The world of supply chain finance is evolving at a rapid pace. New technologies are enabling innovative solutions that transform how companies manage working capital and pay suppliers.
Setting the Stage – Supply Chain Finance Basics
Before looking ahead, it’s important to understand the core concepts underlying supply chain finance. At its most fundamental level, supply chain finance leverages financial technologies to optimize the flow of money between a buyer (typically a large corporation) and its suppliers.
Traditionally, suppliers would need to wait 30, 60, or even 90+ days to receive payment after invoicing a buyer. This delays access to working capital, which can strain supplier cash flows and relations. Supply chain finance solutions seek to address this challenge by expediting payment and providing early funding options to suppliers.
There are two primary forms of supply chain finance:
Payables Finance (Reverse Factoring)
This allows approved suppliers to receive early payment on their invoices from a buyer, usually at a small discount, by selling those invoices to a third-party financial institution. The buyer continues paying at the original agreed date, while suppliers gain faster access to cash.
Receivables Finance (Supply Chain Financing)
Here, approved suppliers can receive early payment on invoices from a buyer’s customers by selling those receivables to a third party at a small discount. This gives suppliers cash well ahead of the regular customer payment cycle.
By advancing payment and optimizing working capital, supply chain finance aims to strengthen partnerships between buyers and suppliers through increased financial flexibility and liquidity. Let’s now explore how emerging technologies are further boosting these objectives.
The Rise of Digital Platforms
One of the biggest trends reshaping supply chain finance is the rise of digital platforms. Traditionally, supply chain finance programs required extensive manual processes, spreadsheets, and physical paperwork exchanges between all parties. Digital platforms are simplifying and automating these workflows.
Leading the charge are end-to-end SaaS platforms that enable fully digital onboarding, transaction processing, and reporting for supply chain finance programs. Key platform providers to watch include Taulia, Greensill, BNP Paribas, C2FO, and Tradeshift.
Core capabilities of these platforms include:
- Digital invoice uploading, approval, and tracking
- Automated eligibility checking for early payment
- One-click funding option selections for suppliers
- Straight-through processing for high volumes
- Real-time program analytics and reporting
By 2024, industry experts forecast over 80% of supply chain finance programs will leverage a digital platform. The benefits of faster program setup, lower costs, improved visibility, and optimized processes will accelerate this transition. Suppliers and buyers will come to expect a modern digital experience when it comes to working capital management with trading partners.
The next wave of supply chain finance platforms will incorporate more advanced technologies to drive further efficiencies. Let’s examine some of these emerging capabilities.
Artificial Intelligence and Machine Learning
As platforms gain access to vast amounts of transaction data, AI/ML is being deployed to gain unprecedented insights. Platforms can now automatically identify invoice and payment exceptions.They can also propose optimized funding discounts on invoices tailored to each supplier’s risk profile and cash flow needs.
Looking ahead, AI may help platforms authenticate supplier identities, detect invoice fraud patterns, recommend new suppliers for onboarding, and suggest how buyers can tweak terms with individual suppliers. Governments are also exploring using supply chain data and AI to identify tax avoidance behaviors across multiple programs.
Another technology set to see increased adoption in supply chain finance platforms is blockchain. The transparent, immutable record-keeping of blockchain networks aligns well with funding complex supply chains involving many entities.
Blockchain for Supply Chain Finance
Some platforms have begun incorporating shared blockchain ledgers to securely record transactions like invoicing and purchase orders shared between buyers, suppliers, and financial partners. This gives all stakeholders visibility without centralized points of failure.
Areas where blockchain shows promise include:
- Automating cross-border payments through digital currency rails
- Issuing and trading supply chain digitized assets like asset-backed securities
- Building consortium networks for transparent multiparty programs
- Integrating Internet of Things sensor data for smart contracts
While challenges around adoption and scalability remain, sample projects show the power of blockchain to streamline processes, reduce friction, and introduce new funding models in supply chain finance by 2024.
