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How shared services can capitalize on the benefits of supply chain finance and dynamic discounting

BlogSarah Feurey18.06.2012 Comments (1)Bookmark

Electronic invoicing, Finance, Finance shared services, Other ERPs, P2P

This week we ran a webinar, “Discover how e-Invoicing significantly improves your working capital”. This webinar, featuring Susie West, Ruud van Hilten, VP Sales EMEA at OB10 and Peter Loughlin, Managing Editor of, provided clarity on what supply chain financing is, and why this is such a hot topic at the moment.

Here are my three key takeaways from the webinar. 

1. Why are shared services professionals looking at supply chain financing right now?

In the current economic climate, cash rich buyers are being penalised by low interest rates, under-optimising their cash reserves. In the same breath, cash-strapped SMEs who make up a good portion of the supplier landscapes are facing expensive financing. Loughlin called this a “perfect storm of expensive financing and poor returns for the buyer.”  Finance shared services professionals are looking to supply chain financing to create a situation where, van Hilten says, “both buyers and suppliers are able to manage their cash the way they want to” and in ways that are financially fruitful for both parties.

2. What is supply chain financing?

There are generally assumed to be three methods of supply chain financing: factoring, dynamic discounting and using a finance partner.

Factoring: when suppliers are waiting to be paid, many turn to factoring to fund their working capital. Loughlin defines factoring as the means by which suppliers sell outstanding invoices to a bank and, for a charge, the bank settles those invoices immediately, injecting money back into the suppliers dehydrated bank accounts. However, Loughlin notes that the fees associated with factoring are significant. So the supplier loses out. In addition, the buyers aren’t benefitting from this factoring model. Where is the win/win?

Dynamic Discounting: when buyers agree to a discount in exchange for early payment on a sliding scale, this is called dynamic discounting. If a buyer has a significant cash reserve, paying the invoices early to secure a discount will help create a better return than cash sitting in low interest accounts that isn’t yielding much interest. This benefits the supplier and the buyer with no extra financing costs, or as Loughlin calls it, ‘leakage’.

Supply chain financing with a finance partner (or reverse factoring):  if a buyer does not have the cash reserves, or does not want to pay early, they can use a supply chain finance partner that has the liquidity and, for a cut of the transaction, the partner pays the supplier early. The supplier can be paid Day 5 instead of Day 60 and the buyer can stretch the day of payment to the finance partner from Day 60 to, say, Day 75. The supplier is happy to be paid early, the buyer is better able to manage their working capital and affords rebates from the finance partner, and the supply chain partner takes a cut of the invoice value.

3. e-Invoicing is the essential enabler.

However, Loughlin notes most organisations can’t benefit from dynamic discounting or supply chain financing with a finance partner because they simply can’t process invoices in time. In order to pay early, your P2P processes must be “so robust and efficient you can match and pay your invoices in matter of days as opposed to weeks and months.” To capitalise on the benefits, invoices must be processed quickly, and the quality of invoice data must be so high that approval can happen rapidly. The supplier then needs to know the invoices are approved for payment so they can be eligible for supply chain financing. Without e-invoicing, you will not likely have the ability to do supply chain financing efficiently. Is your company in a position to capitalise on supply chain financing?

Is this something you want more information on? Let us know in the comments or email me at

The webinar goes into much more detail about OB10’s supply chain finance offering. View the whole webinar online here.


supply chain finance, shared services, e-invoicing, einvoicing, electronic invoicing, OB10, dynamic discount, factoring

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James R. Clawson Lake Forest iPayables 20.06.2012

Dynamic Discounting another link to the accounting puzzle that is turning a lot of heads.