Chapter 5 Future developments
MH: To give an illustration of what is possible:
one buying company developed an invoice
matching system across SAP. In this system, a
manufacturer can generate an invoice, receive
it, and it is auto-matched and automatically
approved by the buyer in under 13 seconds.
Achieving this level of efficiency is expensive,
and there are many barriers to this type of
interaction, especially on a cross-border basis.
At this point, such systems are only realistic
considerations for the biggest suppliers.
By improving the efficiency of the invoice
flow, it should then be possible to finance
the supply chain more effectively too. By
incorporating validation into e-invoicing, this
reduces the requirement for intervention in
the process, accelerating approval.Helping small suppliers
Because of cost barriers, supply chain
finance can only typically be applied
to between 20 and 40% of a buyer’s
procurement spending. Companies also
want to consider how to help those suppliers
whose volumes are not large enough to be
included in the supply chain finance structure.To m Kelly: P-cards are a solution which can
assist here. Unlike supply chain finance and
e-invoicing, there is an established set of
standards via Visa and MasterCard. P-cards
are also widely accepted, meaning they can
be used to make a wide range of purchases.
The use of P-cards also generates data
which can be used to analyse procurement
spend and to do a retrospective audit.
P-cards also offer enhanced levels of
security for the buyer, compared with other
payment types. Suppliers that accept cards
payment have already been validated by their
acquiring bank. Moreover, an issuing bank
can exercise chargeback rights in certain
circumstances. The card processing method
also means, unlike an invoice, that it is not
necessary to individually pre-approve any
P-card transaction.
Additionally if a supplier has HMRC VAT
approved software, it does not issue VAT
invoices for P-card purchases. Instead,
buyers are sent VAT reports electronically by
their issuing bank. These reports can be used
to reclaim VAT. They also include line itemdetail which gives buyers a greater level of
management information for spend analysis.
P-cards can work well for low-value
transactions. In the UK, the average
transaction size is GBP 200. It is also
possible to use P-cards for higher-value
transactions (up to GBP 100,000).
Transactions limits can be set at individual
cardholder level for added control.
The merchant fee paid by suppliers
is a fixed percentage of the value of the
transaction unlike the costs of supply chain
financing, which vary according to risk and
the funding term.Using the two together
For a corporate treasurer looking to
implement a solution for the whole purchase-
to-pay solution, the two financing techniques
do not currently provide a complete solution.
The largest suppliers (between 20 and 40%
of spend) can be brought into a supply chain
finance structure, with P-cards suitable for
the smallest suppliers (generally about 2%
of spend). However, suppliers between the
two are not supported: the P-card is too
expensive, but they are not big enough for
supply chain finance. Some companies
use gains from supply chain finance to
support these suppliers, often by offering
settlement discounts.ML: The challenge for all participants is to
develop a solution which bridges the gap
between the two extremes. Should banks
try to develop a solution which covers the
full range of payments? Can this be a single
solution? Or will it be a solution which
includes different payment paths, where the
transaction size determines the process?
Banks also need to be aware of a potential
reputational risk if they withdraw from offering
supply chain finance solutions. To get desired
balance sheet treatment, supply chain
finance is uncommitted. If a bank withdraws
from the market, any supply chain funding
lines it offers will collapse.
Ultimately, any successful solution will
give the supplier a degree of flexibility. The
supplier will want to be able to control the
timing of the payment and, crucially, the level
of merchant fee or other financing costs.