Are you ready for the new wave of innovation in supply chain finance?

Supply chain finance is an increasingly important element of modern trade as corporate banks take bigger strides towards digitization

Blog, November 19, 2024

Helen Orton – Product Director • Product Management

As I highlighted in my previous blog, corporate banking is a major growth area for financial institutions today, with the corporate loan market valued at over US$5trn¹ and the global trade finance market at US$9trn.²

Although this segment has historically been slow to digitize its operations compared to its peers, this is changing as clients and employees seek to benefit from the efficiencies and cost savings newer technologies are bringing to the wider banking market.

As delegates heard from us at Sibos 2024 in Beijing, supply chain finance has become a key area of focus as part of this modernization. We define supply chain finance as the optimization of working capital and liquidity across processes and transactions. Importantly, supply chain finance can be buyer led, with techniques such as approved payables finance and reverse factoring, or supplier led, leveraging receivables discounting, factoring and forfaiting.

During our Sibos session at the Exhibitor Stage, we explained why supply chain finance has become a vital tool for businesses to manage their cash flow, maintain liquidity, and safeguard business continuity as they navigate a range of disruptions and financial pressures.

For those of you who missed the event, here’s our summary of the trends fueling supply chain finance:

• An SME funding gap of £22bn³ has created the need for alternative financing methods. By optimizing cash flow and maximizing working capital, businesses, particularly SMEs, will be better able to manage their finances and apply for a loan if necessary.

• Economic instability and geopolitical risk have increased banks’ funding costs by 15%, making it more difficult for businesses to secure financing. Such tensions have also exposed vulnerabilities in supply chains, highlighting the importance of supply chain sustainability and resilience.⁴

• Increased regulatory scrutiny in data privacy, AML and KYC standards have pushed banks to invest in automated supply chain finance solutions that support these areas of compliance.

• With sustainability now a core objective within most businesses, companies are being encouraged to work more closely with their suppliers to strengthen these relationships and increase supply chain resilience. The EU’s Corporate Sustainability Reporting Directive also brings ESG issues across supply chains into focus.⁵ Some supply chain finance solutions now include ESG data integration, enabling companies to track and improve sustainability metrics.

• The ongoing shift to digitization: A survey this year showed that 70% of executives plan to “digitally transform their supply chains”, providing further impetus for banks to offer their corporate clients the capabilities to optimize the financial aspects of their supply chain activities.⁶

How is technology transforming supply chain finance?

Supply chain finance isn’t new; however, it is undergoing a resurgence. Technological advancements in areas such as digital platforms, AI and advanced data analytics are paving the way for more efficient and transparent solutions.

With the emergence of cloud-based platforms, buyers, suppliers, and financial institutions can collaborate in real time and perform multiple tasks through a shared platform, with two such examples being invoice onboarding and requests for funding. The visibility such platforms provide also makes it easier to track goods and view the various stages of financing.

Additionally, AI is being used to rapidly analyze historical as well as real-time and external data to assess counterparty creditworthiness, which is crucial for making sure that financing activities are viable. Not only does this reduce the amount of time spent on these assessments, but decisions are ultimately based on comprehensive insights that can be used to tailor financing based on company risk profiles.

Advanced data analytics are also making it easier to find patterns in payment cycles and demand trends, enabling companies to make better informed decisions about their inventory, who they trade with, and when it might be appropriate to leverage supply chain financing.

Meanwhile automation, increasingly powered by AI, has revolutionized repetitive tasks such as invoice processing, disbursement approvals, and compliance checks. Again, this is reducing the cost of performing these tasks as well as the risk of human error. Enterprise resource planning systems have been instrumental in the integration of supply chain operations and data, serving as a single source of truth, streamlining workflows, and facilitating reporting and analytics. Interoperability is crucial because it allows different systems to work together.

All these technologies and more are changing the game for supply chain finance, helping companies to grow with improved access to capital, cash flow and inventory management, as well as stronger supply chain relationships and processes. As noted above, they also represent a significant step in corporate banking’s modernization, with this segment increasingly leveraging technology solutions like supply chain finance to meet the complex needs of this client base.

We’re at the forefront of these trends and have been investing in our supply chain finance solution to unlock liquidity, cheaper financing, and stability for suppliers; create stronger supplier relationships and increase supply chain resilience for buyers; and enable lower-risk financing and additional revenue for financial institutions.

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