Bank on It: How Supply Chain Finance Supports Today’s Strategic Priorities

Resiliency, sustainability, and business growth are all top-of-mind issues for today’s C-level executives who must navigate increasing economic pressures and market expectations. These are volatile times for businesses in many industries, from fashion and footwear to electronics and manufacturing. Fortunately, supply chain ecosystems can make tough times easier, including opening doors between financial institutions and suppliers. As a result, supply chain finance can give suppliers access to necessary funds and help meet sustainability goals. It reinforces that investing in supply chain partnerships pays off. 

Supply chain finance is becoming increasingly important as companies and their extended supply chain partners face ongoing global disruptions and new sustainability mandates. Building a resilient network of suppliers and funding environmental, social, and governance (ESG) goals requires capital. Resources can be stretched thin from today’s high cost of fuel, inflated prices, and high interest rates. So, turning to financial institutions to help bridge gaps may be necessary. Supply chain finance helps banks and suppliers connect, sharing data and transaction insights in a way where buyers, banks and suppliers benefit. 

Benefits include:

• Suppliers have access to funds and materials needed to fulfill large orders  
• Buyers have greater confidence that suppliers will ship on time and in full
• Financial institutions have visibility and increased confidence in suppliers
• Companies improve cashflow to help meet compliance and ESG goals 
• Smaller companies can leverage the credit strength of larger partners  
• The supply chain is more resilient, with highly reliable partners
• Buyers are able to free up working capital
• The entire supply chain can take advantage of growth opportunities 

Aligning financial institutions with suppliers helps ensure funds are in place when and where they are needed to keep the supply chain moving at the speed of commerce. Purchases, order fulfillment, and shipping are all time sensitive. Gaps must be eliminated, including the gaps between when a supplier needs to buy materials and when the product invoice will be paid. This can be months, creating a stifling burden to suppliers, small to mid-sized businesses, or start-ups in emerging economies. Supply chain finance eases the pain. 

Here's how it works:

Supply chain finance leverages the financial strength of buyers to provide early payment options to suppliers, improving their cash flow. It also enables buyers to extend payment terms without impacting suppliers, thus improving their cash flow. Through a digital supply chain platform, buyers, suppliers, and banks are connected, allowing suppliers to receive payments before the invoice due date at rates based on the buyer's creditworthiness. This collaborative approach reduces financial strain and enhances the overall efficiency and resilience of the supply chain.

How supply chain finance supports sustainability

Sustainability is a hot topic today as several countries have put mandates in place calling on suppliers to disclose information about their environmental footprint.  A form of supply chain financing, known as sustainable supply chain finance, can be used by buyers to incentivize sustainable practices, offering better financing terms to suppliers who meet defined ESG criteria, such as reducing greenhouse gas emissions or reducing water usage.  With access to capital funds, suppliers can invest in improving plant operations to reduce energy consumption, cut greenhouse gas emissions, or other projects. Suppliers can build infrastructures to monitor their processes and measure improvements. This focus on sustainability can build long-term relationships around shared visions while aligning supply chain practices with broader societal goals and regulations.

How supply chain finance supports resilience

Resilience is another pressing topic today as disruptions seem to continually interrupt best laid supply chain plans, from hostilities in the Red Sea to extreme weather conditions, labor strikes, and shipping lane traffic snarls.  Disruption can also be caused when the supplier lacks funds to invest in materials needed to fulfill the order. By ensuring that suppliers have access to necessary funds, supply chain finance reduces the risk of supplier failure due to cash flow issues. This stability is crucial, especially during economic downturns or unexpected disruptions, as it helps maintain continuity in the supply chain.

With improved cash flow, suppliers can be more agile in responding to changes in demand, production requirements, or market conditions. This flexibility is crucial for adapting to unexpected disruptions or opportunities. 

With more highly reliable partners as part of the ecosystem, the procurement agent has more options, more flexibility, and more resilience.  

Overcoming common problems

One struggle with some supply chain financing programs is that they lack wide-spread adoption by suppliers and are only in place for the buyer’s largest suppliers. This leaves most of the suppliers to fend for themselves. Those who need help the most may have no choice but to borrow funds at high interest rates. A healthy, resilient supply chain requires all suppliers to have access to the capital they need when they need it. 

How Infor Nexus helps

Infor Nexus, the supply chain business network platform built to orchestrate both the physical and the financial supply chain, helps make supply chain finance accessible to more suppliers, broadening the impact and benefits.  Infor Nexus drives adoption and coverage for all suppliers in several ways, including:

• Supplier Onboarding: Simplified onboarding with the help of a support team helps roll out supply chain finance to all suppliers, not just a few. Easy onboarding makes more suppliers willing to participate.  
• Accelerated Time: Supply chain financing is part of Infor Nexus Procure to Payment and broader supply chain platform. This accelerates invoice approval times, allowing suppliers to access cash even earlier.
• Performance History:  A comprehensive transactional history of supplier performance and buyer payments, along with ongoing visibility, reduces risk for banks, and introduces greater funding opportunities.
• Multiple Banks: With multiple global and regional banks and financing providers in the network, they can provide the liquidity and regional coverage needed to support a buyer’s supply chain finance programs. In addition to the buyers, the banks see this as an opportunity to grow adoption of their programs. 

PUMA shares success

A recent Forbes article featured PUMA and their supply chain finance success story. PUMA uses the Infor Nexus digital platform to support its suppliers. This digital collaboration network connects buyers, suppliers, contract manufacturers, carriers, and banks, providing a single shared, real-time version of transactions. The platform reduces the manual work involved in accessing funding and increases the supplier's banking options. PUMA’s banking partners on Infor Nexus include HSBC, BNP Paribas, Standard Chartered, and the International Finance Corporation (IFC). Suppliers get paid within five days of delivery. Frank Waechter, Vice President of Treasury and Insurance at PUMA, credits the Nexus platform for bringing digital value, saying, “Collaboration with suppliers is much more than a digital exercise. But without digital enablement, it’s nothing!”

PUMA launched a program in 2016, making supply chain finance available to suppliers with good sustainability track records as a reward and incentive to others to step up their sustainability efforts. There has been a significant uptick in participation over the years, especially during the pandemic. Increased financial stress led more PUMA suppliers to turn to the ESG-linked supply chain finance solution, making the acceptance rate to triple. Today, for every 100 products sourced, 30 are financed through this program. In 2022, PUMA’s financing facilitation through this program peaked at $800 million, says the article.

The wrap up

Enterprises face numerous challenges today, with supply chain sustainability and resilience as top priorities.  With limited resources, suppliers may be pressed to make the operational improvements necessary to meet compliance mandates and address ESG initiatives. Supply chain financing can help suppliers gain access to capital. Supported by a strong collaboration network connecting buyers, suppliers, contract manufacturers, logistics providers, and banks, suppliers can leverage lower interest rates, banking on the backing of buyers. Everyone wins, the buyers, suppliers, banks—and consumers concerned about sustainability and the reliable delivery of their favorite brands.