Global supply chain financing needs have expanded multifold in recent years, driven by a combination of business needs, operational necessities and technological advancement. According to the Supply Chain Finance Market 2024 Report, the global supply chain financing market revenue was valued at USD 7.3 billion in 2023 and is projected to reach USD 12.3 billion by 2032.
The global reopening surge in demand following the pandemic, coupled with supply constraints due to the outbreak of geopolitical conflicts, have pressured prices at both ends, leading to prolonged global inflation. As a result, central banks have raised interest rates and have kept them higher for longer to rein in price pressures. This has significantly increased the financing cost of underlying products and commodities, especially for small and medium-sized businesses which are faced with increasingly tighter working capital constraints. Meanwhile, technological advancements, particularly in fintech, have also unveiled financing opportunities at scale within the supply chain that were previously deemed unfeasible.
What’s more, in Asia, the bulk of supply chain financing remains in the post-shipment part of the working capital cycle. This barely scratches the surface as the majority of supply chain financing needs lie in the pre-shipment part of the cycle. Anecdotally, the pre-shipment section could comprise as much as two thirds of the entire working capital cycle. More critically, this is the area where the typically small-and-medium sized suppliers may often need working capital support to purchase materials or pay salaries to manufacture and deliver their products.
Demand for pre-shipment supply chain financing in Asia has remained largely unmet due to the complexity, fragmentation and semi-to-largely-manual processes. This has hampered the ability for banks and financial institutions to underwrite the risk at speed and scale. For instance, a tech multinational firm with a USD 20 bn annual turnover would typically have at least 200 suppliers spread across over 15 countries, each banking with a least a handful of local financial institutions. The logistical challenges of navigating the often-manual backend processes of SMEs, not to mention their multiple domestic banks, have rendered this part of the supply chain rather unfeasible for financing… until now. So, what’s changed? The onset of digital platforms has, for the first time, made it possible to address the huge financing needs currently unmet in the pre-shipment part of the chain. The ‘platformisation’ of data means it’s now possible for banks and financial intermediaries to embark on data-driven underwriting including underwriting pre-shipment risk using AI/ML driven data analytics.
We, at TASConnect, believe that workflow automation can help penetrate deep into the supply chain to multiple tiers that can’t be reached with the present offerings. Besides, platforms, through the principle of interoperability, can also enable multiple and disparate workflows and activities that are necessary for supplier financing to be done on a single platform, bringing unprecedented levels of efficiency and speed. Some of these functionalities include providing banks and financial institutions with supplier credit profiling, digital onboarding of suppliers, documenting hubs, automated and seamless payment systems, foreign-exchange processing and even the monitoring of supply chain participants through AI model-led, in-situ, software applications.
The bottom line – platforms can enable supply chain financing to reach far more suppliers than previously possible, helping to direct need-based working capital to where it is most required. For instance, while a conventional manual method may be able to reach just 20 to 30 suppliers within a 3 to 4 months timeframe, a platform can enable an enterprise to scale up to almost 10 times over, allowing it to reach 200 to 300 suppliers within that same period without any additional deployment, not to mention the automated workflows that can ensure an error-free environment.
Aside from enabling efficiency and unlocking economics for all the value chain participants, there are also wide-ranging benefits for the enterprise in facilitating pre-shipment supply chain financing. We highlight the most obvious benefit – helping the enterprise build supplier loyalty. A typical SME supplier tends to supply the top handful of competing enterprises of that particular market or industry. Thus, it is important for a CFO that when the need arises, the supplier in question will prioritise the enterprise over its rivals. For instance, in the event of supply disruption or other unforeseen circumstances that could jeopardise the enterprise’s business.
By standing out among its rivals with programmes that help suppliers gain access to funding, an enterprise can build supplier loyalty as these programmes pave the way for smoother business operations for the supplier. As a result, the supplier becomes sticky to the enterprise, indirectly benefiting the latter.
