Trade & Supply Chain

All aboard?

Published: Mar 2019


A smooth supplier onboarding process can play an important part in determining the success of a supply chain finance programme. Where are the possible pitfalls, how can these be avoided – and how do companies decide which suppliers to include in the first place?

Supply chain finance (SCF) has become an increasingly mainstream solution in recent years, with companies around the world adopting this approach to accelerate supplier payments – often while extending payment terms to improve their own days payables outstanding (DPO). Supply chain finance can also be leveraged to improve supply chain resilience, while boosting key supplier relationships.

But merely putting a supply chain finance programme in place is no guarantee of success. In practice, not all programmes deliver the desired benefits: while 56% of respondents to PwC’s 2017 SCF Barometer said their SCF programmes were a success, 38% said their programmes were only partly successful, with the remaining 6% reported to be unsuccessful.

The targeted approach

While many different factors can determine the success – or otherwise – of a programme, one of the most important is the supplier onboarding process. Half of the respondents to the PwC paper cited the onboarding process as a key success factor, while 31% identified it as a bottleneck.

Not all companies are alike when it comes to including suppliers in SCF programmes. Even before onboarding has begun, many companies choose to focus their attention on a specific group of suppliers. Less than a third (31%) of the programmes surveyed by PwC were open to all suppliers, with almost half (48%) including no more than 25 suppliers.

Peter Jameson, head of Asia Pacific Trade and Supply Chain Finance, Global Transaction Services, Bank of America Merrill Lynch (BofAML), argues that if a programme is to be successful, “it is important for buyers to focus on specific groups of suppliers where the programme can be maximised, for both the buyer and the supplier.”

For example, he says that it is more productive to onboard large suppliers which account for a larger percentage of the total supplier spend, “which in turn will generate the greatest working capital benefit if DPO for these suppliers can be extended.” In comparison, he says that smaller suppliers will each generate a much smaller spend amount, so the marginal benefits of onboarding them would be lower. He also notes that for the smaller spend amount, “those suppliers may not derive significant benefit, hence the motivation may not be there for them to join a programme.”

Shruti Gupta, Strategic Solutions Manager at Kyriba, likewise says there are several reasons why a corporate buyer might focus their SCF programme on a specific group of suppliers, such as:

  • Payment terms below external benchmarks. For example, buyers might focus on suppliers which have payment terms below external benchmarks – “even though, on average, the buyer’s payment terms may be longer than their competitors,” Gupta says. This could include suppliers which have payment terms below average for the goods or services they provide, or for the country in which they are supplying the buyer.
  • Payment terms below internal benchmarks. Likewise, Gupta says buyers may wish to onboard suppliers which have payment terms below internal benchmarks, in a practice known as payment term harmonisation. “In companies where Procurement is decentralised, or where the buyer has centralised Procurement within the last couple of years, we usually find the same supplier providing the same material with different payment terms in different regions or for different business units,” she says. “Naturally the buyer wants to move that type of supplier to the longer payment term.”
  • Particular need of SCF. Gupta says companies may focus on suppliers which are in particular need of supply chain finance – such as those with a higher cost of funding, or those which are located in countries where access to liquidity is challenging.

Other criteria might include wishing to incentivise behaviour among specific groups of suppliers, or focusing on suppliers with which the buyer has long-term relationships.

BofAML’s Jameson points out that negotiating power can also be a factor when deciding which suppliers to focus on. He says that when the buyer has less negotiating power to extend payment terms, “these suppliers may be too difficult to onboard” – and that buyers may wish to prioritise based on when supplier contracts are coming up for renegotiation. He also notes that suppliers which have a similar or better cost of borrowing than the buyer “may be able to source bank funding themselves at a lower rate.”

The few or the many?

Many companies do choose to offer supply chain finance to specific groups of suppliers – an approach which Gupta says can bring “greater efficiency in achieving supply chain finance objectives more quickly and with less resources.” However, she notes that this also brings certain disadvantages: by focusing on certain suppliers, “the buyer is reducing the cost reduction and cash flow gain for the supply chain as a whole.”

