Cash and Risk Management in a Single Solution

eProcurement allows organisations to shine a light on procurement practices and implement better control over who is buying what from whom. One of the significant benefits from eProcurement is the increase in spend visibility that allows organisations to better manage what they are spending with what suppliers. With this increased visibility comes an opportunity to better manage the financial relationship between buyer and supplier, improve cash management and control risk.

Elcom’s innovative supply chain financing model allows a financial institution, usually the buyer’s own bank, to intervene in the transaction between buyer and supplier and automatically broker independent payment arrangements with both Buyer and Supplier.

The supplier financing is based on the buyer’s credit rating so the terms are usually much better than the supplier would get under a traditional factoring arrangement. The offer can also be flexible on a case-by-case basis, allowing the Supplier to choose the most appropriate payment terms for each order.

This approach can be extended to allow buyers greater flexibility in how they finance their purchases; reducing costs and providing better cash flow management by entering into financing arrangements that are better suited to their needs. For example, a buying organisation can elect to have the bank settle with their suppliers and then the buyer settles with the bank on different terms, perhaps on a month-end basis. This reduces the complexities of managing payments to multiple vendors and reduces BACS payment fees.

It also allows the Buying organisation the opportunity to consolidate creditors and finance them over a period of time. Capital Purchases can be financed through the Buying organisation’s Bank rather than accepting Supplier financing terms, which may be less competitive.

Buying organisations recognise a number of benefits from integrating eProcurement with Financing:

• Efficiency savings associated with improved processes and procedures that save time and move human resources from transactional processing to value-added activities;
• Better contract compliance that drives commodity cost savings;
• A platform to build better contractual relationships with suppliers;
• Transparency of process leading to a better understanding of risk;
• Better cash flow management and improved access to flexible credit terms;
• Overall reduction in the cost of credit associated with improved visibility of spend and risk.

Suppliers also recognise a number of benefits of this model, where traditionally they have seen relatively few benefits from traditional eProcurement implementations:

• Closer relationship with buying organisation derived from better compliance;
• Reduction in processing costs associated with transactional documents;
• Improved terms and availability of credit associated with leveraging the buyer’s credit rating and history that guarantees payment;
• Flexible payment terms and discounts that can be matched to cashflow;
• Reduced need for other credit instruments that may attract premium rates;
• Strong basis on which to grow the business.