Introduction
Companies in the “FinTech” industry are helping multinationals like Apple, Dell, P&G, and Siemens access capital previously unavailable to them in their supply chains. It allows these companies to develop and support new products, finance growth in emerging markets, improve their financial positions, and increase the amount of capital available to the entire supplier ecosystem. Through the effective use of FinTechs, suppliers can gain access to funding at a lower cost of capital.
The term “fintech” describes online businesses that improve the efficiency of financial systems and supply chain funding. Orbian, Prime Revenue, C2FO, Taulia, and Ariba are among the new businesses in this category, alongside new ventures started by more established financial institutions including Bank Of America, Citi Group, HSBC, BNP Paribas, and Deutsche Bank.
Many financial technology companies offer cloud-based software platforms that can facilitate “procure-to-pay” systems that combine purchasing management with accounts payable features. The procedure starts with a purchase requisition and ends with payment to suppliers. They offer an integrated solution to handle this entire process. Closing the loop between accounts payable and procurement, these integrated systems offer a framework that simplifies these procedures, allowing purchasing organizations to substantially lessen the load of administering them. Suppliers may find that connecting to the platforms is just as simple as installing an app on their smartphone.
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What Exactly Is Supply Chain Finance?
Supply chain finance is an umbrella term for a suite of products and services designed to streamline the flow of funds throughout a company’s supply chain. Invoice factoring, purchase order financing, and inventory financing are some of the many components that make it up. By providing on-demand access to working capital, these solutions help businesses improve their cash flow management.
Nevertheless, financing the supply chain may be an intricate and expensive process. The standard method involves a plethora of fee-charging intermediaries, notably financial institutions, insurance companies, and factoring businesses. A long and expensive process with little room for maneuver may arise from this.
A series of events transpire on the FinTech platform once the supplier is on board and the purchasing company accepts the invoice. The supplier benefits because it may choose when it wants to get paid, which is especially helpful right now since major manufacturers are broadening payment terms. The purchasing company frequently prefers 60, 90, or even 120 days to send payment to the supplier, but in exceptional instances, it can be issued as quickly as two days.
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Top 8 Supply Chain Finance Companies
Top 5 Supply Chain Finance Banks
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Which companies use AI in the Supply Chain?
- Siemens
- Dataiku
- SAS Machine Learning
- Databricks
- OCI AI Services (Oracle)
- SAP Integrated Business Planning (IBP)
- Coupa
- Epicor
- Echo Global Logistics
- Infor
- Covariant
- Zebra Technologies
- HAVI
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Trends: Supply Chain Finance (Country-wise)
There is enormous potential for expansion in the global supply chain financing business, which is now valued at about $275 billion. According to the OECD, yearly trade volume has the potential to reach 1.3 trillion euros in the next years, with 600 billion euros coming from Europe alone.
Yet there is a wide range in size, scope, activity, and receptivity to new ideas across the supply chain financial markets. The North American market is highly developed and forward-thinking, which has fostered the emergence of multi-billion dollar Fintech companies. Fintech in the United States is booming, especially in the supply chain financing industry.
Much more so than in the United States, Europe is marked by severe competition among several medium-sized banks engaged in supply chain financing. Providing working capital to more than 10 million customers globally and early payments to their suppliers situated in 175 different countries, the English business Greensill (3.2 billion) is the European leader in the fintech supply chain market. Smaller but rapidly expanding companies like Germany’s SAP Ariba compete with Greensil in the European Union’s fintech supply chain industry. Opportunities may still be discovered in the ever-changing industry, thanks to new techniques like account receivables sales from North America and dynamic discounting, even though competition is stiff.
Due to the continent’s extreme heterogeneity and lack of regional integration, the South American supply chain market is in its early stages and cannot expand at a quick pace. Nevertheless, prominent international conglomerates with a presence on the continent, such as Pfizer, Coca-Cola, and Ford, are investing in its development, recognizing its enormous potential. All of these businesses have strong relationships with regional vendors and are always looking for ways to improve the efficiency of their supply chains. These businesses value supply chain fintech solutions more since they require trustworthy and fast supplier transactions. As a result, these businesses have laid the groundwork for what could potentially be the South American Fintech market.
Supply Chain Finance has concentrated its efforts in the Asia-Pacific region, which, not coincidentally, also saw the greatest expansion of Fintech supply chain services. Many large multinational companies began to rely on Asian suppliers for a wide range of components and semi-finished goods, which led to the region’s emergence as “the factory of the world.”
In addition, the CCP’s antitrust actions are likely to heighten competition among Chinese giant FinTech enterprises engaged in this industry. For Japan’s tiny but nimble fintech sector, this uncertainty can spell opportunity.
How Fintechs Are Revolutionizing the Supply Chain Finance Landscape
Global economies depend heavily on the supply chain. It encompasses the whole process of moving products or services from their point of origin to their final destination. For organizations to run smoothly, efficient financing of the supply chain is essential. The many participants in the supply chain make supplying it a complex and expensive ordeal. Fintech comes into play here.
