Under pressure: why suppliers are prioritising stability over growth

Reflecting on the findings of this year’s Supplier Survey, Peddy Hashemi explains why today’s suppliers are prioritising stability and security over growth, how they can harness AI effectively, and why supply chain resilience benefits everyone.

Today’s economic climate is riddled with uncertainties – and as the latest research by SAP Taulia reveals, suppliers are under more pressure than ever before.

“Interest rate shifts have significantly increased the cost of borrowing, making it more expensive to finance expansion or invest in growth,” says Peddy Hashemi, Managing Director, Global Head of Customer Success at SAP Taulia. “At the same time, persistent inflation and cost-of-living pressures are squeezing both consumers and businesses.”

Given today’s high borrowing costs and unpredictable demand, stability and cash resilience matter more than rapid expansion. So instead of aggressively pursuing growth, many organisations are working to protect their margins and strengthen their balance sheets. Indeed, SAP Taulia’s latest Supplier Survey found that 46% of suppliers identified growth as a top focus, down from 53% in 2024/25.

“For many companies, the priority is simply ensuring they have enough financial flexibility to navigate ongoing volatility,” Hashemi notes.

Late payments are on the rise

The Supplier Survey also revealed that late payments are once again on the rise, with 55% of suppliers reporting late payments, up from 51% last year. Meanwhile, only 37% of suppliers are being paid on time, down from 42% in 2024/25.

Delays due to administrative inefficiencies are nothing new. But with rising costs putting more pressure on cash flow, many businesses are holding onto their cash for longer. In some cases, larger firms are deliberately extending their payment cycles as part of their cash flow management strategy – making it harder than ever for suppliers to make ends meet.

“For suppliers, particularly SMEs, late payments can create serious cash flow challenges,” says Hashemi. “They still need to cover wages and operational costs, even if invoices remain unpaid. This can force them to take on expensive short-term financing and delay their own payments.

“In extreme cases, persistent late payments can threaten the financial stability of otherwise healthy businesses.”

Suppliers are becoming more proactive

It’s not all bad news. As the Supplier Survey report points out, suppliers aren’t just sitting around waiting for buyers to pay them – instead, they are taking control of their own destinies.

Traditionally, suppliers would either wait 30, 60, or even 90 days to be paid on the due date of an invoice. Alternatively, they would speed up payment by factoring their receivables, which tends to be an expensive option. But early payment solutions have changed this dynamic, allowing suppliers to access funds as soon as they need them.

Early payments enable suppliers to proactively manage their cash flows, with greater flexibility and control. They can choose when to access liquidity based on their own needs, rather than depending on their customers’ payment timelines. As Hashemi points out, “This allows them to bridge the cash flow gap between delivering goods or services and receiving payment.”

Increasingly, suppliers are taking advantage of this opportunity. According to the survey, 66% of suppliers are interested in taking early payments – a five-year high.

Benefits of supply chain resilience

For buyers, meanwhile, it’s important to recognise that supply chain resilience benefits everyone.

“Buyers naturally want to optimise their own working capital – but if suppliers are under financial strain, this can disrupt operations and create risk across the supply chain,” says Hashemi.

To address these risks, he explains, buyers need to communicate openly with suppliers and understand which partners may be more vulnerable to cash flow pressures. By doing so, they will be better placed to adopt solutions that support both sides of the equation.

“The goal should be a more collaborative approach to liquidity management, where both buyers and suppliers have the flexibility to manage their cash positions effectively,” Hashemi says.

AI: moving from hype to reality

This year’s survey also highlighted the growing focus on AI, with 44% of suppliers saying AI is top of mind, up from 38% a year ago.

But there’s a notable gap between interest and adoption, as highlighted in our recent report, How AI is Reshaping Risk, Resilience and the Human Role. The report found that while 82% of procurement leaders are eager to adopt AI, only 35% are prioritising procurement for AI investment.

It’s clear that AI has much to offer buyers and suppliers alike. “For one thing, it can help to automate invoice processing and identify payment risks,” says Hashemi. “AI can support more accurate cash flow forecasting and flag potential late payments before they become a problem. AI also allows the analysis of financial data to make better decisions.”

But moving from hype to real impact requires strong data foundations. AI systems are only as effective as the data they’re built on – so in order to benefit, companies need clean and accessible financial data. AI systems also need to integrate smoothly with existing finance systems so that insights can be acted on in real time.

As Hashemi concludes, “Ultimately, the businesses that will benefit most from AI are those that treat it as part of a broader digital transformation.”

Find out more in our webinar: The AI Reality Check

The gap between AI adoption and growth will be explored in more detail in a webinar on Thursday, 26^th March, ‘The AI Reality Check: Funding Growth and Managing Supplier Risk in an Uncertain Market.’

During the webinar, Peddy Hashemi is joined by experts from SAP, PwC, and Applied Materials. Together, they discuss why AI can only deliver real value if organisations have the right data infrastructure in place, why businesses need a liquidity toolkit, and why waiting until cash flow becomes a problem is too late.

And as the cash flow gap across supply chains continues to widen, the panel will also explore why addressing this gap is becoming an important priority for buyers who want to maintain stable, resilient supply chains.

Register for the webinar

Three Treasury Strategies for Building a Resilient Supplier Network

Effective Treasury departments are no longer just custodians of cash. By leveraging data and optimizing funding, Treasury can proactively prevent disruptions before they affect production.

The definition of resilience has shifted from a buzzword to a critical survival metric. As Deloitte reports, technology is now “transforming treasury operations, driving efficiency and strategic decision-making.” Simultaneously, Forbes notes that supply chain visibility has become a CFO imperative, with unrelenting disruptions dominating the agenda.

To build a truly resilient supply chain, you must look beyond supplier diversity and focus on supplier financial health. Here is how to execute a strategy that strengthens your network.

1. Diversify your funding sources

Relying on a single bank for your Supply Chain Finance (SCF) program creates a single point of failure. If that partner faces constraints, your suppliers lose their lifeline.

Do not just diversify who you buy from—diversify how you pay them. Move away from single-bank dependency and establish a multi-funder model that ensures liquidity is always available, regardless of market volatility.

The benefit:
Your program remains stable even if one financial partner pulls back. This guarantees that your suppliers can always access the capital they need to operate and fulfil orders, which is vital for high-growth suppliers or those in volatile markets.

SAP Taulia’s Multifunder capabilities eliminate single-point reliance. The platform provides access to a diverse pool of liquidity, supporting growth and maintaining stability irrespective of any single funder’s capacity limitations.

2. Inject liquidity dynamically

A supply chain is only as strong as its weakest cash flow link. When suppliers lack liquidity, they cannot fulfil orders, leading to costly, difficult-to-reverse physical disruptions.

Implement a flexible payment strategy that allows you to toggle between funding sources based on your current cash position. Treat early payments not just as a benefit, but as a strategic injection of liquidity into your supply chain.

