At present, there is a vast offering of Supply Chain Finance (SCF) related products available in the market from numerous providers, including commercial banks, non-bank financiers and more recently also from fintech companies. Each one has its own way of structuring solutions, financing them and managing them during the usually long existence of programs.
Companies with working capital financing needs tend to use more than one provider, usually its house bank and one or two additional ones, depending on the size. This could mean having to deal with different environments to manage working capital financing – i.e. interfacing and sharing data with various funders’ systems, as well as executing multiple agreements and undergoing numerous credit approval processes. Whilst this allows companies to diversify SCF providers, it is neither efficient nor ideal from a practical and strategic standpoint.
In contrast, having a centralized approach towards SCF programs has important benefits, particularly if it is driven by a specialized provider that can aggregate funding from a pool of investors and credit coverage from multiple insurers.
Market evidence shows that there are 4 key benefits of centralizing all SCF programs over one neutral provider:
- Have a scalable and flexible solution that adjusts to specific and changing needs
- Obtain better terms and conditions by increasing bargaining power through larger size transactions
- Reduce admin and legal work
- Enhance efficiency
The key to achieve success and maximize these benefits is the underlying servicing of the programs. Ideally, this should be based in a dedicated processing platform that operates with advanced technology which manages complexity and ensures full transparency to all stakeholders.
In conclusion, companies that choose to concentrate in one comprehensive provider all working capital financing needs – both in terms of Accounts Receivable and Accounts Payable – are the ones that benefit the most. The funding diversity would be achieved via the multi-investor concept, plus there would be the rest of the operational, commercial and administrative advantages which would be further boosted by a high-technology processing platform.