Insight & Analysis

Supplier-centric SCF

Published: Feb 2017

Implementing a supply chain finance programme has enabled Russia’s X5 Retail Group to better support its suppliers and streamline its own internal processes. Here, Tanya Kuznetsova, Head of Banking Products at X5 tells their story.

Like many companies, Russia’s largest retailer, X5 Retail Group, strives to improve its working capital metrics. To do this, X5 has typically deferred payments to its suppliers in order to optimise its accounts payables (AP) process. However, with a considerable amount of the company’s AP being financed by its suppliers through various factoring arrangements, Tanya Kuznetsova, Head of Banking Products at X5 Retail Group realised that these suppliers were seeking cash earlier than X5 were offering.

X5 and its suppliers were also blighted by a number of disputes arising from the factoring companies investigating whether certain shipments were made or not. This wasted significant time and resource, notes Kuznetsova and caught the attention of the top management and stockholders.

“Treasury was tasked with mitigating the risks posed by these factoring operations,” explains Kuznetsova. “We, therefore, sought a supply chain finance solution that would help control these operations and allow for the continuous and smooth financing of our suppliers.”

Ease of use

X5 decided to use Edisoft’s FactorPlat platform which is based on electronic data interchange (EDI) technology. Kuznetsova explains that the fully automated platform links to the company’s ERP system and automatically takes documents from this, analyses these and highlights any mistakes, facilitates the matching and legal confirmation of the transfer of receivables, and then returns the results of this process to the ERP.

“The platform also receives information about all buyer’s payments under the contracts of the connected suppliers and has functions for automatic reconciliation of payments with the assigned receivables available for the related factor, the supplier and the buyer,” adds Kuznetsova.

“Before this solution was in place, X5 used to receive a general notification that the rights under the contract were transferred and we had trouble identifying exactly which shipments were involved,” explains Kuznetsova. “Through digitising the workflow, we now have complete control and visibility over our AP process.”

Multiple choice

Aside from helping X5, it was key that the solution also benefited its suppliers; most notably ensuring that they had the ability to be flexible when selecting their financing partners.

“We didn’t want to force our suppliers to use certain providers because some have good relationships with their banks, utilising credit lines for their projects, using other banking products and using factoring for working capital financing,” says Kuznetsova. “Others would tell us that they would like competition among factoring companies so they can easily switch between them, seeking to achieve the best rates.”

X5 has therefore connected the solution to 23 banks and factoring companies in Russia. It is this aspect of the project that Kuznetsova is most proud of. “Customising our solution to meet the methodology of 23 factoring companies and banks demanded a lot of involvement from my team and me,” she says. “Ultimately, I think we have created a true win-win solution for ourselves, our suppliers and the factors.

Wide-ranging benefits

Aside from this, the work done by Kuznetsova and her team has brought other benefits, including:

  • Emphasis on shifting from paper to electronic formats.
  • Increased transparency of operations.
  • Implementation of sophisticated control procedures.
  • Improved verification and management of deals.
  • Increased visibility over the supply chains.
  • Ability to take faster business decisions and high productivity.
  • Optimisations of the processes associated with the supply chain EDI workflow.

Taking it further

After facing some initial difficulties, familiarising its suppliers with the new platform and helping them adapt their processes, Kuznetsova comments that the large majority of X5’s suppliers who use factoring are now using the solution and are very happy with the results.

Interestingly X5’s approach to supplier onboarding has been different when compared to most SCF programmes, in that they started with their smaller suppliers. This was deliberate, says Kuznetsova because these were the companies in most need of financing. “We are now working to onboard our larger suppliers,” says adds. “We are also investigating the possibility of implementing other platform-based SCF solutions.”

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