Supply chain finance is going through a transformation due to fintech. Businesses are finding it easier and more cost-effective to manage their supply chains with the help of fintech companies, who are embracing digital technology to streamline payments and working capital management. Reduced reliance on intermediaries is a key component of fintech’s efforts to simplify supply chain finance. Fintech companies are utilizing blockchain technology to create a decentralized network that directly links buyers, providers, and financiers. The eradication of middlemen like banks has increased transparency while decreasing transaction costs.
Fintech is enhancing supply chain finance in several ways, one of which is by providing real-time payment options. Traditionally, supply chain payments have taken weeks or months to process, leading to costly delays. In contrast, fintech companies are enhancing cash flow and decreasing risk by providing real-time payment systems that enable buyers to pay suppliers instantly.
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How Has Supply Chain Finance Changed Over the Years?
At first, the supply chain was considered a singular strategy, a way for large corporations to leverage their financial clout to get trade partners cheaper bank loans. The current supply chain, however, has progressed much beyond the scope of this narrow perspective.
Large corporations now have more options than ever before when it comes to providing financial help to their trading partners, thanks to the increased liquidity among these organizations. A myriad of financing solutions have also developed as a result of technological advancements. The trend of large corporations using their capital to finance the program is one of the most notable changes in supply chain financing options. Yes, now companies can offer liquidity leverage to their suppliers directly from their cash reserves.
How Can Fintech Benefit Modern Supply Chain Management Methods?
There has been significant advancement in supply chain finance technology over the last several years. But it’s going to take it to the next level. Moving boxes and ticking boxes are simply the tip of the iceberg when it comes to the supply chain business. This system relies heavily on data and has several checks and balances to ensure everything runs well.
- P2P payment systems for mobile banking (CashApp, Venmo)
- Digital ledger
- Lend and borrow digitally
- Mechanized consultants
- Automate payment procedures
- Instantaneous global payments between vendors and suppliers
- Digital stock trades
Let’s take a look at some of the main benefits of fintech in this industry.
Increased Speed and Efficiency
Companies may now easily process payments between several parties without resorting to cumbersome paper methods. Quick and easy payments are made possible with fintech solutions through the use of integrated payment methods such as digital wallets, QR codes, and payment links. Because of this, the entire payment and delivery procedure is accelerated. Because most fintech solutions are mobile-friendly, this is a convenient, easy, and fast option for companies to accept payments. Productivity, time savings, and overall efficiency are all enhanced by this.
Enhanced Visibility
Fintech has been around for a while, but it’s still relatively new compared to other industries. Many believe it will eventually supersede all other forms of manual payment because it is already so integrated into people’s and companies’ daily lives. Integrating financial technology into supply chain management is a great way to catch up to the rest of the world. Doing so can boost awareness of your business and demonstrate to customers that you are well-versed in the most recent and popular transactional trends.
Reduced Costs
Companies can reduce the fees generally connected with individual payments because of fintech’s simplified structure. Businesses can save money on each transaction and use that savings to fund other areas. Paper, pens, ink, and printing expenses are only a few of the resources that traditional payment systems demand. Processing digital bills might still be costly.
None of these tangible things are required when a fintech framework is integrated into the supply chain management process. It presents a chance to handle money in a more environmentally friendly manner. Additionally, it enhances inventory management by automatically adjusting stock levels in response to completed payments. Overordering, wastage, and dead stock are all cut down, which means money is saved.
Happier Trade Partners
Relationships with clients, trade partners, and anybody else with whom your company has transactions can take a hit when dealing with sluggish, antiquated payment systems. Financial technology, however, alters that. Relationships can become more practical and fulfilling for suppliers with all the time and effort saved by these technology alternatives. Compared to previous, less effective systems, this one encourages a more positive dynamic of communication and mutual respect.
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The Potential Challenges of Using Fintech for Supply Chain Management
Utilizing fintech in SCM has many potential benefits, but it also comes with its fair share of difficulties. There are some drawbacks to fintech, as there are to any new technology, but notably one with this much potential for widespread disruption. Now we can examine the:
The most significant obstacle posed by fintech in this regard is integration. It will be an enormous task to dismantle and reorganize all of the current systems and processes that are in use. For financial systems to be completely secure and long-lasting, strict regulation is essential. Implementing measures to guarantee conformity with relevant legislation is likely to be challenging.
Safety-Security is of the utmost importance in the fintech framework because it involves the transfer and storage of sensitive financial information. The establishment of a functional fintech supply management system hinges on the assurance that all parties’ data is entirely protected from unauthorized access.
Conclusion
Fintech is changing the game when it comes to supply chain financing by making payments and managing working capital better. By eliminating middlemen and facilitating instantaneous payments, fintech is revolutionizing the supply chain finance process. Particularly helpful for small and medium-sized enterprises (SMEs) who have had trouble securing supply chain financing in the past.
Companies should know that there are risks, such as cyberattacks and technological breakdowns when employing fintech to fund their supply networks. By implementing measures to reduce these risks, businesses can take advantage of fintech’s advantages to improve their supply chain financing strategies and achieve their targets for growth.
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