Among the Procurement team’s most indispensable tasks is to segment and prioritize the supplier population for SCF. Procurement’s intuition, knowledge of suppliers’ financial health, suppliers’ plans for capital expenditures, and forecasted spend go far beyond the analysis of an SCF provider.
Factors often considered by Procurement include:
- Supplier’s financial health. Can a supplier benefit from the program? Are margins on products sold to the buyer already slim? Does the supplier frequently reach out to the buyer for working capital support? Does the buyer already provide the supplier financial support?
- Supplier’s payment terms history. Has the supplier recently undergone payment terms changes? Has the supplier historically had non-standard payment terms?
- Buyer’s sales and inventory forecasts. Does the buyer intend to ramp or slow business with certain suppliers based on sales and operations plans (S&OP)? Will the buyer find alternative sourcing or divert a percentage of business from a large supplier? Will a buyer enter into any new supplier relationships?
- Sourcing. Is the supplier a single source, sole source, or difficult to replace supplier? Is there flexibility to change suppliers, and if not, will payment terms extension adversely affect supplier performance or the supplier relationship?
Treasury is the central point for program coordination. They manage bank relations, quarterly reviews on program progress and accounting buy-in. In addition, Treasury’s input is needed for: program pricing, determination of working capital benefit and uses of said benefit.
Either Treasury or Procurement may act as a point of contact for suppliers, though Procurement is responsible for negotiations. Often times, Treasury assesses supplier financial health, determines eligibility requirements alongside their SCF provider, coordinates with accounts payable and determines the correct accounting treatment alongside their auditor.
Accounts Payable Coordinators
Accounts Payable (AP) and Procurement are often the source of supplier names, their respective vendor codes and the facilities they supply.
On an individual supplier basis, AP will be required to enact payment type changes (SCF vs. non-SCF) at a vendor code level. For each supplier, based on number of facility locations and supporting ERP systems, the supplier may be assigned more than one vendor code and may be on multiple accounts payable systems. An AP team member, alongside Procurement, will need to approve payment type change within the system to ensure the correct approved invoice file is transmitted to the SCF provider. AP will also need to coordinate onboarding timing with the SCF provider for each vendor code located on each accounts payable system. Accounts payable systems may (or may not) share the same AP coordinator, which means multiple individuals may manage these payment type changes. Failure to coordinate timing with the SCF provider can result in file failures and inability for suppliers to choose invoices for discount.
It is therefore critical that the buyer’s internal SCF program champion remains closely aligned to AP.
IT Integration and Support
Large corporates often have cumbersome accounts payable systems due to a large number of facilities and entities under their umbrella. Each accounts payable system, even if provided by a standard ERP system provider, will often be customized to fit the needs of the user. For this reason, any enacted payment type changes (to the SCF provider instead of the supplier) to support an SCF program, will usually involve modification to the AP system by IT. These IT changes usually come at an internal charge to Procurement or Treasury and may be time-consuming based on the capacity of the IT team, the ERP system, and the level of customization. Each enacted change will be required likely more than once, as buyers often use multiple accounts payable system company-wide.