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How supply chain financing advancements can fortify small to mid-sized companies

While there have been considerable improvements since the massive global supply chain meltdown stemming from the pandemic — the aftershocks continue and analysts across industries expect disruptions in supply chain operations to continue for the foreseeable future. This adds pressure on companies of all sizes that are trying to simultaneously shore up their financial operations and create resilience to withstand supply chain hold-ups and fluctuations.

For small to mid-sized companies, it can be much harder to prevent and ride out supply chain issues compared to larger companies with broader, deeper financial resources and the ability to self-finance their supply chains.

Common supply chain challenges for small to mid-sized companies include:

  • Low credit rating/limited access to financing
  • Unpredictable cash flow patterns
  • Pressures from suppliers
  • Concerns about managing financial risk

Key steps in shoring up supply chain resilience

Developing and implementing strategies and practices that help your supply chain withstand disruptions and challenges is key to fortifying supply chain resilience. Here are some important steps in that process:

  • Assess and map risks – Identify potential risks and vulnerabilities within your supply chain by creating a visual map to visualize dependencies and potential points of failure in the chain. Conduct a thorough risk assessment to realistically consider the impact of various disruptions, such as natural disasters, geopolitical events or supplier failures.
  • Create diversification and redundancy – Diversifying your supplier base and sourcing from multiple regions helps reduce the risk of supply chain disruptions. — A broader foundation is a more stable foundation. Establishing backup suppliers for critical components or materials introduces redundancy to ensure continuity in case of supplier issues.
  • Form collaborative supplier relationships – Close collaboration with all your suppliers is a great way to build strong relationships across your supply chain. Sharing helpful information, aligning on risk mitigation strategies and jointly developing contingency plans are all examples of ways to collaborate. Overall, clear and ongoing communication can help anticipate, avert and skillfully address disruptions.

The new supply chain finance (SCF) landscape

In ways like never before, supply chain financing can offer a both a lifeline and a competitive advantage for small to mid-sized enterprises looking to fortify their financial operations and establish a solid foundation for growth into the future.

Briefly defined, supply chain finance introduces a third-party to pay a buyer’s supplier invoices in exchange for a fee. The supplier gets faster access to cash while the buyer pays the bill in a timely manner and both entities optimize working capital.

Driven by technological advancements, shifting market dynamics and regulatory changes, the SCF landscape has been rapidly evolving in ways that are improving accessibility for small to mid-sized companies and presenting opportunities to level the playing field with their larger counterparts.

Some of the factors driving SCF advancements include:

  • Cutting-edge technology innovations and automation Artificial intelligence, automation and digitization are streamlining supply chain financing processes, making them smarter, more efficient and accessible to smaller businesses.
  • New financing models and approaches Innovative financing models, such as dynamic discounting, partnering with external solutions providers who can reach 100% of suppliers, and blockchain-based innovations are offering alternative avenues for small to mid-sized businesses to optimize their supply chain finance strategies and gain competitive advantage.
  • Regulatory and market changes Regulatory developments and shifts in market dynamics are influencing the way supply chain finance is structured and reported. Staying informed about these changes is essential for small and businesses seeking to advance their capabilities and shore up sustainability.

With these advancements, SCF has emerged as a powerful tool for small and mid-sized businesses to improve their position moving forward.

Leveraging SCF to move ahead

Here are five advantages small and mid-sized companies can gain through a next-gen supply chain finance solution:

1. Improved cash flow
Supply chain finance helps smaller businesses manage their cash flow more effectively by optimizing payment terms and providing suppliers with access to early and other payment options. This opens up availability of funds needed for operational expenses, growth initiatives and unforeseen challenges.

2. Enhanced supplier relationships
A strong SCF arrangement promotes collaboration and trust between buyers and suppliers. The assurance of timely payments strengthens those relationships, leading to more favorable terms, better service and increased loyalty from suppliers — all of which improve overall business.

3. Less financial risk
Volatile cash flow patterns can expose businesses to financial risks. SCF mitigates these risks by offering a structured approach to managing payments and funding, minimizing the impact of unforeseen disruptions.

4. Access to working capital
Leveraging the latest technology and servicing advancements, SCF provides a practical avenue to enhance liquidity — enabling suppliers to convert invoices into cash earlier than the original payment terms.
From the buyer’s perspective, SCF can enable the extension of days payable outstanding (DPO) without putting undue financial pressure on its suppliers.

5. Improved credit rating
Timely payments to suppliers through SCF can positively impact the credit rating of all enterprises, enhancing their creditworthiness and access to future financing options.

Partnership is key

Forging a strong relationship with a supply chain finance partner who understands your industry and business model can be a critical factor in the success of your strategy. SCF solutions experts who bring a collaborative approach, a depth of expertise and advanced technological capability will be more likely to deliver and integrate tailored solutions that fuel your success. Leveraging the credit rating of an SCF partner can also inject a lower cost of financing into your supply chain.

As this article from the Harvard Business Review underscores, “Small and mid-size companies are essential to American supply chains. …Better access to financing can help ‘lubricate’ supply chains…and support investments in new technology.”

About Conduent Finance, Accounting and Procurement Solutions

Conduent helps clients across industries transform finance, accounting and procurement processes by automating and streamlining mission-critical operations powered by the latest intelligent technologies — reducing costs, driving efficiencies, optimizing working capital and improving quality and end-user experiences. We blend the right mix of human talent, automation, analytical insights and process oversight to prepare our clients for the future, making us a trusted asset to CFOs.

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