As new technologies and abundant liquidity bring about a shift in market dynamics, supply chain financing is evolving – and many corporates are opening their eyes to a more holistic view of this valuable discipline, writes Sebastian Hölker, head of structuring and implementation of SCF products at UniCredit, in Treasury & Risk.
Recent developments, for instance, are seeing larger firms use excess liquidity on their balance sheets to finance their suppliers directly – a break from the traditional approach of approved payables financing, where buyers use their strong credit profiles to help their supplier secure better rates from a third party.
Meanwhile, advances in technology are empowering treasurers to create more sophisticated financing programmes – using dynamic data hubs and the technology of “Industry 4.0” to share detailed financial and transaction-specific data. With a huge range of data points available, firms can, for example, establish “trigger-based” financing programmes, which see payments implemented when certain milestones (such as goods arriving at a pre-agreed checkpoint) are reached in a trade.
As these developments take place, firms would also do well to re-assess their approach to supply chain finance – thinking in terms of their needs and goals over the short, medium and long term, rather than in terms of how individual techniques can be applied. Typically, this will result in less of a focus on liquidity-generating operations (especially with cash do freely available in the current conditions), and more emphasis on risk mitigation, balance-sheet optimisation and supply chain stability.
With the correct thinking, and intelligent application of new financing techniques, this approach can help firms build a highly robust framework for their working capital operations, and generate unprecedented stability throughout their supply chains.
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