What Can CFOs Do to De-Risk Supply Chain Finance in 2021

What are the most significant supply chain finance risks facing Chief Finance Officers in 2021?

Recent research suggested that 17% CFOs are concerned about supply chain financing disruptions in 2021.

56% of the CFOs reported that they were looking for unsecured financing alternatives.

71% CFOs said they are concerned about reducing cash burn, improving working capital efficiency, and safeguarding the liquidity position.

What should you do as a CFO to de-risk your supply chain financing? What should be the starting point of your journey towards reducing the risks associated with your working capital solutions, account receivables, and account payables?

If you are looking for answers to these questions, we have got you covered. Here’s a checklist of steps you can take to de-risk your supply chain finance in 2021.

The Supply Chain Financing Check List for CFOs in 2021

  • Stress Test Scenarios and Assumptions First, take stock of the monthly cash inflows and outflows over the last 12 months. Gather accounts payable and accounts receivable numbers. Now ask yourself two questions:For what time can your enterprise survive with the available cash holding? Call this the time to survive; TTS.If you were to exhaust your cash reserves today, what time will you take to access alternate credit lines? Include bank finance options, MSME credit, working capital loans, risk capital financing, and all sources of unsecured funding. Call this number the time to recover; TTR.Run stress tests to assess two scenarios in supply chain financing: TTS and TTR
  • Automate Critical Segments of the Supply Chain You have faced the COVID19 pandemic-led supply chain disruptions. As a CFO, you know the value of responding to incremental information with speed. Have you taken steps to bring a faster rate of response to supply chain financing?First, explore avenues for faster receipts. Identify the top customers that are essential to securing your accounts receivable. Automate your invoicing and billing processes. Map the benefits of automating your accounts receivable collection process against your time to survive.Next, turn your attention to suppliers. Track the accounts payable processes. Make sure that you pay suppliers, especially the MSMEs, on-time.In return, ask for positive reviews on search engines and social media platforms. Let the world know that your enterprise is a socially responsible one.
  • Set Up Spending Control Towers, Cash War Rooms, and Dashboards Do you have quick access to your supply chain financing data? Today, if you were to make some urgent decisions in no time, how would you go about it? If you have automated some segments of your supply chain financing system, push further.Set up spending control towers in each of the cost centers. Assign one leader from each of the cost centers to upload their expense reports on a central reporting system. Ask them to fill this in every day at the close of work.This data will allow you to create dashboards. You can get quick insights on your outstanding receipts and payments, cash conversion cycles, and inventory ordering and carrying costs, and contingency margin in one place.
  • Set Up a Centrally Controlled Contingency Fund You know precisely how challenging it becomes to control costs in times of supply chain disruptions. While you can slash certain expenses, you will have to explore means to finance the variable costs of the vital and essential line items in your accounts payable.Here’s what you can do. Ask the leader of each cost center to map their activity-based costing. Ask them to set aside a certain percentage of their profit each week and contribute it to a centrally controlled contingency fund.Search deep and wide to explore means to use idle resources. For example, if you have more than the required cash reserves, don’t keep it inactive. Talk to your suppliers and negotiate terms for invoice discounting against an early payment. Your enterprise will be able to get a discount on supplier payments and save costs.
  • Communicate Frequently with Suppliers to Monitor Risks Talk to suppliers more frequently. Check on their operational status, liquidity position, availability of raw materials, and access to MSME credit. Offer unsecured lending if your suppliers need it. Motivate suppliers to explore new avenues of MSME financing.Partner with your suppliers in your interest. First, a collateral-free working capital solution is safer for your suppliers. You will continue to receive your industrial suppliers on time and keep your supply chain moving. Second, the transfer of knowledge from your enterprise to your suppliers will strengthen their trust in you.You never know when your suppliers will return this favor to you. The next time that there’s a supply chain disruption, your suppliers may prioritize your manufacturing plant and your orders over others.

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