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June 2020

Importance of technology in Supply Chain Finance

Technology has become a fundamental element in almost all aspects of life. The world is said to be entering the Fourth Industrial Revolution with economies facing a range of new technologies that combine the physical, digital and biological worlds, which will impact all disciplines and industries [1].

Financial services is an industry that has been greatly influenced by technology over the years, with vast advances achieved in the depth and breadth of the services offered, as well as in the efficiency and convenience attained. In particular, technology has enabled important developments in supply chain finance, which were needed to handle the complexity of its multi-stakeholder, cross-border nature, amongst others characteristics.

Technology is central to establishing a successful supply chain finance program. Any funder considering launching a supply chain finance business typically has the following two options:

  • Develop an internal platform, or
  • Contract an independent platform. This can be done through (i) licensing the technology; (ii) outsourcing to a third-party platform; or (iii) participating in a marketplace as one of multiple funders.

Developing a powerful platform can be a cumbersome and arduous task that requires a substantial financial investment, causing that many funders opt to use a third-party platform instead. In some cases, funders combine both options and decide to build their own system for handling accounts payable-based programs, also known as Reverse Factoring or Supply Chain Financing, which are easier to process, leaving the more complex receivables-based programs including Distribution Financing and Securitization to be processed by specialized independent platforms.

According to the IFC (part of the World Bank), when selecting the technology for a supply chain finance platform, the three following factors need to be considered [2] :

Key FeaturesSpeed of transactional flowIntuitive interfaceAbility to scale up transactional volume
Data collection from physical supply chain flowsStructured workflow, easy accessibility by all partiesEfficient problem solving with integration and operationalization
Reporting functionalityFlexible connectivity to various core systemsAbility to extend offering to more than one product
Integration with the core banking system
Success factors for an effective supply chain finance technology solution

In the case of advanced receivables-based programs such as Distribution Financing, additional aspects become essential for the technology to cover:

  • Flexibility to adjust program structure and processing to the seller’s requirements, as opposed to standardized, off-the-shelf solutions that are usually less suitable for companies.
  • Credit risk management features for monitoring the obligors in the program in real time, including credit-sensitive processes and analytical tools.
  • Handling of credit insurance, when applicable. This includes the integration and management of the conditions in the insurance policies, as well as establishing connections with the insurers´ systems.

In addition to the technical aspects that a servicing platform might offer, it is also very important to consider its experience, track-record and financial stability. Over the years, there has been a number of independent supply chain finance platforms appearing and quickly disappearing mainly driven by venture-capital firms entering the market with an unclear understanding of the length and investment needed to develop and maintain an innovative platform.

Lastly, there is an important aspect that all technology platforms should carefully ensure, which is security. Elements such as privacy and safe manipulation and storage of data should be covered at all times.  

Companies engaging in Supply Chain Finance, particularly in Distribution Financing, tend to have a strong say in the selection of the technology platform, as having the right servicing of the program is fundamental to its long-lasting success. At times, it happens that the seller sponsoring a Distribution Financing program chooses first the program-servicer and afterwards the funder.

Global Supply Chain Finance Ltd. (GSCF) is the leading servicing platform in the market, with almost 30 years of successful experience in processing receivables and payables based financing programs worldwide. With its state of the art technology and structuring expertise, GSCF ensures that the servicing is fully tailored to each program´s processing requirements regardless of its complexity and yields benefits for all involved counterparts.

[1] The Fourth Industrial Revolution, Professor Klaus Schwab, World Economic Forum, 2017

[2] Technology-Enabled Supply Chain Finance for Small and Medium Enterprises is a Major Growth Opportunity for Banks. IFC (World Bank), 2017