A new type of service business could transform global supply chains: fintech companies that act as intermediaries to facilitate transactions between a company and its suppliers. They allow the buyer and the supplier to improve their working capital by allowing the first to roll over its supplier debts and, at the same time, to accelerate the payment of the second. This offers both parties advantages, including greater liquidity and less variability in the timing of payments. Jason simon, an expert who has worked closely with all things FinTech and e-commerce, provides a detailed explanation of the rise of supply chains.
Multinational companies, such as Apple, Colgate, Dell, P&G, Kellogg and Siemens, are using these FinTech companies to leverage previously inaccessible capital in their supply chains to help finance growth in new and emerging markets. , develop and support new products, strengthen their positions and increase the capital available for the entire ecosystem of suppliers. The use of FinTech allows suppliers to access the financing of the capital of the multinational company at a lower cost.
FinTechs are internet companies that streamline financial systems and make supply chain finance more efficient. These are startups such as Orbiano, Prime Income, C2FO, Taulia and Ariba, as well as new operations launched by traditional financial services companies such as Citi Group, HSBC, BNP Paribas and Deutsche Bank.
Many FinTechs operate as cloud-based software platforms and can activate buy-to-pay systems that integrate both purchasing and accounts payable management functionality, Simon explains. They provide an integrated solution that supports a process that begins with a purchase requisition and ends with payment to suppliers. These integrated systems allow purchasing companies to significantly reduce the burden of managing these functions by closing the loop between purchasing and accounts payable and providing a structure that streamlines these processes.
For providers, joining the platforms can be almost as easy as adding an app to a smartphone. Once the supplier is integrated, the buying company approves the invoice and a cascade of processes takes place on the FinTech platform. The advantage for the supplier is that he can be paid when he chooses, a big advantage in a period when large manufacturers are extending payment terms. In some cases, payment can be sent to the supplier in as little as two days instead of the 60, 90, or even 120 days that the buyer often prefers.
The supplier offers the buying company a discount on the invoice amount at the lower cost of the buyer’s capital. For example, when a supplier chooses to receive payment on a $ 10,000 invoice in 15 days through FinTech and the buyer sends the payment to FinTech 90 days after approving the supplier’s invoice and the cost of capital of the buyer is 2%, the supplier’s rebate to FinTech is only $ 41. In other words, the supplier gets $ 9,959 of the $ 10,000,
The purchasing company benefits from an increase in accounts payable, which has a positive impact on its working capital. In many cases, companies such as Procter & Gamble and Kellogg have extended their accounts payable for up to 120 days through these supply chain finance relationships. This improved working capital can be used to finance growth in new markets.
FinTechs often play the role of intermediaries. Their relationships with a whole network of different banks or financial institutions allow them to obtain the best financing solutions for their clients. This is comparable to how third party logistics companies (3PLs) run transportation. Previously, a company had all its transports under contract with a single transport company. But a 3PL is able to choose a transport company in the same way as a broker.
Simon says: It is important to note that multi-bank FinTech platforms, which receive only a small fee for their services, have increased competition in supply chain finance to the point where profits from institutions providing the funding have been drastically reduced.
FinTech companies are likely to continue to evolve and add additional services. Some companies already provide supply chain services, such as purchasing and inventory management. In the future, some FinTech companies are likely to expand their reach beyond finance to supply chain services such as sourcing and supplier management.
Traditionally, supply chain management has focused on sourcing, manufacturing and delivery. Now it’s about funding,
About Jason Simon
Jason Simon is a FinTech and digital payments expert who got involved in cryptocurrencies when they were introduced. He enthusiastically follows what is happening in the changing world of finance, excited about the opportunities digital currencies offer global consumerism. When not involved in advancing the digital payments space, he enjoys spending time with his family and improving his community.
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