Transforming the buyer-seller relationship for a troubled world

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upply chains have been in a fragile state since the start of the pandemic. The war in Ukraine adds a different dimension to the challenged environment within which global trade must operate. According to one recent report, more than 300,000 companies have already seen a significant impact on their supply chain, since war broke out. That number will continue to rise as the conflict continues and sanctions measures are in force.

With inflation already running at its highest levels in 30 years, businesses in virtually every sector are contending with rising costs. Resilience measures, which include maintaining higher inventory levels to cope with volatile demand cycles, will add to the squeeze on cash flow.

In a perfect world, buyers and suppliers would be working together to address their shared problems. Several factors prevent them from doing this, not least the primal instinct of self-preservation, compounded by the fact that in business, as in many aspects of life, cash remains king. So, when volatility emerges the first reaction among many large buyers is to keep hold of it for as long as possible.

As enterprises look to access the cash flow needed to ride out another difficult period, finance teams will be asked to look at all levers they can pull to do this, including delaying payments to suppliers. In the vast majority of cases, they will be forced to do so with very limited knowledge or insight into how such actions may harm their suppliers.

Even today, the relationship between buyers and suppliers is largely governed by the exchange of paper-based documents. Accounts payable teams spend the bulk of their time on low-value tasks, and almost no time on understanding the financial health of their supply chains. The lack of shareable real-time data also means that finance and procurement departments are often forced to operate in siloes. So when CFOs are tasked with looking at options to increase cash flow, they are often forced to base decisions on fragmented information.

The digital disconnect between buyers and suppliers also means that when a buyer decides to delay or extend payments, options to mitigate the impact on suppliers are severely limited. Lack of data means traditional supply chain finance options are largely off the table for anything other than a minute percentage of suppliers, who have the credit history and paperwork to whet funders’ appetite.

It’s also worth mentioning how regulators are trending in the direction of treating this style of finance as debt to a buyer. This could well cause large organisations to think twice about adopting this model in the future.

Using technology to digitally connect buyers and sellers can make supplier finance simple and readily available by overcoming many of the limitations of legacy forms of supplier finance. That’s because when buyers and sellers are connected digitally, they suddenly have access to a vast amount of data. With this data the supply chain and the relationships that bind it together become more transparent, making it easier to analyze the risks associated with funding transactions across the supply chain.

With a clearer view of risk, funders can inject liquidity into all supply chain transactions even before approval of an invoice, and at much lower rates than ever before. And they can do so without promissory notes, excess buyer liquidity, and all of the other slings and arrows of standard buyer facilitated early receivables payments programs.

Until recently, the idea of connecting digitally to 100% of suppliers was a pipe dream for most large organizations. Most enterprise software was simply not up to the job. Built on a hub and spoke model, every one-to-one connection was a project in and of itself, requiring weeks and even months of painstaking integration. It’s no wonder that even the most successful supplier onboarding initiatives tend to level out at around 20% adoption rates.

For finance teams the benefits of this network approach extend far beyond the provision of financing options across the supply chain. By establishing a digital thread spanning the entire supply chain ecosystems, teams open the door to a far more holistic view of trading relationships that mirrors the highly complex and interconnected nature of modern supply chains. This transparency enables decision makers to spot single points of failure and make informed choices quickly about how to manage them in real time.

With automation taking on the lion’s share of low-value and laborious processing tasks, teams actually have time to nurture the all-important human side of the relationship with suppliers, something which has long been overlooked as the volume of business relationships to manage has swelled.

It may be a curse to live in interesting times, but countless inventions were the product of a troubled, turbid world. Technology is by no means the be-all-end all solution that some would make it out to be. The real value technology brings are the visibility, options, and the time it affords us as human beings. All of these assets will be crucial when it comes to maintaining strong relationships during uncertain times.