Across the world, supply chain finance (SCF) has become more challenging with globalization, business expansion & enhanced compliance regulations. However, the recent technological advancements and digitization have helped this industry as customers carry out their transactions efficiently, creating a wider pool of opportunities and massively improving their working capital requirements.
The top technology trends that are currently emerging in this space are –
1) Using technology to switch to electronic format
The new-age technology platforms make the entire SCF process paperless, reducing the need for any manual intervention. These platforms process reams of data, analyze credit and payment history as well as relationships between the companies and their suppliers.
In short, technology automates the entire process of exchanging payments, relevant information, and documents among buyers, suppliers, and financial institutions. Thereby enhances the visibility of the overall process for all the parties involved.
2) Leveraging technology to keep abreast with clients and improve working capital
Technology helps create seamless systems that can enable the suppliers, buyers, and financiers to process information faster and communicate in real-time, giving an overall higher efficiency. As the digital platforms create a vast network of suppliers & buyers together, the buyers get more options to choose from, have a higher negotiation hand, and can avail more discounts.
The suppliers have better selling capability due to reduced payment cycles – in legacy systems, the payments were received in around 46-90 days; however, digital supply chain financing platforms reduced the period to around 30 days.
In times of pandemic, where small and large businesses are suffering from short working capital, the need of the hour is to create better liquidity and ensure the businesses having sufficient funds. Supply chain financing through electronic platforms can help fill in these gaps.
3) Using digitization to create a larger pool of suppliers and offering a wider array of financing options
With the help of digitization and collaboration, a wider and heterogeneous ecosystem is developed in which the stakeholders have better alternatives. Gone are the days when the supply chain financing was restricted to large factoring companies that would buy the various enterprise receivables at a lower rate to ease up the finances and increase the working capital. The latest trend in the area is all about expanded reach, with multiple players giving higher value and better financing alternatives. This has brought both the technology facilitators and the credit facilitators together.
The robust technology platforms ease communication, making the transfer of funds seamless and enabling both the buyer and supplier to manage and track things faster. It can also provide access to financing by engaging financial institutions such as Banks or NBFCs. Digitization and process automation transformed the legacy systems in which transactions took ages to complete.
4) Connecting to the trade networks for collaboration and competition
In the present time, no business or industry can function in silos, and there is an extensive need for collaboration and healthy competition. Supply chain financing has evolved massively in the digital era, with technology boosting the connectivity within the existing trade networks and bringing the new trade networks together.
The new technology platforms offer real-time visibility of the various activities, creating an overall efficient system showcasing every stakeholder’s status, be it credit line utilization, payment and financing history, etc. Corporates and financial institutions leverage easy access to all these required information, and trade flows quickly.
5) Facilitating supply chain finance relationships using Artificial intelligence
As per the Asian Development Bank (ADB), there is a trade finance gap of around $1.5 trillion globally, particularly due to the relatively high cost of assessing the creditworthiness of suppliers and meeting KYC and AML requirements. The application of AI has the potential to bridge this gap.
AI-enabled platforms have access to a huge volume of data about the behavior and financial health of all SCF participants. Advanced technologies like machine learning algorithms and AI can be applied to these data points to assess credit risk and predicting frauds and threats in real-time.
Such platforms provide factual data and accurate evaluations to the companies through which they can get the best financial proposal from the suppliers, thus aiding more prudent decision making.
Conclusion
As the global economy is currently undergoing turbulent times, supply chain financing becomes all the more important. By adopting the latest technologies and going digital, all the stakeholders (buyers, sellers, and financiers) can garner maximum benefits. It assures transparency, better liquidity, and a wider pool for both collaboration and competition. Supply chain financing can fill in the various gaps where the corporates lack finances and help the suppliers stay operational.
For more information regarding the latest supply chain finance solutions, please contact us at info@xpedize.com.