Regulatory Sandboxes and Open Banking
Another driver of innovation will be regulatory reforms embracing new technologies. Jurisdictions like the UK and Europe have established “regulatory sandboxes” allowing fintech experimentation in controlled environments.
Open banking requirements are also having a profound impact. By 2024, banks across Europe and other regions will be required to securely share customer financial data with third parties like supply chain finance platforms upon customer consent.
This will break up long-standing data monopolies, fueling new products and levels of partnership between banks and non-banks. Supply chain finance stands to massively benefit from these regulatory changes unlocking seamless data flows across organizations.
The Democratization of Supply Chain Finance
Perhaps the biggest evolution by 2024 will be supply chain finance transforming from an exclusive large-enterprise solution into an inclusive program accessible by companies of all sizes. Several technology trends are enabling this “democratization.”
APIs and Embedded Finance
Leading platforms are exposing proprietary APIs, allowing any organization to build “Buy Now Pay Later” and early payment options directly into their commerce experiences or ERP systems. Small businesses will be able to offer financial perks previously inaccessible to them.
Data Aggregation and Underwriting
Alternative data sources like bank transaction flows, online sales metrics, and social media profiles are helping platforms underwrite even those lacking lengthy credit histories. Entire new supplier segments may tap informal capital pools through data-backed underwriting.
Lower Minimum Transaction Sizes
Automation helps drive down fixed operating costs for platforms, allowing them to profitably serve much smaller invoice values than traditional programs require. Micro-businesses can immediately access critical working capital from day one.
By 2024, supply chain finance will likely become table stakes for any company conducting business, leveled thanks to technology tearing down barriers to participation that once favored large established players. Democratization promises immense benefits for economic resilience wherever it takes root.
Three Tantalizing Opportunities by 2024
Based on current trends, here are three areas where supply chain finance may push boundaries of innovation over the next couple years:
Embedded Finance Everywhere
Frictionless digital checkout experiences and instant access to working capital will become table stakes across online commerce and business software. Shoppers may fund purchases through real-time supply chain loans deducted from future bills or receivables.
Digital Currencies Take Off
Stablecoins and CBDCs could massively accelerate international B2B payments by having supply chain transactions settled through blockchain-based digital currencies instead of legacy wire systems. Country-to-country payment corridors transform overnight.
New Funding Pools Emerge
Combining alternative data, smart contracts on the blockchain, and access to new capital sources through open banking, platforms could tap into larger, more flexible pools of funding beyond traditional banks alone. Think “Yield Farming for Working Capital.”
Supply Chain Finance FAQs
Here are some frequently asked questions about supply chain finance technology trends:
What are the top challenges that supply chain finance providers must overcome by 2024?
- Scaling AI/ML models to vast data volumes cost-effectively
- Standardizing blockchain infrastructure for multi-entity networks
- Overcoming risk aversion to innovative product types
- Ensuring regulatory frameworks keep pace with frontier technologies
- Bridging cultural adoption gaps bringing new partners online
Which enabling technologies show the most potential to disrupt supply chain finance?
Blockchain and digital currencies are viewed by many experts as having massive potential to redesign international payment and funding flows. Wider adoption over the next couple of years could significantly disrupt traditional providers still reliant on legacy infrastructure.
Will open banking fully live up to its promise of unlocking new supply chain partnerships?
Open banking represents a tectonic shift, but significant work remains for banks and fintechs to collaboratively build customer-driven APIs and robust privacy/security practices. If done right, open banking could spark incredible partnership models, yet lingering technological and cultural challenges mean full promise realization may extend past 2024.
How can smaller businesses best take advantage of emerging supply chain finance options?
Small businesses should evaluate partnering with supply chain finance platforms offering the most seamless integration experience – such as through their accounting software, ERP system, or online ordering workflows. “Embedded finance” solutions hiding complexity deliver the smoothest experience for micro-businesses unaccustomed to traditional credit/funding products.