The Benefit:
You protect your margins and production schedules by ensuring suppliers stay solvent. Simultaneously, you optimize your own working capital—using excess cash for returns when possible or preserving cash when necessary.

SAP Taulia lets you seamlessly switch between using your own cash (Dynamic Discounting) and third-party bank funds (Supply Chain Finance).

• Cash-Rich? Use Dynamic Discounting to pay early and generate risk-free returns.
• Cash-Preservation Mode? Switch to Supply Chain Finance to let suppliers access affordable third-party capital without impacting your balance sheet.

3. Monitor risk with data-driven precision

Complexity hides risk. Without visibility, a key supplier’s financial distress often goes unnoticed until they fail to deliver.

Stop reacting to disruptions and start predicting them. Use data from your payment platform to spot behavioral changes, such as a stable supplier suddenly requesting early payment every month, as early warning signs of financial distress.

The Benefit:
You gain a “first-mover” advantage on risk. By identifying precarious suppliers early, you can intervene or adjust your supply chain plans before a breakdown occurs, protecting profitability and client relationships.

SAP Taulia’s AI-driven analytics do the heavy lifting for you. The platform analyzes complex datasets to:

• Identify potential liquidity issues by detecting irregularities.
• Simulate “best-case to worst-case” scenarios to assess cash flow impact.
• Provide real-time insights for proactive decision-making.

The antifragile treasury

A resilient network requires a resilient financial foundation. By building flexibility into your funding and using data to predict risk, you move beyond simple survival. You create an antifragile treasury; one that doesn’t just withstand volatility but strengthens its position because of it.

With the agility to pivot funding strategies instantly through SAP Taulia, you ensure that market disruptions become opportunities for optimization rather than risks to be managed.

How to maximize savings with virtual cards for treasury departments

Treasurers operating in today’s business landscape are facing more pressure than ever to cut costs, streamline treasury operations, and strengthen payment security.

A solution that can move the needle on all of these factors is the Virtual Card. A corporate Virtual Card is a 16-digit number randomly generated for specific transactions or vendors, providing a secure and flexible digital payment method.

Virtual Cards don’t just replace traditional payment methods, such as ACH, wire transfers, or physical cards; they enable treasury teams to tap into new cost-saving and revenue-generating opportunities, reduce tedious manual processes, and gain greater control over every payment.

This article offers an in-depth look at the immense potential of Virtual Cards for treasury.

Consumer vs. corporate Virtual Cards: Key differences treasurers need to know

By now, nearly everyone has experienced paying with a Virtual Card—perhaps for an online subscription or a one-off purchase. While consumer Virtual Cards are built using similar technology and offer some of the same benefits as corporate Virtual Cards, there are key differences. First and foremost, corporate Virtual Cards are purpose-built for business-to-business use.

Here are the main differences between consumer and corporate Virtual Card benefits.Corporate virtual cards:

	Corporate	Personal
Security	Protects corporations from misuse of funds through random account generation and by linking transaction limits to invoice amounts.	Protects the individual from fraud – card cloning – by generating one-use card numbers for use online or through a finance app
Technology	Varying levels of integration based on the solution; often, traditional virtual card programs offered by banks have costly, file-based integrations with ERP and expense management systems.	Mobile technology that allows you to access your digital wallet from anywhere, often allowing you to switch between currencies
Budgeting	Customizable parameters, where cards can be linked to specific business units or projects for improved monitoring, reconciliation, and invoice management.	Enable spend limits for daily, weekly, and monthly budgeting

The SAP Taulia difference:

• Accelerated payments allow suppliers to be paid sooner without requiring buyers to update payment terms within their ERP manually
• Integrate directly to ERP and accounting systems to make managing payments and reconciliation easier.
• Offer advanced controls for card administration, including for reissuance, card expiry adjustments, and card cancellations

Corporate Virtual Card benefits for treasurers

Virtual Cards are more than just a payment method; they can serve as a real strategic advantage. In fact, 94% of organizations say that Virtual Cards improved their transaction speed, detail, and security.

The top corporate virtual card benefits are:

• Accurate reconciliation and reporting: Every transaction is captured with rich data, including the invoice number, cost center, etc., ensuring the reconciliation process provides clear, real-time visibility into spending.
• Stronger spending controls and budget enforcement: Each Virtual Card can be locked to a specific amount, supplier, and time period, preventing unauthorized spending and reducing the need for exceptions or audits.
• Lower fraud exposure and minimized risk: Single-use or restricted card numbers make compromised data useless, increasing payment security for businesses and reducing fraud risk compared to physical cards.
• Efficient procure-to-pay operations: Virtual Cards allow you to automate tedious manual tasks. They can also eliminate the need for purchase orders for smaller buys, simplifying AP workflows.
• Improved payment timing and working capital flexibility: Virtual Cards enable reliable supplier payments and unlock opportunities to extend payment terms (DPO) while still ensuring suppliers are paid on time.

Three ways Virtual Cards create cost savings

It’s a common misconception that Virtual Cards are more expensive than other payment methods due to perceived high fees. However, when considering operational savings, fraud reduction, and liquidity benefits, Virtual Cards can be one of the most efficient payment tools available to treasury departments.

Here are three specific ways Virtual Cards generate direct cost savings:

Virtual Card programs offer financial rebates based on the volume of purchases. This has the potential to transform the accounts payable department from a cost center into a revenue generator, with savings flowing directly to the bottom line. For example, with SAP Taulia ERP-embedded virtual cards, you can unlock as much as $2M in savings for every $200M of payables.

Globally, financial fraud costs businesses about 8% of their revenue every year. Security features built into Virtual Cards help mitigate potential fraud expenses. This saves businesses not only the direct financial loss but also the costs of investigation, recovery, and reputation damage in the market.

Virtual Cards offer process efficiency gains. Manual payment processing and data entry carry a hidden cost, as they drain employee time spent on approvals, exception handling, and reconciling invoices. Automating processes with Virtual Cards gives treasury teams valuable time back to focus on higher-value initiatives in the business.

Key challenges of virtual cards for treasurers

With any process or policy change, adoption can be a challenge. Despite this, Virtual Cards are a sound, strategic option for treasury payment optimization. Each challenge can be addressed with careful planning and clear communication.

Managing supplier acceptance

Not all suppliers will accept Virtual Cards. Just as not all suppliers accept other forms of payment. While this may seem like a challenge, the solution is simple.

Businesses should adopt a multi-rail payment strategy, utilizing Virtual Cards when possible and prudent to do so. Other payment alternatives, such as ACH, can be used as an option when Virtual Card payments are unavailable. Flexibility with your payment types can help you work with suppliers and stay in good standing.

Streamlining internal change management

Whenever you introduce a new process, it is essential to train staff on the new protocols and procedures thoroughly. Making an effort to communicate the benefits of Virtual Cards up front can help get staff on board with the change. Additionally, modern financial platforms, such as SAP Taulia, are specifically designed for easy integration and user-friendly workflows to help you achieve value more quickly.