She also warns that if the programme design effort and supporting analytics are not comprehensive, the buyer “is more likely to unknowingly exclude segments of the supply base where supply chain finance would be highly valuable for both the buyer and suppliers.”

Bob Glotfelty, VP, Customer Success at Taulia, argues that by onboarding more suppliers, buyers can create more value from their supply chain finance programmes. “The suppliers that aren’t onboarded are typically the smaller ones – and in many cases, those can be the ones who get the most value out of the programme, because they may not have access to good financing rates,” he says. “These suppliers may receive the most benefit from a supply chain finance solution, but since they don’t generate enough revenue for some supply chain finance providers, they get left behind.”

Taulia’s approach is therefore to onboard every supplier. “We are able to do that because our processes are really streamlined – it takes 90 seconds to sign up and it’s completely automated,” says Glotfelty. “So if we are working with a company that has 10,000 suppliers, as soon as the programme goes live we make it available to all of them – not just the top 25 or 50.”

Demica, likewise, recommends a more inclusive approach to supplier onboarding. “Our advice is not to go only for the top suppliers – while this is where most of the business is concentrated, there is also a significant amount of business that you can generate in the so-called long tail of suppliers,” says Enrique Jimenez, Demica’s Head of Supply Chain Finance.

Supplier onboarding: the pain points

Whatever the buyer’s chosen approach, onboarding suppliers smoothly is a key priority. Kyriba’s Gupta points out that there are two components to the onboarding process: firstly convincing a supplier to participate in the programme, and secondly enabling them to receive early payment through the platform by completing the required documentation and training. In both of these steps, certain pitfalls will need to be avoided:

  1. Marketing phase

Where the marketing phase is concerned, Gupta says that using the same messaging for a small, private supplier and for a large, public company, investment grade supplier “will not be effective”. Likewise, suppliers based in different countries may need different messaging.

BofAML’s Jameson agrees that effective marketing is an important aspect of the onboarding process. “It will be key to press the benefits of the programme with suppliers,” he says. Consequently, he says, it is important to have dedicated resources – either within the buyer’s organisation or provided by the SCF provider – “to continually market the concept to suppliers and get them onboard.”

And for companies focusing on specific groups of suppliers, Jameson points out that selecting the wrong suppliers – “either because of their size, risk rating, or lack of negotiating power around payment terms” – can hinder the success of the programme, ultimately resulting in a lack of uptake.

  1. Joining the programme

Also important is the process involved in joining the relevant platform. “If suppliers find the onboarding process onerous, they are less likely to see it through,” warns Jameson.

The process can be onerous for different reasons. Where a multi-funder platform is concerned, Gupta notes that one issue may be the lack of banks to meet the needs of some supplier segments. “The SCF funding bank (or lead bank in a syndication) may not be the most effective funder in a particular region or currency,” she says. “Further, they may not want to fund certain types of suppliers.”

Fulfilling KYC requirements can also hinder the onboarding process, although specific requirements may vary between banks. “Some banks, which are more used to supply chain finance, do not ask for too much information from suppliers in the KYC process,” says Demica’s Jimenez. “But others – whether they are more conservative or less used to supply chain finance – ask for a level of detail comparable to the information they seek from their own clients.” That said, Jimenez says that where supply chain finance is concerned, KYC processes are becoming lighter as time passes, making it easier for suppliers to sign up.

Including smaller suppliers

External factors may play a part in widening the net of supply chain finance. Glotfelty highlights a number of developments that may prompt more companies to include smaller suppliers in their programmes, such as the UK’s Prompt Payment Code and the SupplierPay initiative in the US. “A law was recently passed in Canada limiting construction terms to 28 days – so there are also government drives to discourage long payment terms, or offer ways for companies to get paid earlier, because of the importance to the economy,” he says.However, including smaller suppliers may necessitate certain changes. Andrew Jess, VP Fintech & Banking Alliances at Tradeshift, says that offering supply chain finance to broader sets of the supply chain “requires new lighter ways of onboarding, risk modelling and underwriting to support this scale. It also requires efficient accounts payable processes for the smaller, less frequent suppliers to ensure early payment can actually happen.”

