Why Onboarding is critical for Supply Chain Finance programs?

Supply Chain Finance has the potential to be a $20 billion revenue market with revenues growing 20% every year since 2010. The revenues are expected to continue growing at 15% for the next 3-5 years. While those numbers are impressive, the reality is that the supply chain finance industry stands only at $2 billion in revenue today.

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A recent study by McKinsey shows that the revenue potential from supply chain finance remains mostly untapped despite being around for several decades.

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There are several reasons for this lack of scale in an industry thriving with top-notch banks and evolving fintechs. Traditionally banks have built resilient platforms, widened geographical reach, and created sufficient credit capacity to ramp up supply chain finance programs. However, they fail to see the results as only one in several programs eventually scale to reap benefits.

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The study attributes the failure to the fact that banks were unable to build the necessary operational capability that could help scale up programs. Among several factors, ease of onboarding suppliers ranked the highest number of times as the Key Success Factors for Supply Chain Finance program.

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There are three stages of onboarding that are critical to the success of any supply chain finance program

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Effective communication for supplier buy-in

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While a supply chain finance program might be a win-win solution to both the buyers and sellers, it remains unfulfilled if both the parties are not on-board the program. Suppliers need to be communicated clearly regarding the terms of the program, how it would affect them in the long run, and also its benefits.

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Communicating with the suppliers requires coordination between the financing partner and the procurement teams. Consistent communication messaging and active engagement needs to be planned to engage suppliers and to seek their buy-in for the program.

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Several programs fail at this stage as financiers only target the large suppliers who offer attractive volumes and value while excluding the long-tail of small suppliers who might benefit from such financing. The efforts required to reach out to large supplier bases manually is tedious, and instead, financiers often work with hand-picked suppliers who help them achieve volume. Such strategies eventually lead to stagnation of the supply chain program even before it kicks-off.

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Seamless onboarding process

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Once suppliers’ consent is received, onboarding the supplier to access the capital should be seamless and prompt. Paperwork, excessive documentation, lack of visibility on their application status, seeking additional collateral, and delay in sanctioning, lead to suppliers giving up and requesting an extension on their current banking lines instead.

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A large number of supply chain finance programs fail to scale at this stage with several suppliers dropping out of the process because of tedious documentation.  

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Ease of transacting

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One of the biggest failures in an SCF program is when the supplier is on-boarded to the program but fails to avail the discounting facility. Suppliers could choose the discounting as a last resort if the commercial terms are not viable to their business. Alternatively, they may fail to take benefit of such a facility because they are not familiar enough with the new system to be able to use it seamlessly. Deviating from the standard process often causes resistance within teams, and adopting a new discounting process is no different.

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It is but natural that several new age fintech players have emerged as challengers to banks in SCF as technology directly addresses the above three factors.

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With technology, fintech players are increasing their reach to the smallest of vendors with automated communication using e-mail and SMS marketing tools. Platforms like Cashinvoice have simplified their onboarding process. By using technology to leverage data available with the buyers and seeking only minimum additional documents from the suppliers, they simplify onboarding to only what is necessary. Fintechs also spend resources on building easy to understand demos to train suppliers and their teams to ensure ease in transacting.

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Onboarding today can make or break supply chain finance programs. Reach out to Cashinvoice to learn more on how we can help you build scalable and successful supply chain finance programs.