Configuring integrations

Treasury teams often worry that integrating a Virtual Card program with their existing ERP or accounting systems will be difficult. In practice, Virtual Cards don’t have lengthy or complex implementation timelines. They are designed to integrate directly with leading ERPs, like Oracle and SAP, allowing key payment data, invoice details, and reconciliation information to flow automatically. Most companies will experience a net positive impact on timelines due to the simplicity of implementation and productivity gains by implementing Virtual Cards.

Identifying the right time to introduce Virtual Cards

If you’re interested in Virtual Cards for your business, but are unsure if it’s the right time, use this series of questions to evaluate your readiness:

• Is your business struggling to manage a high volume of low-value invoices?
• Is minimizing payment fraud a significant concern and priority for your organization?
• Does your team need to streamline treasury operations because they spend too much time on manual payment processing and reconciliation?
• Are you seeking new, innovative ways to generate revenue or savings from your accounts payable process?

If you answered yes to any of the above questions, Virtual Cards have the potential to positively impact your treasury operations.

Access untapped revenue and cost savings with Virtual Cards

Virtual Cards offer a multitude of benefits on their own, but their true power is unlocked when they’re deeply embedded into your broader working capital operations. SAP Taulia doesn’t just provide a Virtual Card solution—we integrate with your Oracle and SAP ERP to streamline how you manage cash, supplier payments, and liquidity.

SAP Taulia’s Virtual Card solution is part of a full-featured Payables platform. With no IT support required, you can optimize supplier payments, reduce risk, and gain both flexibility and control with our end-to-end system.

Ready to unlock savings and streamline treasury operations? Download our comprehensive data sheet to learn more about the power of SAP Taulia’s Virtual Card solution. Or, download our Whitepaper: Unlock your working capital potential with SAP Taulia Payables.

Treasury’s role in forging a cash-first culture

Making cash a shared priority is a strategic imperative for the treasury function. But what does a cash-first culture really look like? And which steps can treasury leaders take to embed cash discipline across the enterprise? Discover the tried-and-tested strategies shared by treasury leaders at a recent Taulia Treasurers Club event.

A cash-first culture can make the difference between navigating volatility successfully and falling victim to it. But what does this look like in practice?

In a nutshell, it’s about embedding cash discipline across the organization, and empowering the entire business to think ‘cash-first’. But to achieve that, treasury teams need to move beyond traditional financial policies and actively shape behavior, processes, and mindsets throughout the organization. This doesn’t happen by accident – rather, it’s achieved through deliberate design, partnership, and persistence that can only be achieved by following a practical framework.

A recent Taulia Treasurers’ Club event explored how a cash-first culture can help companies drive greater cash visibility, improve liquidity management and working capital management, and increase control and accountability over cash. Read on to learn about the peer-tested strategies discussed during the event and how they can be deployed to make cash a shared priority.

The blueprint: building a resilient and transparent foundation

A resilient culture starts with the ability to see clearly and plan for disruption. And for this, treasury teams need a clear view of their liquidity, both now and in the future.

Visibility over cash can be a challenge for companies with fragmented ERP systems and pooled accounts. However, by treating treasury as a ‘cash control room’ that brings together mission-critical information, treasurers can achieve the real-time, unit-level cash intelligence needed to plan ahead and optimize liquidity management.

When it comes to planning for disruption, it’s not enough to conduct periodic stress tests – a strategic treasury also needs to embrace dynamic cash flow forecasting that continuously adapts to new information as it arises. Scenario planning should be codified with ‘crisis playbooks’ that detail how the company would navigate different types of disruption.

The language of cash: redefining the metrics that drive behavior

In order to promote a cash-first mindset, it’s important to speak the right language – and that means using suitable metrics. Since traditional key performance indicators (KPIs) can be misleading, treasurers should focus on advanced metrics that can drive the right behaviors throughout the organization.

For example, it’s important to look beyond EBITDA – which overlooks changes in working capital – and introduce ‘behavior-safe’ KPIs that will encourage others in the organization to prioritize cash. For example, ratios such as the Cash Recycling Ratio and DSO (Days Sales Outstanding) can be more effective when it comes to measuring true operational health.

Attributing ownership clearly is also essential when it comes to driving behavior. For this, treasurers should assign cash flow responsibility at the business unit level using data enrichment and machine learning.

The cross-functional alliance: making working capital a team sport

Treasury may be the architect of the framework needed for a cash-first culture. But when it comes to executing the framework, the entire organization has a part to play. As such, effective cross-functional alliances are needed between treasury, commercial, procurement, and operations teams.

To make working capital a team sport, treasurers should consider forming a ‘cash council’ – in other words, a cross-functional team responsible for aligning goals and harmonizing data between different teams, as well as addressing any barriers to progress.

Working capital management programs such as supply chain finance and dynamic discounting should be framed around shared goals, such as supplier health and resilience, so that everyone understands the benefits.

And on the commercial side, companies should instill cash discipline by adopting cash-positive contract terms and billing hygiene.

Advanced smithing: mastering global cash and technology

In a global enterprise, forging a cash culture involves mastering complex challenges and choosing the right technology.

Challenges can arise when cash is trapped in particular jurisdictions, for example, due to local regulatory or tax constraints. To free up trapped cash, treasurers need to devise effective strategies for repatriation, including smart structuring, intercompany settlements, and coordinating closely with tax colleagues.

Additionally, technology plays a crucial role in supporting a cash-first culture. This means having the right tools for the job, such as electronic payables and virtual cards. However, these are targeted instruments, rather than cure-alls. When it comes to flexibility, there’s no substitute for an open, multi-funder platform that provides access to a diverse range of funding sources, as well as different levers for optimizing working capital.

Conclusion: culture is forged by leaders, not systems

Technology and platforms are essential enablers, but it’s important to remember that a true cash-first culture is ultimately driven by effective treasury leadership.

A cash-first culture originates from the top down and is embedded within the organization by fostering trust and educating its members. Above all, it means partnering effectively with people from the relevant functions – so rather than acting as ‘policy police’, treasurers should position themselves as strategic partners that empower the entire business to prioritize cash.

Building a Successful Supplier Diversity Program with Baker Hughes

At Baker Hughes, supplier diversity is integral to its business strategy. In Australia, diverse suppliers are defined as organizations where at least 51% of ownership, operation, or control rests with a specific underrepresented group, such as those owned by minorities, women, veterans, Indigenous people, LGBTQ+ individuals, or people with disabilities.

We will explore this strategy through valuable insights from three leaders: Anoop Kurup of Baker Hughes, Sharna Collard of Kooya, and SAP Taulia’s Bob Glotfelty.

The purpose of Baker Hughes’ supplier diversity program is to promote inclusion for a fair and meaningful chance for everyone, while also strengthening local economies by fostering job creation in underserved communities. Tapping into a diverse supplier base also drives innovation in procurement practices, as diverse suppliers, according to Anoop, “bring unique ideas, agility, and niche expertise that can lead to better products and services,” contributing to business growth.