What are SCF providers doing?

While there are many obstacles to navigate, there is much that supply chain finance providers can do to streamline the onboarding process.

Kyriba, for example, provides a range of working capital solutions services based around the four pillars of working capital analysis, customised programme design, procurement programme training and supplier onboarding. Where the latter is concerned, Gupta says Kyriba’s involvement includes follow ups, facilitating the KYC process, status tracking and helping buyers educate their suppliers about the programme. “All these steps take away the efforts and resources that otherwise buyers might have to put in place to execute and track the programme.”

Areas where SCF providers can make a difference include:

  • Achieving buy-in. SCF providers may be able to help buyers convince key stakeholders of the benefits of an SCF programme and thereby securing the necessary resources.
  • Helping buyers achieve buy-in. Taulia’s Glotfelty says that the company’s outreach and marketing teams support buyers in communicating suppliers in “around 95% of cases”. This includes aligning with customers about messaging and then executing email campaigns on the customer’s behalf. Likewise, Jameson says that BofAML supports buyers in their marketing activities to suppliers, either through providing materials to help them do this, or providing resources through a dedicated supplier marketing team.
  • Onboarding tool. Demica has recently launched version 2.0 of its supplier onboarding tool, which aims to make the process as smooth as possible. The updated tool includes a fresh look and feel, the removal of unnecessary clicks and additional security measures within the supplier sign-up process. “The tool tracks the onboarding status of suppliers, with the front end interface giving the funder and the buyer a snapshot of how suppliers are progressing,” comments Gregg Jones, Demica’s Supplier Onboarding Manager. “It also captures different banks’ KYC requirements and prompts suppliers to upload the relevant information.”
  • User-friendly portal. Tradeshift’s Jesse warns of the issue of ‘portal fatigue’, noting the need for an attractive, easy-to-use single access place for suppliers to register, send invoices and view the status of payments all in one place.

Indeed, a user-friendly portal can go a long way towards facilitating the process for suppliers, both during the onboarding process and once they are up and running. “We provide a supplier portal where you can see all your invoices and choose to get a specific invoice paid, or a batch,” says Glotfelty. “Or you can choose every invoice going forward. It updates directly back into the ERP system, and the invoice is paid – everything is automated.”

As Demica’s Jimenez concludes, “The supplier onboarding process is the only real measure of a supply chain finance programme’s success. If you don’t get suppliers to discount invoices, you don’t have a programme – so it’s essential to have an easy and light onboarding process.”

Other obstacles to a successful programme

The onboarding process is not the only factor which determines the success of a supply chain finance programme. The PwC report also identified a number of key success factors for SCF programmes, including supplier appetite for cash or SCF – identified as a success factor by 69% of respondents – as well as business case (47%), commercial offering to suppliers (41%) and IT/technology (38%).

Experts agree that first and foremost, buyers need to define the goals of the programme at the outset and set out how success is to be measured. Kyriba’s Gupta notes that while onboarding suppliers is the primary objective of the SCF provider and/or the funding bank, for most buyers “the objective is to extend payment terms for some (or all) suppliers, which increases the buyer’s cash flow and generates capital for growth and other corporate initiatives.” Consequently, “the successful extension of supplier payment terms needs to be the first priority because without that, the buyer will not meet their SCF objectives.”

Breaking down silos

The success of a programme may also be hindered by other factors, such as the existence of internal silos. Taulia’s Glotfelty says that within the buyer organisation there are typically three different groups which may be involved with suppliers: “There is the accounts payable team, which is responsible for paying suppliers. There’s the procurement team, which buys from suppliers and sources new suppliers. And there’s treasury, which is responsible for the return on cash and meeting the company’s working capital goals.”

All three groups will have some degree of involvement with an early payment programme – so it’s important to ensure that the different groups are closely aligned in terms of shared goals and open communication. “If you have a treasury team that wants to adopt supply chain finance, but the team doesn’t collaborate with the other groups, things can get messy because everybody has a hand in managing the process with suppliers,” Glotfelty warns.

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