Supply chain financing

3 THINGS THAT CFO’s CAN DO TO IMPROVE SUPPLY CHAIN FINANCING

Companies might lose a lot of money if their supply chains are disrupted or have issues. CFOs are responsible for controlling their company’s finances and, in many cases, data analytics, as well as managing the supply chain, recognizing and mitigating risks to maintain stability and long-term commercial value.

Every CFO’s function these days must be that of a financial consciousness and serving as a crucial business partner to executives, assisting them in understanding the ramifications of capital investment and return on investment. That is not any different in the supply chain. As online purchasing continues to develop, companies must continue to invest heavily in modernizing and automating distribution operations.

Any CFO who is serious about getting there will recognize the difficulties: barriers between functions must be broken down, and communication must improve, with feedback provided faster and more precisely to support strategic decisions with genuine accuracy.

Any company that can do this, will reap the rewards, which range from improved client experiences to more efficient cash management and long-term growth. The inextricable link between shareholder value and supply chain performance suggests that the CFO will play an increasingly important role in supply chain leadership, optimization, and management.

This shifts the CFO’s role from traditional financial data reporting and cost control to a more active role in planning and strategy. In a complex and interconnected global supply chain with unforeseen risks like the current worldwide pandemic, the CFO must also study geopolitical risk factors and their impact on the supply chain, and take action to prepare for both the short-term and long-term effects of extreme situations.

What Is Supply Chain Financing?

Supply chain finance refers to a range of solutions that improve a supply chain’s cash flow. Its purpose is to allow businesses to prolong payment terms and give solutions for buyer accounts payable and bill discounting. When compared to supply chain financing solutions that improve working capital, typical supply chain programs are different. Both the provider and the customer benefit from a well-constructed supply chain. Furthermore, Supply Chain Finance is a network structure in which buyers, suppliers, and NBFCs collaborate to improve cash flow. The supply chain eliminates unnecessary delays and streamlines operations by tying invoices to the purchase process.

The usefulness of Supply chain financing

It offers a cost-effective financial solution that streamlines the payment procedure. It allows suppliers to request early payment on authorized invoices before the due date. By paying a finance fee, a supplier can receive early payment from the lender, and the borrower repays the lender on the due date. The importance of supply chain finance in the supply chain management cycle is that it optimizes cash flow at favorable interest rates. It also allows for early payment, bill reduction, and bettering the connection with suppliers by using the buyer’s excellent credit rating.

Cash flow, growth, and, ultimately, shareholder value are all influenced by supply chain management. The supply chain has traditionally been viewed as a tactical instrument used largely for procurement and transportation, to attain the best-delivered price for acquired items and raw materials, as well as client shipments. The influence of the supply chain, as the largest internal value creation instrument, on earnings begs a question.

With supply chains becoming more scrutinized, changing them into tools for better finance is a masterpiece that broadens their scope and digitalizes them. Even the largest companies lack digital awareness, clarity in the complexity it entails, and discipline in examining the entire supply chain. Here are three ways CFOs can take to improve supply chain financing, especially when faced with unforeseen risks.

  1. Maximize collaboration with suppliers:

The actual value creation potential becomes obvious when supply chain leaders interact more intimately with finance executives, sales, marketing, operations, and the network of suppliers, and leaders are better equipped to create end-to-end integration.

  1. Analytics and insights based decision making:

This strategic strategy also fully utilizes the digital supply chain. The CFO may increase visibility and gain deeper insights, resulting in increased economic value and performance, as well as more cash for all stakeholders in an end-to-end network.

As an overwhelming number of data drives deeper insights, performance improvements, and smarter decisions, digitally enabled supply chains must be supported, ratcheting up the organization’s economic value creation. To address cross-functional difficulties, the C-suite must commit to investing in the correct technology, creating a strategic role for value generation, and pulling the CFO out of the shadows.

  1. Manage Expenditure through digitized solutions:

This approach supports supply chain-driven economic value growth by focusing on cost, cash, and growth drivers both internally and externally, as well as cross-functional integration.

Finance becomes the engine room for analytics in the organization as a result of digital transformation, giving vital empirical proof for the board’s strategic decisions. As a result of the requirement for qualitative data, CFOs will find themselves developing more effective methods to read and understand data, as the budget will be used more efficiently to provide advantages and insights. Finance may therefore provide more personalized analysis to stakeholders, allowing them to become more involved as a result of these insights. CFOs must now be able to question the business’s underlying beliefs and achieve long-term development through digital transformation.

A good example is the CFO of a manufacturing company who used the supply chain to boost shareholder value. The CFO as a catalyst to reverse disappointing cash flow and economic profits by driving down working capital, as well as a lever for improving cash flow, taking a specific amount out of working capital, and dramatically increasing economic profit while providing significant benefits to suppliers and customers every year used the supply chain.

  The CFO’s office usually operates in virtual isolation. The most effective CFOs no longer work in isolation; they collaborate with other C-level executives to create new measures that go beyond typical reporting and quantitative KPIs, such as how the company is penetrating the market, serving customers, and achieving strategic goals. Data analytics and the appropriate KPIs are both an art and a science, and the CFO uses them not only to demonstrate the bottom line but also to shed light on shareholder value generation and performance outside of the financial realm.

 Combining the capabilities of end-to-end supply chain executives with the C-suite can be a tremendous instrument for increasing economic value. To accomplish such results, the CFO must collaborate across supply chains from beginning to end to establish genuine integration. Working with the supply chain internally and externally, paying attention to system dynamics, and building a data-driven basis, maximizes the upside and reduces the negative of the business cycle, resulting in a supply chain that is both reliable and flexible. CFOs must be bold in their approach to using the supply chain to produce value and economic return.

This critical function is more necessary than ever before, and best practices begin with increased visibility and a better awareness of the identification of risk to stabilize, recover, and rebalance the supply chain. It’s impossible to improve something you can’t see, and the digital supply chain’s complex network of suppliers and customers necessitates a cross-functional team approach to ensure that the right product, in the required quantity and condition, arrives at the right place on time, for the right customer at the perfect price. Linking decisions to every aspect of the organization and the supplier ecosystem, then controlling those decisions to drive new levels of performance and better customer satisfaction is a result of the smart actions of the CFOs.