The program also reflects Baker Hughes’ corporate responsibility values that are core to its operations. As supplier diversity metrics become a contractual requirement for corporate procurement practices, Anoop states that social responsibility is “no longer a choice or an option,” but a “core expectation from modern consumers and clients.”

The Impact: A Story of Transformation and Reciprocity

For Sharna, CEO of Kooya (a supplier to Baker Hughes), supplier diversity programs have a transformative impact. The program with Baker Hughes has not only opened up opportunities that they may previously not have had access to, but has also “created a platform for us to showcase our quality and innovation that we bring to the table.”

This partnership balances purpose and profit. For Kooya, this means starting with smaller opportunities and showcasing their value, paving the way for them to scale and grow alongside an organization. Sharna notes that genuine partnerships like this have been “the key to Kooya’s success.”

Built on reciprocity, Kooya extends this principle through its non-profit arm, the Bibbulmun Fund. Established in 2014, this community investment initiative fosters leadership and entrepreneurship, aiming to create economic independence for Indigenous communities. By channeling 5% of Kooya’s net profits into the Bibbulmun Fund, supplier diversity partnerships achieve a far-reaching social impact.

The Steps to a Successful Program

Scaling a supplier diversity program for a large organization like Baker Hughes is more complex than it might seem. As Sharna states, it must be “led from the top down” and “needs to be intrinsic within the organization and requires everybody’s buy-in.”

Baker Hughes followed a robust approach. The Reconciliation Action Plan (RAP) in Australia provided a structured framework to take meaningful action on reconciliation with Aboriginal and Torres Strait Islander people. This marked a strategic shift towards inclusive procurement practices that embed social, environmental, and economic value.

Cross-functional communication was also key. Awareness and training sessions were conducted across internal teams to educate stakeholders on the importance of supplier diversity and inclusive procurement.

To ensure the program’s longevity, Baker Hughes collaborated with external organizations to build partnerships with diverse suppliers, such as We Connect International and Supply Nation. As Australia’s supplier diversity leader, Supply Nation links corporates and government businesses with Aboriginal and Torres Strait Islander businesses. This was where Baker Hughes was connected with Kooya.

A key part of Baker Hughes’ strategy is measurement, and clear KPIs were set to track spend with both Tier 1 and Tier 2 diverse suppliers. This commitment is evident in their results: in 2024, Baker Hughes reported approximately $632 million USD spent globally with its diverse and small business suppliers.

Ultimately, it’s this blend of process and genuine commitment that ensures success. Sharna notes that what stands out with Baker Hughes is that “It’s not just this tick and flick. There are real relationships, meaningful outcomes, and most importantly, a fantastic way to build credibility and capability…”

Technology is key

A critical pillar supporting the Baker Hughes program is technology designed to empower suppliers. Baker Hughes has partnered with SAP Taulia to offer early payments to its diverse suppliers, empowering them with faster and reliable access to liquidity, a crucial element for managing working capital and fueling growth. Over the past five years, the early payment program has scaled to support Baker Hughes’ suppliers globally, from APAC, all the way to North America.

As Bob explains, the supplier-centric program is optional and user-friendly. Suppliers receive an invitation and can enroll in just 90 seconds, gaining free access to a portal that provides full visibility into their invoice status.

Once an invoice is approved, suppliers have the option to request early payment at a favorable rate based on Baker Hughes’ strong credit rating, a significant advantage over traditional financing.

SAP Taulia’s flexible program is more than a convenience; it’s a tangible way Baker Hughes invests in the resilience and sustainability of its valued diverse suppliers.

Strategic Takeaways

The journey of Baker Hughes and Kooya spotlights a clear blueprint for success. Supplier diversity thrives when it is intrinsic to a company’s operations, supported by robust processes, and enabled by flexible technology like SAP Taulia that strengthens supply chain resilience.

For businesses looking to establish a supplier diversity program, the leaders have provided powerful advice from both sides of the partnership. Sharna encourages Aboriginal and Torres Strait Islander businesses to “know your value and tell your story clearly,” emphasizing that while diversity is a strength, communicating the unique value of one’s products and services is crucial. Noting the importance of building strong partnerships with like-minded businesses, Sharna advises that mutual commitment to a collective goal and objective is key to success.

For corporations, Anoop recommends going beyond one-time purchases by “actively investing in the growth and sustainability of diverse suppliers” through mentorship, training, and flexible access to capital via supplier-friendly technology such as SAP Taulia.

These principles form the cornerstone of an impactful program. By building meaningful and lasting partnerships that fuel mutual growth, companies can create a more equitable business ecosystem for all.

The Future of Supply Chain Finance: Trends to Watch

In a recent Deloitte finance trends report uncertainty was reported as the number one concern for CFOs and their finance managers. And navigating a landscape this unpredictable requires more than just steady hands; it means getting on the front foot when it comes to understanding and embracing the technologies and strategies reshaping the industry.

We will take you through those critical trends defining the future of supply chain finance, and show you how you can leverage them to build a competitive edge.

1. AI & Automation for Predictive Finance

What is it?

We are moving beyond basic forecasting into the era of autonomous agents and predictive finance. This trend involves using AI to fuse purchasing, manufacturing, and finance operations into a single, cohesive plan. Instead of static spreadsheets, AI agents analyze historical data and real-time market trends to model risks and project demand with unprecedented precision.

Areas of importance

• Regulatory Compliance: Meeting strict reporting standards to avoid fines and reputational damage.
• Scope 3 Tracking: Gathering data on emissions produced by suppliers and logistics providers.
• Sustainable Sourcing: Prioritizing localized and green options over purely low-cost ones.

Benefits to business

• Early Warnings: Automated alerts allow for intervention before a small issue becomes a crisis.
• Optimization: Identifying and removing bottlenecks that slow down production.
• Data-Driven Decisions: replacing gut feeling with real-time analytics.

Potential impact on business

10/10 – AI is rapidly becoming a baseline requirement, not a luxury. Companies failing to adopt predictive tools risk being outmaneuvered by faster, data-driven competitors.

SAP Taulia recommendation

Look at areas where AI can drive maximum impact for the business such as AI-powered Cash Flow Acceleration. SAP Taulia uses “Intelligent Decision Automation” to analyze supplier behavior and recommend the optimal timing and discount rates for early payments. By using predictive spend analysis, you can maximize early payment adoption, ensuring your suppliers are funded while you optimize your own working capital yields.

2. Resilience & Risk Management (Antifragile Design)

What is it?

This is the shift from “just-in-time” efficiency to “antifragile” design—building systems that don’t just survive volatility but leverage it. Strategies include nearshoring operations, multi-sourcing critical components, and utilizing dark stores (dedicated fulfillment hubs without in-store shopping) to speed up local delivery.

Areas of importance

• Diversification: Reducing dependency on single suppliers or regions.
• Proactive Monitoring: Tracking weather events, labor strikes, and geopolitical shifts before they halt production.
• Logistics Flexibility: Using dark stores to handle online order surges without disrupting retail operations.

