problem lies in
the management of what triggers this payment. Legacy technology still
controls the manner in which purchase orders are generated, printed,
sent, track and finally paid. Then there is the tedious process of
consolidation and rectifying errors, which requires extensive to and
fro communication between buyer and supplier, causing further delays
to even the smallest payments. Not helping matters is the inability of
many suppliers to follow up on collecting payments from their
customers and what exactly it’s for.
that corporates invest in should be able to provide the end-to-end
management of their business by automating many back office functions
relating to technology, services and human resources. An example of
some processes include; product planning, purchases, manufacturing,
service delivery, marketing, sales, inventory management, shipping and
payments, and finance. The ERP is supposed to act like the nerve
centre, into which all the information is keyed in and processed.
However, very often, these solutions are not fully utilised and manual
spreadsheets are still kept as a belt and braces.
Despite heavy investments in technology, headcount in the account
payables and account receivables department is still on the rise,
together with the number of banks corporates use. Cheques are still a
frequent sight in the market, and responsible for large transactions
requiring multiple signatories. Manual preparation of transactions and
constant verification is still prevalent as are non-electronic
payments methods which still make up a large chunk. The constant wait
in terms of processing times and error rectification is unforgivable
in today’s age.
In South East Asia the three most common ways Corporates finance their
supply chain is via term credit lines, available working capital and
trade finance solutions. However, in the more mature markets in the
region, there is visible decline in use of term credit lines for trade
Corporates take approximately two months (57.3 days), from invoice
generation to receiving payment. In reality they have no idea where
the cash is, and when it’s going to arrive. It has come to a point
where both suppliers and buyers are willing to pay a premium to
receive and send money in real-time.
With the emphasis on efficiency and everything being fast, accurate
and delivered on time, Payments have a long way to catch up with the
movement of physical goods. The next revolution in supply chain
financing will be the commercial adoption of
which will bring cash and information at the same speed and efficiency
within the supply chain.