Efficient working capital management is a critical goal for companies

In the global economic context, supply chain finance has been a focus of attention for companies for more than 30 years as a means to efficiently manage their supplier base.

While such financing has multiple possibilities, the management of payments through confirming programs, also called 'reverse factoring' or 'Supply Chain Finance', has clear advantages for all parties, offering automation, simplicity, globality, improvement of financial ratios, and reinforcement of strategic commercial relationships with suppliers.

How can Supply Chain Finance help companies manage their supply chains in an environment of economic uncertainty?

The economic disruption experienced globally during the Covid-19 pandemic, and the effects of the recent war in Ukraine, have created great tensions and challenges for companies' supply chains. In times like these, the urgent need to support the supplier base through specific solutions and/or programs that minimize the impact of a sharp drop in production becomes apparent.

A good example is the "Supplier Development Program" announced by the Italian group Enel Group in July 2020. The objective of this program is to support its supply chain through an offer of financial services that contribute to the company's strategic objectives and, at the same time, promote sustainable development. BBVA is one of Enel’s partners in this program.

Efficient working capital management is a critical goal for companies. In times of crisis, it is common for collections to be delayed and payment deadlines to suppliers to be extended, as analyzed by PwC in its "Working Capital Study 21/22". In this context, companies are once again focusing on liquidity while demanding solutions that ensure the management of their payments and collections globally. What we have seen is that customers who, until now, did not consider the "Supply Chain Finance", are choosing to develop this product as a tool to improve their Net Working Capital.

Is sustainability a growth lever for Supply Chain Finance programs?

Of course. Supply Chain Finance programs can help align suppliers with such strategic priorities. Companies such as Endesa and Nestlé have linked their programs at BBVA to sustainable goals related to the commitment to reduce emissions (Net Zero objective) by offering incentives to participating suppliers.

Projects based on the use of funds for a specific project, which can help drive one of the United Nations Sustainable Development Goals (SDGs), can promote the sustainability of supply chains. This is the case with the infrastructure and renewable energy promotion and management company of the ACCIONA group , which in 2020 launched its Ness Energy project to build and operate a waste-to-energy plant in Scotland. To this end, it arranged an international Supply Chain Finance line with #BBVA aligned with: SDG 3, good health and well-being; SDG 11, sustainable cities and communities; and SDG 12, responsible consumption and production.

What market trends in Supply Chain Finance can help companies optimize the management of their supply chains?

Digital transformation is changing the way we relate to the customer, who demands fast, secure solutions with an attractive user experience. According to Deloitte's "Digital banking maturity" study in 2020, the “digital champions” set key trends and have market-leading practices. 81% of these champions belong to traditional banking, entities with a consolidated position in the market.

Optimized management of #SupplyChainFinance programs faces three important challenges:

1. Creating loyalty in suppliers as new clients with an offer of financial services adapted to their own risk.
2. Data as a source of profitability, exploiting real customer data to analyze trends and facilitate risk and price analysis.
3. Complete hedging of the production and sales process, from financing of the purchase order to payment by accounts payable financing, using a fast, secure, global digital platform covering different countries and currencies at the same time.