Benefits to business

• Continuity: The ability to maintain production schedules when competitors are stalled.
• Agility: Faster reaction times to market changes or logistics failures.
• Customer Trust: Delivering on time, regardless of background chaos.

Potential impact on business

9/10 – As noted by Dassault Systèmes, disruption is now the norm. Resilience is your insurance policy against revenue loss.

SAP Taulia recommendation

Look for win-win scenarios that can benefit both you and your suppliers such as Flexible Funding. Resilience relies on the financial health of your suppliers. Taulia allows you to switch seamlessly between using your own cash (Dynamic Discounting) and third-party bank money (Supply Chain Finance) to pay suppliers early. This ensures your suppliers always have the liquidity they need to survive disruptions, securing your supply chain without straining your own balance sheet.

3. Deepening Visibility & Digital Twins

What is it?

A Digital Twin is a virtual replica of your entire supply chain that links supply, demand, and capacity data. When combined with IoT (Internet of Things) sensors and end-to-end visibility tools, it allows managers to track goods, financial health, and raw material prices in real time.

Areas of importance

• End-to-End Tracking: Monitoring everything from raw material sources to final mile delivery.
• Supplier Health: Using data to identify if a supplier is facing financial distress before they miss a shipment.
• Simulation: Running “what-if” scenarios in the digital twin to test responses to potential constraints.

Benefits to business

• Early Warnings: Automated alerts allow for intervention before a small issue becomes a crisis.
• Optimization: Identifying and removing bottlenecks that slow down production.
• Data-Driven Decisions: replacing gut feeling with real-time analytics.

Potential impact on business

8/10 – You cannot manage what you cannot see. Visibility is the prerequisite for all other optimizations.

SAP Taulia recommendation

Focus on increasing transparency by leveraging tools such as Cash Analytics. Taulia provides a “financial digital twin” view of your supply chain by giving you deep visibility into cash flow and supplier payment behaviors. Use this data to identify which suppliers might need early payment support and to forecast your own liquidity needs with greater accuracy.

4. Sustainability & ESG Integration

What is it?

Sustainability is no longer optional; it is regulatory. Companies must now track Scope 3 emissions (emissions from the entire value chain) to comply with regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD) and Germany’s Supply Chain Due Diligence Act.

Areas of importance

• Regulatory Compliance: Meeting strict reporting standards to avoid fines and reputational damage.
• Scope 3 Tracking: Gathering data on emissions produced by suppliers and logistics providers.
• Sustainable Sourcing: Prioritizing localized and green options over purely low-cost ones.

Benefits to business

• Risk Mitigation: Avoiding non-compliance penalties and “greenwashing” accusations.
• Brand Value: Meeting the rising ethical expectations of consumers and investors.
• Long-term Viability: Ensuring your supply chain is compatible with a low-carbon future.

Potential impact on business

9/10 – Regulatory pressure is escalating rapidly. As PwC notes, Scope 3 emissions often account for the majority of a company’s carbon footprint.

SAP Taulia recommendation

Ensure your supply chain is not overlooked in your ESG strategy and adopt Sustainable Supplier Finance. You can use your supply chain finance program to incentivize ESG behavior. Taulia allows you to offer preferential early payment rates to suppliers who meet specific sustainability metrics (e.g., ESG ratings). This turns your accounts payable process into a powerful tool for driving Scope 3 reductions and tracking compliance across your network.

5. Workforce Evolution & Upskilling

What is it?

The role of the finance professional is undergoing a fundamental shift. We are moving away from manual data entry and reactive reporting toward a model where AI agents act as colleagues.

This trend isn’t about replacing people; it’s about upskilling teams to become data-literate strategists who can interpret complex AI-driven insights and oversee autonomous agents handling daily tasks.

Areas of importance

• Data Literacy: Upskilling staff to understand, question, and act upon the complex data streams provided by real-time analytics.
• AI Collaboration: Learning to work alongside AI agents that handle reporting, exception identification, and forecasting.
• Strategic Shift: Moving staff focus from “gathering data” to “making decisions based on data.”

Benefits to business

• Speed: AI agents can rapidly analyze vast datasets, providing management with options as circumstances change.
• Precision: Reducing human error in forecasting and routine processing.
• Empowerment: Staff are freed from repetitive tasks to focus on high-value activities, such as supplier relationship management and strategic planning.

Potential impact on business

8/10 – Technology is only as good as the people wielding it. Without a workforce capable of interpreting AI insights, your expensive tools become expensive paperweights.

SAP Taulia recommendation

Leverage Automated Workflows to Elevate Your Team. SAP Taulia’s platform automates the heavy lifting of invoice processing and supplier onboarding.

This directly supports workforce evolution by freeing your procurement and finance teams from transactional drudgery, allowing them to focus on strategic resilience and “exception-based” management—where they only intervene when the AI flags a specific issue.

Shifting Tech Landscape (XaaS & Edge Intelligence)

What is it?

The rigid, monolithic software of the past is being replaced by Everything as a Service (XaaS) and localized Edge Intelligence. This shift favors flexibility over ownership, allowing businesses to access powerful supply chain tools via the cloud on a pay-as-you-go model, while “Edge” tech enables faster decision-making closer to where the data is created (e.g., at the warehouse or port).

Areas of importance

• XaaS Adoption: Moving to cloud-based services to eliminate large upfront capital costs and ensure automatic software updates.
• Scalability: The ability to scale tech resources up or down instantly as business complexity grows.
• Mitigation Planning: Using advanced tech to run “what-if” scenarios (e.g., “What if a key supplier goes bust?”) before they happen.

Benefits to business

• Cost Efficiency: shifting from CapEx to OpEx with predictable pay-as-you-go models.
• Agility: Automatic updates mean you always have the latest features without lengthy upgrade projects.
• Resilience: Edge intelligence enables localized decision-making even when central connections are disrupted.

Potential impact on business

7/10 – Operational agility is a key differentiator. The ability to deploy new capabilities (like a new financing program) in weeks rather than years is a massive competitive advantage.

SAP Taulia recommendation

Adopt a Cloud-Based Working Capital Platform. SAP Taulia is a prime example of the XaaS advantage—it integrates deeply with your ERP (like SAP S/4HANA) but resides in the cloud.

This means you can deploy new capabilities, such as switching from Dynamic Discounting to Supply Chain Finance, instantly without a heavy IT lift.

Providing you with the “what-if” agility to adjust your funding strategy quickly in response to market volatility.

How is procurement evolving in Singapore?

Southeast Asia’s largest port, Singapore has long been known as a major global centre for logistics and trade.

However, despite this reputation, Singapore has not been immune to recent global supply chain challenges. This means procurement teams here, like anywhere else, face mounting pressure to deliver greater cost efficiencies and become more resilient and proactive.

Here’s how procurement leaders in Singapore are responding to these pressures, and how AI is shaping the future of the function.

