Multi-Program SCF: Moving Beyond Tier-1 to Engage the Entire Supply Chain

In today’s dynamic global supply chain ecosystem, effective supplier and distributor engagement is essential. Corporates are more proactive than ever in making their supply chain healthy and stable. Traditionally, companies have focused on onboarding key suppliers or distributors into their supply chain finance (SCF) programs. However, technology now enables corporates to extend SCF offerings to a broader base of supply chain partners, easing cash flows across the supply chain.

Global SCF Market Growth

The 2024 World SCF report estimates that the global SCF market exceeds $2.3 trillion, growing at a robust CAGR of 22.7% over the past seven years. Further, it is anticipated to grow at a CAGR of 8.7% through 2029. This shows the growing reliance on SCF solutions to improve liquidity and working capital efficiency across industries. Corporates increasingly recognize the need for diverse SCF strategies to optimize cash flows across their supply chain, and seek to engage their entire network of suppliers and distributors.

Diverse SCF Programs for Suppliers and Distributors

Suppliers and distributors are the two pillars of supply chains and both face unique challenges that differ across industries and sectors. Suppliers need stable cash flows to smoothen their production cycle while the distributors need flexible credit terms to manage their inventory and sales cycle. Corporates often struggle to manage these requirements for both stakeholder groups (suppliers and distributors), causing instability in their supply chain.

To address these challenges, diverse SCF programs cater to the distinct needs of suppliers and distributors:

• Dealer Financing: Provides working capital for distributors to purchase products from anchor corporates. Since distributors mostly sell on credit, they often need funding to purchase goods from their anchor corporates; Dealer Financing provides them this funding. This allows them to avoid mismatches in their cash flow, thus smoothening their sales cycle.  
• Factoring: Allows suppliers to sell receivables to a financial institution for immediate cash flow.
• Receivable Financing: Enables suppliers to receive early payments on invoices at a discount.
• Vendor Financing: Offers credit facilities to smaller suppliers of corporates to fulfil orders.
• Reverse Factoring: Buyer-initiated early invoice payments to suppliers financed by financial institutions (FIs), benefiting both buyers and suppliers.
• Payable Financing: Helps buyers extend payment terms while ensuring prompt payments to suppliers.

Corporates implementing SCF solutions have reported a 30-50% reduction in payment delays. Moreover, suppliers typically see 20-40% cash flow improvements, enabling them to reinvest in growth and innovation.

Role of Financial Institutions (FIs) and Fintechs in Multi-Program SCF

Financial Institutions (FIs) and fintech companies play synergistic roles in successful implementation of multi-program SCF. Fintechs specialise in providing advanced technology solutions that streamline SCF processes, enhance operational efficiency of SCF Programs, and connect corporates with appropriate FIs for supply chain funding.  In turn, FIs bring their expertise in structuring deals, assessing credit risks, and supplying low-cost capital to fund these SCF initiatives.

Fintech-enabled SCF platforms have simplified the supplier onboarding process and made it more intuitive, reducing the onboarding time by 40-60%, allowing for quicker access to funds. Furthermore, digital onboarding processes lower administrative costs by 15-20%. This dual approach of leveraging fintech innovations and FIs expertise ensures that SCF programs are both efficient and resilient, fostering greater adoption and success across diverse supply chains.

Benefits of Multi-Program SCF for Corporates

• Improved Cash Flow Management: Early payment options provide stability and growth opportunities for suppliers and distributors
• Reduced Financial Risks: Diversifying finance programs across multiple FIs and programs lowers concentration risks
• Cost Savings: Interest costs for SCF programs are lower when compared to traditional loans
• Leaner Corporate Balance Sheets: SCF is treated as off-balance sheet financing, unlike traditional debt. This helps corporates maintain much leaner balance sheets, with better financial ratios (For eg., lower Debt Equity Ratio)
• Stronger Relationships: By taking away cash flow volatility, tailored SCF programs help enhance collaboration with supply chain partners, resulting in stronger relationships
• Enhanced Visibility: Since the FIs perform detailed KYC checks, credit and supplier due diligence for the counterparties in corporate supply chains, the corporate gets more information and deeper insights into Tier-2 and Tier-3 suppliers and distributors

Vayana’s Approach and Solutions

Vayana helps corporates leverage SCF to optimize supplier and distributor engagement through:

• Customizable Payables and Receivables Management: Tailored solutions to meet diverse partner needs
• Technology Integration: Vayana’s state-of-the-art SCF platform and seamless tech integration ensures transparency, efficiency, and scalability for SCF programs
• FI Partnerships: Vayana leverages its deep relationships with FIs to help corporates pick the most suitable FI for their SCF programs

Network Development Services: Vayana has in-house Network Development services that work with the corporates’ MSME suppliers and distributors to drive SCF adoption. This handholding of MSMEs by Vayana to get them started on the platform helps drive scale in SCF programs. Know more about Vayana’s SCF solutions here.

References:

Deloitte. (2021). Supply Chain Finance: Key Insights for Multinational Corporates.

McKinsey & Company. (2022). Unlocking Trapped Value in Supply Chains through SCF. 

EY. (2021). Supply Chain Finance: Trends and Technologies in 2021. 

BCR Publishing. (2020). Supply Chain Finance: A Growth Market for the Future.