During a recent ACT breakfast briefing, I was asked whether Brexit would have any effect on supply chain finance (SCF). My answer then, as it is now, is most likely not.
But, like many of us, I still do not have any real clarity as to what life after Brexit will look like and how the post-Brexit period will affect those banks that are currently primarily London-based. However, of potential concern is that any changes in customs clearances may cause delays that affect the buyer’s approval of the payables, with suppliers having to wait longer for their advanced payment.
Of more immediate concern is the view the banks will be taking following the collapse of Carillion, where more than one of them have purported losses in the millions from their respective SCF programmes.
The banks providing payables finance programmes take a view on the creditworthiness of their primary anchor client and, with no tangible security, many will be currently evaluating whether putting ever scarcer capital towards this product solution is the best use of their capital.
From the corporate treasurer perspective, the positives of having an established payables finance programme in place have resulted in better working capital management and increased support for key suppliers. However, the journey to establishing a payables finance programme can be a long, drawn-out process for both the major corporate and the bank or platform provider involved in the implementation of the programme.
Issues around supplier segmentation and selection persist, with many of the providers struggling to convert suppliers onto the programme in those geographical regions where they have limited operations.
In an era where banks are scaling back their global footprint and have reduced their level of correspondent banking relationships as a result of increased KYC and AML regulation, there does not seem to be an immediate solution to this challenge.
However, the potential of new technology and communication channels may in the future pave the way for the banks servicing the major corporates to work with regional or local banks to extend their on-boarding capabilities.
Over the years, the objectives of putting a payables finance programme in place have changed according to economic and political conditions. What began as a drive for working capital optimisation and supply chain cost reduction moved towards protecting key suppliers, following the global financial crisis.
Today, some payables finance programmes are being constructed to support sustainable procurement and corporate social responsibility activities.
It is incumbent on a corporate looking at investing time and resources in developing a payables programme, whether directly with the banks or by using a third-party platform, to be clear on what the aims and objectives of having such a programme are.
If, for example, to achieve their objectives requires suppliers in a specific geography to be on-boarded onto the programme, then knowing this will become an important part of a request for proposal process. Having such clarity at both a high, and then more detailed, level will provide for a much better discussion with the banks and suppliers keen to attract such business.
It is also important for the successful implementation of a payables programme to have all the internal stakeholders involved in the objectives, decision-making and implementation processes. Having worked with both banks and major corporates in establishing these programmes, there is nothing more frustrating than a delay occurring because of a dependency on an area of the business that was not previously involved.
To conclude, approved payables finance can be the ‘win-win’ solution for both the buyer and selected suppliers. Changes in technology, regulation and credit appetite will bring both opportunity and threat, as more providers will enter the market with solutions that compete and complement the current offerings provided by the banks and third parties.
This will only increase the challenge of putting in place a sustainable programme that already requires proper planning and partner selection by the major corporate buyer.
Lionel Taylor is founder and MD of consultancy Trade Advisory Network