Procurement challenges are increasing in Singapore

During SAP Taulia’s recent research, 68% of leaders surveyed said they had experienced more procurement-related challenges in the last year. While this is clearly a high proportion, it’s important to note that it is lower than the global result (72%) – and notably lower than some other regions such as the UK (74%) and France (73%). Local factors may play a role in these differences. Singapore is a stable trade and logistics centre with strong government support for building supply chain resilience and a high level of digital maturity.

Despite this, the sentiment in Singapore still shares some similarities with the rest of the world. The most cited challenge among respondents here was managing the impact of macroeconomic shifts (36%), which mirrors the results of other regions (UK: 37%, France: 34%, US: 35%).

A predictive evolution in procurement priorities

Over half (51%) of respondents in Singapore say their biggest priority today lies in optimizing their cash flow and reducing financial risk. This is also similar to findings from the US (49%), although only 42% of respondents in the UK and 35% in Germany shared this view.

Looking ahead, the top areas where respondents expect to make the greatest impact are ensuring compliance with regulations and internal policies (rising from 36% today to 47% in the future) and reducing overall business costs through supply chain efficiency (46% in the future vs 42% today).

The shift in priorities points to a progression from immediate, reactive financial management towards long-term operational resilience as procurement leaders in Singapore seek to strengthen their businesses amid persistent economic pressures.

How is AI used by procurement teams in Singapore?

In Singapore, the most popular task respondents use AI-powered procurement tools for is invoice processing and automation, cited by 41% of respondents. However, in the UK, the most popular task is forecast demand or pricing (40%), compared to risk monitoring and mitigation in the US (50%) and spend analysis and categorization in Germany (42%).

Procurement-specific AI tools are also widely used for risk monitoring and mitigation (39%) and preparing presentations or stakeholder briefings (38%) in Singapore. Meanwhile, the least cited task was supplier identification and evaluation (23%), which is an emerging opportunity for this region as AI advances rapidly in the coming years.

What are the priorities for AI investment and growth in Singapore?

The most cited priority from Singapore-based leaders is data analytics and business intelligence (43%). This compares to just 34% of respondents in the UK but 46% in the US, which shows how priorities vary across different regions.

The future of AI in procurement

In the future, the most cited area where Singapore procurement teams expect AI to have the greatest impact is developing procurement strategy or business cases (39%). Other key opportunities include spend analysis, risk monitoring, and contract management (all 38%). A common theme arises: procurement leaders in Singapore are looking beyond using AI for basic process automation, instead using it as a tool to make smarter, high-level strategic decisions.

While AI presents many opportunities, it is important to address the concerns too. Most (76%) of procurement professionals in Singapore are worried about the long-term impact AI could have on their functions, while about two in five (41%) fear procurement may be absorbed by other parts of the business due to this technology.

It is important to address these concerns, which are shared by procurement leaders in all global regions, and emphasise the benefits of adopting and scaling AI successfully. Our research shows that AI, when used appropriately, can be a powerful tool for improving productivity, efficiency, and resilience. One of the main advantages of AI is its ability to perform data-intensive, arduous tasks in a fraction of the time they would take humans.

The importance of building resilient procurement teams

Nikolaus Kirner, Chief Procurement Officer at SAP Taulia, says AI can help procurement teams move from being reactive to adopting a proactive approach, strengthening their ability to mitigate risk.

It can also strengthen interoperability between procurement, finance, and supply chain teams, which helps procurement leaders gain more visibility over their supply chain performance, working capital, and payment cycles.

Overall, AI is expected to play a significant role in the evolution of procurement in Singapore and the rest of the world.

Our research shows that its benefits go far beyond operational efficiency: it can also help procurement teams mitigate supply chain risks, strengthen operational resilience, and improve supplier relationships.

Procurement teams in Singapore that don’t embrace this technology risk falling behind as C-suite expectations for long-term value and resilience continue to rise.

How AI Is Shaping the Future of Procurement in France

Amid economic uncertainty and heightened sustainability expectations, French procurement leaders face an evolving landscape.

A survey of 100 senior decision makers in procurement with responsibility over supply chains in France, conducted by SAP Taulia in August 2025, paints a picture of a profession ready to invest in the right tools, capabilities, and leadership support to build resilient artificial intelligence (AI)-driven strategies.

Supporting sustainability goals

While procurement in France is still closely associated with core financial responsibilities, professional leaders expect their future influence to extend beyond this into risk foresight and intelligent planning.

At present, the biggest impact for leaders on business outcomes lies in optimizing cash flow and reducing financial risk (38%), alongside shaping supply chain strategy to support long-term business growth (also 38%).

However, looking ahead, the proportion who believe their biggest future impact will be supporting sustainability and corporate responsibility goals stands at 38%, compared to just 24% today. Likewise, one in three (33%) expect to drive innovation through deep collaboration with suppliers, compared to 26% today.

The message appears to be clear: procurement’s role in France is becoming more strategic and innovation-driven.

It also highlights a contrast between France and its closest neighbour, the UK. While France expects procurement’s impact to grow most in sustainability and innovation, the UK sees a larger rise in risk-management responsibilities.

Challenges getting stronger but leadership priorities lagging

A complex environment means that there are some barriers to progress, but encouragingly there is widespread perception that artificial intelligence (AI) can help solve many of the challenges French professionals face.

Nearly three quarters (73%) of respondents say that procurement challenges have increased over the past year, with almost one in five (18%) seeing a significant rise. Over one in three (34%) cite navigating geopolitical risks as the biggest issue, while balancing internal and supplier priorities, managing macroeconomic shifts, and ensuring supply continuity while achieving best value each concern 31% of respondents.

This points to the growing need for better tools and decision-making support, which is where AI represents a major opportunity; consequently, most procurement professionals in France (81%) believe that AI could have a major or moderate impact on addressing their challenges, with 37% expecting a major impact.

However, leadership teams are not yet fully aligned. When asked where their organizations are focusing AI investment as a priority, procurement and supply chain management sat in a distant fourth place at 36% behind three other sectors.

This apparent disconnect seems to signal a gap between procurement’s needs and organizational investment focus, not least because the overwhelming majority (91%) of procurement professionals say it is important for leadership to act to help them overcome current challenges, 63% of which call it very important.

AI adoption on the rise

While AI is already gaining traction in France, adoption is uneven across tool types. Almost half (45%) of those surveyed currently use AI-powered procurement tools while 57% already use generative AI (GenAI) tools.

In fact, GenAI is being used significantly more often than procurement-specific AI tools for strategic tasks such as contract management and compliance tracking (32% vs. 20% respectively) and developing procurement strategy or business cases (30% vs 18%).

This points to a perception that while purpose-built AI is useful to automate operational efficiencies, GenAI is being used to shape strategic procurement activities.

