Chapter 4 Integrating cash and trade
when they become dependent on
that customer for both financing and
purchasing their product. Because of
the difficulty in accessing other forms of
finance, a participant is taking a significant
counterparty risk in committing to a
particular customer through a supply chain
finance programme. However, any risk of
overdependence on one credit in this way
has to be set against the risks associated
with other forms of financing, such as
invoice discounting.The use of technology
As well as a change in attitude towards the
importance of strengthening the supply chain,
technological improvements have made
supply chain finance programmes possible.
Technology has benefited treasury in a
number of ways: automation has reduced
processing time and costs; information can
be collected, collated and analysed more
effectively; and this information can be also
shared between different organisations,
building trust between them.Processing efficiency
Technology improvements in recent years
have allowed companies to downsize their
corporate treasuries. Tasks which used to
take significant personnel involvement can
now be automated completely, or initiated
by a single person. The reduction in manual
intervention in a whole host of areas has freed
the treasurer’s time to be able to act more
strategically across the business.
There are a number of areas in which
technology has improved the operational
efficiency of corporate treasuries.
Accounts receivable.
Electronic invoicing offers efficiencies in the
preparation and presentment of invoices
to customers and then in the reconciliation
process when payment is received.
Lockbox facilities have been available for
some time, but increasingly these provide
opportunities for companies to collect
information electronically. Where permitted,
a lockbox also allows a company to
maintain a local collection presence without
the cost of maintaining a local office. Accounts payable.
Here too, electronic invoicing offers
opportunities for efficiencies for the
purchaser. It is particularly useful for
entities with large numbers of suppliers.
Being able to process and approve
invoices and then initiate payment
electronically reduces the risk of error
and fraud, whilst simultaneously allowing
accounts payable to operate with fewer
staff members. The electronic collection
of data also allows companies to manage
their disbursement of payments, whether
to suppliers or for payroll, more efficiently,
perhaps on a weekly or a monthly cycle.
Inventory management.
There are opportunities too for
improvements in inventory management.
ERP systems are much more sophisticated,
allowing the tracking of inputs at every
stage. Common processing standards also
allow information to be shared along supply
chains through services such as Bolero, so
companies can manage their production
processes more efficiently.
Improved efficiency of trade documents.
As with other areas, letters of credit can
now be prepared electronically. This allows
data to flow much more quickly between
organisations, providing the opportunity
for discrepancies to be managed more
quickly. However, the use of electronic
trade documents has not grown as quickly
as some might have expected, partly
because the improvements in efficiency
have reduced the opportunity to use trade
documents for pre-sales financing. (The
reduced transaction costs associated
with electronic documentation does not
compensate for the loss of accelerated
cash flow for those companies which rely
on that funding stream.)
With documents such as bills of lading
prepared electronically, it is also possible
for companies to outsource the preparation
of trade documents to banks or a shared
services centre. By outsourcing this activity
the company will minimise the risk of
errors, and thus discrepancies, resulting
in an acceleration of the collection of
payment as a result.