REVERSE FACTORING AND SUPPLY CHAIN FINANCE

Reverse Factoring: 5 Tips to Avoid Supply Chain Finance Foul Ups

Jason Busch

- March 11, 2016 1:26 PM |

Categories: Reverse Factoring, Supply Chain Finance | Tags: reverse factoring, Supply Chain Finance

Over on Spend Matters, I recently shared two reverse factoring case studies, courtesy of Kyriba’s Eric Riddle and Wells Fargo’s Stephen Elson, who presented at CFA’s Supply Chain Finance/Factoring World event in Miami, which took place last week. The panel absolutely nailed the key success factories in traditional reverse factoring programs. (Note: This refers to traditional SCF as opposed to some of the newer derivatives of it, such as what Taulia and Greensill are pursuing with what they call SCF+.) So how do you avoid supply chain finance foul ups? Read on.
Our five lessons learned from the session are:

1. Having CEO (and even board level) support from the start. As we note, one program was able to free up $75 million in working capital after launch “in large part because of executive alignment between the CFO and CPO and sponsorship and involvement by the CEO.”
2. Make sure your systems are up to the task — and that IT is not distracted during an ERP upgrade or swap in terms of getting at the data you’ll need. In the case of a program that came up short, the roll-out also “happened to coincide with an ERP system conversion, which complicated on-boarding and data requirements.”
3. Get deep, functional support and involvement from procurement as early as possible. The successful program saw “in the trenches support from the procurement and accounts payable team members who were actively involved in the program design.”
4. As part of having procurement involved in program architecture and design elements, make sure that the impact to the business of involving targeted suppliers is clear. This includes those suppliers and categories that are “in scope from the start.” If procurement is not involved, it will likely pick low-risk, low-reward categories.
5. Over-communicate with suppliers (and know what you want to say). There is an important danger of potentially getting signals crossed with suppliers, including giving suppliers a true “choice” in the matter, especially if new payment terms are separated from the reverse factoring program. Just about any supplier that is properly educated on a program involving a payment term extension and low APRs “even with a stronger balance sheet than the sponsoring buyer” will be enthused about programs. After all, cash is king!