The benefits for strategic capability

For the majority who already use some form of AI, there are clear benefits in three key areas:

• Operational efficiency – saving time and money, boosting productivity and reducing repetitive tasks
• Compliance and risk – enhancing contract analysis and negotiation
• Predictive capability – better demand forecasting/spend analysis and enabling more proactive decision-making.

There are some grey areas of concern – almost twice as many French respondents than UK (48% v 25%) had job cut fears, while just over two in five (42%) thought AI could reduce the procurement function’s overall importance.

Nonetheless, the tide is turning. Almost nine in ten (87%) rate their organization’s data quality as good when considering AI’s full potential, with a clear majority agreeing that advanced analytics in procurement is helping the function move from reactive to proactive (78%), shifting from manual processes to strategic, value-adding work (85%).

Looking to the future: humans and AI in harmony

One of the key takeaways was the message that balancing AI and human leadership is crucial. While French procurement professionals see AI delivering the most impact in invoice automation (35%), spend analysis and cost-saving identification (32%), and procurement strategy development (30%), they are selective about the areas in which AI should lead.

For instance, they are comfortable with AI being central to timesaving, automated tasks such as contract drafting and review (43%) and spend analysis or reporting (40%).

However, when it comes to navigating real-world compromises, they strongly prefer human leadership when it comes to supplier negotiations – 44% want humans to lead direct negotiations compared to 31% for AI.

Perhaps this points to the future of AI in procurement in France taking on a hybrid role. One in which organizations harness the power of AI to accelerate insight, efficiency and compliance, while human expertise is the engine behind the relationships, operational resilience and decision-making that drives long-term supply chain value.

How AI is reshaping procurement in Australia from strategy to interoperability

In procurement, being a strategic partner for the business is no longer optional – it is the baseline. Today, C-suites in Australia and beyond have placed much higher demands on their procurement functions to become more operationally resilient and predictive amid global supply chain volatility.

Our research conducted by SAP Taulia shows that over two thirds (68%) of procurement leaders in Australia say their challenges have increased in the last year. This compares to 74% in the UK, 66% in Germany, 68% in Singapore and 72% globally.

What are driving these challenges?

• Mounting stakeholder pressures, as outlined above
• Ongoing supply chain disruptions
• The expectation to produce more value with fewer resources

However, before we discuss in more detail, it’s important to emphasise that not everyone is experiencing these challenges. Australia was one of the countries reporting the highest proportion of decreases in procurement challenges (15%) of respondents. This data hints that procurement leaders here may be adapting or responding slightly more positively to AI than other world regions.

How is AI reshaping procurement in Australia?

Our research shows that half (50%) of procurement professionals in Australia use AI in their roles, while only 10% admit to not using these tools.

48% of respondents who use AI-powered procurement tools apply them to develop procurement strategies and business cases. GenAI tools in particular are more often used for spend analysis and categorization (44% of respondents using these tools).

Most respondents agree that AI will impact their roles and departments

About 80% of procurement leaders in Australia say AI will have a major or moderate impact on their function.

However, this technology is advancing faster than many of these organizations can keep up – and there are some concerns about the long-term implications of AI as more procurement teams adopt and scale it. Our research has revealed that many procurement leaders worry that AI may reverse its evolution into a strategic, resilient partner.

39% of our Australia-based respondents also believed that AI will make it harder for procurement to demonstrate value to stakeholders. Just over a third (35%) felt AI will lead to too much emphasis on cost savings rather than strategic value, similar to our global findings.

But one expert believes the opposite is true

Gordon Donovan, Global Vice President of Research for Procurement & External Workforce at SAP, in Melbourne, Australia, believes AI is the best opportunity for procurement teams to make their final move to become more resilient, commercially integrated partners.

He explains that as procurement leaders grapple with higher demands and unpredictable supply chains, it’s more important than ever to break down the deep silos that are still holding them back.

How AI can prevent late payments and support business continuity

AI has the potential to support the integration of procurement with finance and supply chains. Donovan highlights late payments as a prime example of this.

“Paying late is one of the fastest ways to damage supplier relationships,” Donovan says.

“Procurement often confirms they’ve approved a payment but the accounts payable team may not have paid it. AI can finally help share this data across teams so everyone understands what the consequences are,” he added.

In Australia, supply chains are particularly vulnerable to global shocks, due to its high reliance on exports and imported manufactured goods.

This can intensify the pressure on those supplier relationships due to the increased likelihood of disruption during these events. That’s why it’s important for procurement teams to improve their day-to-day operational performance and build stronger relationships with suppliers, minimize cash flow risk, and support long-term business continuity, even during shocks.

Australia’s potential supply chain vulnerability could be a reason why respondents here were significantly more likely to cite procurement and supply chain management as their leadership teams’ top priority for AI investment and growth. In comparison, just 20% of respondents in the UK and 36% in France gave this response.

AI can help by:

• Detecting risks such as delayed payment runs
• Automating invoice-matching processes to accelerate payment times
• Providing real-time updates of supplier performance
• Sharing intelligence between procurement, accounts payable, and the rest of the supply chain

Focusing on strategy and resilience

Automating more operations can help procurement teams spend more time on refining strategies and becoming more resilient.

Recent events such as the US tariffs and geopolitical tensions have upended global supply chains and created much more uncertainty for procurement.

Ultimately, AI gives procurement leaders the predictability and stability they need to operate with confidence and certainty, even if the macroeconomic environment remains highly unstable and uncertain.

The future of AI in procurement

Currently, just over a third (35%) of procurement leaders in Australia believe AI will drive strategic value, such as value creation, innovation, and resilience, in the years ahead.

However, through the automation of routine- and data-intensive tasks, procurement teams are better equipped to identify and mitigate risks, allowing them to respond quickly to supply chain disruption.

As Gordon Donovan says: “AI-driven automation frees up time and resources across procurement, allowing teams to focus on the bigger challenges and build real resilience into supply chains. So, the question is, what are you going to do with that extra time?”

AI Procurement in Germany: A shift to data-driven decisions

German procurement teams are on the cusp of a quiet but meaningful shift. A survey of 100 senior decision-makers in finance or procurement with responsibility over supply chains in Germany, conducted by SAP Taulia in August 2025, reveals that many increasingly see AI as a powerful tool to tackle rising challenges and drive strategic value through predictions and resilience.

At present, procurement professionals see their strongest contributions to business outcomes in supporting corporate sustainability goals (43%) and improving the quality and reliability of products or services delivered (41%). Looking ahead, however, leaders expect their influence to grow most significantly in areas tied to long-term strategy.

By the near future, 44% expect their biggest impact to come from shaping supply-chain strategy, up from 38% today. Additionally, 36% believe their role in enabling smarter, data-driven decision-making will increase, compared to 31% now, which is where AI is likely to become a factor.

Challenges getting complex

The emphasis on strategy comes hand in hand with intensified pressure. Two-thirds (66%) of German procurement professionals report an increase in procurement-related challenges over the past year, with one in five (18%) noting a significant rise.

