Key takeaways:

• Banks are leaving money on the table by confining their programmes to top-tier suppliers

• A range of counterparties deepens client relationships & grows the potential client base

• Digital SCF systems are crucial for scaling up & supporting more, smaller counterparties

For banks looking to maximise the benefits of their SCF programmes, one of the smartest strategic moves is to increase the number of suppliers involved. While this approach brings challenges, the potential rewards are seismic, both for the bank and a broader network of suppliers.

Today, the majority of programmes target larger suppliers-only, for understandable reasons. But as we’ll explore below, including smaller suppliers in larger numbers – with the right technology – delivers some important benefits.  

The question is, why do so few programmes go beyond top tier names?

Complexity costs money

Including more suppliers in supply chain finance programmes introduces an extra layer of complexity that can be challenging for banks. 

For each new supplier, banks must conduct thorough due diligence, collect appropriate KYC/AML documentation, and ensure compliance with a mind-boggling array of regulatory standards. The administrative burden grows exponentially with more suppliers, and requires robust systems to handle the increased volume of invoices, payments, and communications. 

As for those smaller tickets, there are two principal obstacles. Either your credit committee says they’re too complex to run, or you’re faced with hard limits on the size of invoice or programme you can pursue. For example, invoices below $1m are rejected outright. 

As a result, funders focus mostly on the top 20% of suppliers representing the majority of invoice value. But this approach neglects the substantial benefits that come from a more inclusive approach.

The case for inclusivity

While there are questions about the cost of including larger numbers of smaller suppliers, the potential benefits are big. They include:  

Enhanced supply chain resilience 

Including more suppliers strengthens the entire supply chain of the anchor client. Smaller suppliers often face the most significant financial pressures and have the best credit arbitrage against the anchor. By supporting these smaller entities, banks help their clients build a more resilient supply chain; one that is less vulnerable to disruptions and can adapt more quickly to market changes. 

Building deeper client relationships 

Banks that offer more inclusive SCF programmes deepen their relationships with corporate clients. Businesses are always looking for financial partners to support their entire supply chain ecosystem, not just the top tier. By facilitating finance for a broader range of suppliers, banks position themselves as potential strategic partners for both commercial and business banking clients. It’s the “network effect”.

Additional revenue & higher margins

Smaller suppliers are willing to accept higher costs for SCF facilities. The reason is simple: securing financing on their own is significantly more expensive than a reverse factoring facility would be. These same names are also likely to need additional banking products, including accounts, fx services and guarantees, or letters of credit. 

The benefits of a digital SCF system 

Should any bank wish to include a broader range of suppliers, they’ll need a SCF platform if they are to manage greater numbers at no added cost. And yet, according to the ICC global survey, one in three banks don’t have one. Of the many banks that do have one, many fail to realise the full benefits of a platform.

< Read: What are the benefits of an SCF platform? >

The right system will transform manual, cumbersome processes into streamlined, automated workflows. For instance, a digital system will significantly reduce the time spent on data entry and slash turnaround time, increasing the pace at which funds can be deployed and thus the revenue generated with minimal manual intervention.

Conclusion

By broadening the reach of their SCF programmes to include a broader set of suppliers, banks not only enhance their service offering but help create robust and inclusive supply chains. Essentially, doing good while making good money.

Implementing a digital SCF system facilitates this expansion by streamlining the onboarding process, enhancing operational efficiencies, and enabling the bank to manage a larger, more diverse network of suppliers. 

We’ve seen many banks unlock new revenue streams and build deeper, more strategic relationships with their clients as a result. We anticipate many more will follow. 

How can FinverityOS help?

FinverityOS is your all-in-one system for open account trade finance & SCF. 

• Enhance and expand your offering with a single system to support all SCF products. 

• Save time and minimise human error by digitising and automating manual, repetitive tasks.

• Offer truly unique solutions. Build custom products, workflows and processes. 

• Introduce digital checks & balances to view, verify & validate every transaction.