From the April/May 2012 issue of Treasury & Risk magazine

Supplier Finance Advantage

Companies see payables strategies as a way to generate returns as well as to support their suppliers.

While supply chain finance (SCF) programs are still relatively rare—only about 200 U.S. companies are thought to have them in place—such programs are gaining momentum in the wake of the financial crisis as companies seek to extend payment terms without putting suppliers at risk and, perhaps, even bolster their own income. A.J. Cederoth, CFO of Navistar International, a $13.9 billion manufacturer of heavy vehicles, says the company launched its SCF program this year as a way to strengthen its suppliers’ working capital. The program also fine-tunes payment terms, allowing Lisle, Ill.-based Navistar to focus on product costs in negotiations with suppliers.

“We have our platform up and running, and we’re working through the administrative and legal hurdles to bring more suppliers on board,” Cederoth says, adding that Navistar expects significant increases in the number of suppliers using the platform, including those in Latin America. “I definitely think suppliers are more interested in SCF than even a year ago,” he says.

“We advise our clients to take advantage of these early payment discount programs when feasible,” says Michael Stitt, executive director of trade and supply chain sales at J.P. Morgan.

Larger retailers were the first to adopt SCF and now manufacturers are setting up programs, Stitt says. “We’ve seen five times the level of inquiry in the last year than the previous four years.”

A number of technology vendors, such as PrimeRevenue, Syncada, Ariba, Bottomline Technologies and Kyriba, include multiple banks on their SCF networks, which mitigates the risk from relying on a single bank and increases a program’s capacity to finance payables.

“We’ve chosen to go with a technology vendor and multiple lenders so we have diversity of funding,” says Navistar’s Cederoth, which uses PrimeRevenue. “We’ve found that suppliers prefer the technology vendors’ platforms because they’re more user-friendly.”

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