- Establishing executive-level support and equal responsibility among key stakeholders is a critical first step in a terms extension strategy
- Educational sessions can highlight initiative benefits, elicit feedback and reinforce terms extension as a new routine for driving continuous improvement
- Working capital coordinators should set goals and create both team and individual incentives to drive the implementation forward
One of the key factors to the successful implementation of a Supply Chain Finance (SCF) program is organizational support from impacted stakeholders. Support starts at the top, with C-suite or other senior-level executive sponsorship, reinforcing that the terms extension strategy is considered a priority initiative of the organization.
When beginning the dialogue on a terms extension strategy, it’s crucial to engage broadly across all impacted areas. While SCF is an effort primarily led by the Treasury organization with the goal of maximizing working capital and managing liquidity, SCF programs also require buy-in from Procurement and Accounts Payable, among others.
To have a truly cross functional approach, it’s vital to have designated individuals or working capital champions from both Treasury and Procurement to lead the effort, usually appointed by the senior level or executive sponsor.
Educate about the benefits
To receive initial buy in, organizations often leverage their SCF providers, like Bank of America, to provide training and education on the benefits of the program and the way in which the process may impact different teams. Engagement from the beginning of the new initiative, even prior to implementation, allows for teams to provide feedback, have a sense of ownership, and obtain a clear view on the overall positive impact terms extension and a program such as SCF can have.
If key stakeholders are unable to see the benefits to the organization or find the new process to be burdensome, the program will be unlikely to be a success. Procurement, especially, needs to be aligned as they own the relationships with the suppliers and will often lead any terms extension discussions.
Educational sessions can illustrate that there are benefits above and beyond working capital improvement, including improved stability in the supply chain. Additionally, buyer-seller relationships can be strengthened and terms extension discussions can be truly collaborative conversations and not just negotiations.
It’s also important to create the correct mindset when moving forward. Supply Chain Finance and terms extension should not be viewed simply as a onetime project but as a new routine or process that will continuously drive improvement.
Once teams begin to share a common vision and strategy and are ready for implementation, working capital coordinators should set realistic goals for which progress is monitored against. Regular checkpoints and periodic reviews will also be necessary to review progress towards those goals, as well as provide senior level sponsors updates related to the program. Goals can be tied to important working capital metrics like the organization’s Cash Conversion Cycle and Days Payable Outstanding metrics, but may also be tied to sustainability initiatives, improved invoice processing or improved assurance of supply from supporting supplier’s own working capital goals.
Once teams begin to share a common vision and strategy and are ready for implementation, working capital coordinators should set realistic goals for which progress is monitored against.
Not only do teams need to align to various goals, but aligning incentives can help drive an SCF program forward. Executive level sponsorship should consider tying meeting goals to individual financial compensation. Outside of monetary incentives, including key stakeholders into important organizational decision making and strategies can help motivate individuals to ensure that the terms extension strategy and SCF program will meet the business goals. Additionally, providing the proper recognition for employee’s efforts related to the meeting the goals of a terms extension strategy can be a powerful motivator and show the true value in the initiative.
A terms extension strategy can be a win-win scenario for both internal and external stakeholders with tools like Supply Chain Finance and the right engagement with impacted departments and individuals. Having executive level sponsorship, appointing designated cross-functional individuals to champion the new initiative, comprehensive education on the strategy, and the proper incentive structure can all ensure the success of an SCF program.