Principally, challenges centered around supply chains, such as ensuring supply continuity while achieving best value (37%), managing working capital without compromising supply chain performance (36%), and balancing internal priorities with supplier needs (33%).

The findings highlight the challenges of juggling competing priorities while trying to build a more resilient and strategic function. It brings into sharp focus how important German procurement leaders see building relationships with suppliers, to plan intelligently, optimize cash flow, and minimize risks.

Germany’s major priority was not shared by respondents elsewhere, however. From the survey, managing impacts of macroeconomic shifts such as inflation and tariffs was named as the biggest challenge globally,yet only 23% of procurement leaders in Germany highlighted this compared to the UK (37%), Singapore (36%), and the USA (35%).

The opportunities AI can bring

Interestingly, there is widespread belief that a greater use of AI could help resolve many of procurement’s mounting pressures. More than four in five (82%) German procurement leaders believe AI will have a major or moderate impact on solving their challenges, and nearly half (49%) expect that impact to be major.

Yet despite this confidence, senior leadership’s AI investment agenda doesn’t see procurement and supply-chain management as a major priority, ranking at 34% and outside the top three, behind finance (47%) and product innovation (36%). This gap is striking given that 96% of procurement professionals say leadership action is important, and two-thirds (65%) view it as very important.

It comes as adoption of AI tools in Germany is steadily progressing, with 57% currently using procurement-specific AI tools, and 58% using general generative AI (GenAI) tools for procurement tasks.

The figures show that organizations are using GenAI for influencing supply chain strategy, with data-driven decision-making (41%) and risk monitoring and mitigation (31%) all areas where procurement professionals want to maintain a human touch but welcome additional support from AI to enhance their decision-making capabilities.

Conversely, AI-powered procurement tools lead in areas that may require more structure and data processing, such as spend analysis (42%), invoice processing (37%), and contract management (40%).

The benefits for German procurement leaders

The main areas the survey highlighted are operational efficiency, compliance control, and strategic enablement. Rather than focusing on cost savings, the most positive benefits from AI raised are in saving time (33%) and improving productivity (31%). This, in turn, supports better contract analysis and negotiation and increases compliance with procurement policies.

AI also frees up teams for higher-value work, with almost one in three (30%) saying it has enabled more strategic procurement planning, and others highlighting how it has improved cross-department collaboration (24%).

Despite optimism among those surveyed, over four in five (81%) worry about AI’s impact on the function, while some saw hurdles in the speed at which AI can be successfully adopted in the procurement function.

However, the overall sentiment was that AI is helping procurement shift from being proactive to predictive, with advanced analytics improving resilience and strategic decision support.

The road ahead: where AI will create value

For AI to shape procurement successfully in Germany, leaders see its biggest impact to make procurement decision-making smarter and faster, particularly through supplier evaluation (40%), risk monitoring and mitigation (31%), and spend analysis (35%).

Looking five years ahead, leaders expected the biggest shift to be in data-driven strategic decision-making (31%), followed by improved market and category intelligence (30%) and tendering process optimization (27%).

Overall, a vast majority (87%) of German procurement leaders rate their organization’s data quality as good, and are comfortable with AI automation in tasks like reporting and invoice processing (54%). However, human oversight remains crucial in tasks focused on managing supplier relationships, particularly supplier performance monitoring (32%). A balanced approach combining AI automation with human expertise is likely to be essential for future procurement success.

Small vs. Large: Navigating the Challenges and Benefits of AI in Procurement

Across industries, procurement teams are experimenting with AI tools that promise to transform decision-making, automate manual work and strengthen resilience in increasingly volatile supply environments.

Yet while enthusiasm for AI is widespread, the paths organizations take depend heavily on their size. The perspectives of small- and mid-sized businesses (those with 500–3,999 employees) differ significantly from those of larger enterprises. 

A survey of 600 senior decision-makers conducted by Opinium on behalf of Taulia in August 2025 highlighted key differences, shaped by their realities and their ambitions.  

Firms broadly agree that AI is key to strategic capability for future planning. Nonetheless, the readiness to deploy it, the expectations of its impact and the perceived risks vary with the scale of each organization. 

Procurement’s impact: the ‘now’ or the ‘future’?

Thoughts on the impact of procurement roles reveal disparate viewpoints on how procurement shapes strategy. 45% of SMEs cite driving day-to-day operational efficiency, while another 30% focus primarily on cost reduction – just 15% mention strategy. Conversely, more than half of large enterprises see procurement as a strategic partner contributing to long-term planning, with another 25% highlighting risk management oversight as their core influence.

This difference affects confidence levels as well. 55% of enterprises with over 4,000 employees report feeling highly confident in navigating today’s procurement challenges, compared with just 35% of SMEs. Having established digital processes, data teams and stronger structural resilience are key reasons.

SMEs feel moderately confident overall, but one in five say that skills gaps and limited resources mean they lack the capacity or expertise to confidently respond to fast-changing market conditions. 

Similar challenges but different reasons

Although 62% of large enterprises say procurement challenges have “significantly increased,” compared with 38% of SMEs, the question is scalability. Large enterprises feel disruption more acutely due to complex global supply chains, while SMEs experience steadier – but ever-present and rising – pressure. 

For large organizations, these complex supply networks and higher exposure to geopolitical volatility accelerate the need for predictive tools, which perhaps accounts for their motivations for adopting technology.

Whereas SMEs cite time and cost as key factors for adopting new technology, large enterprises highlight managing complexity and risk. Most SMEs (52%) name reducing manual workload as the main driver; an emphasis on productivity.

Meanwhile, large enterprises emphasise resilience, with over half of respondents prioritising early risk detection, supply chain stability, and standardising global processes.

The obstacles to procurement’s tech adoption are equally telling. Both face barriers, but while SMEs are blocked by resource constraints (48%) that restrict access to advanced tools, large enterprises face structural and system complexity. Where SMEs lack depth – less bandwidth for transformation programmes – large enterprises lack agility, having to deal with organizational silos (58%) and creaking legacy systems (45%).

AI adoption and benefits

AI adoption magnifies this divide, with larger enterprises deploying more sophisticated and integrated AI technologies.  Twice as many (72%) large enterprises as SMEs (35%) say that they already use AI tools in procurement; they also deploy more advanced technology, such as predictive analytics – almost three times as many as SMEs – as well as contract intelligence and automated risk monitoring. SMEs, meanwhile, tend to start with small-scale automation, generative AI for drafting and basic analytics. 

The gap widens further when exploring the benefits of AI. For SMEs, efficiency and time savings drive AI adoption, which is perhaps understandable if a firm operates on a leaner scale. The main references are admin reduction (48%) and clearer spend visibility (32%). Larger firms, however, emphasise intelligence and foresight, such as improved risk forecasting (65%) and better cross-enterprise visibility (58%).

SMEs’ concerns lie in a lack of internal AI expertise and cost constraints. Larger organizations, that may not have to consider such relatively trifling hurdles, are more bothered about how AI would integrate with complex systems, with the risk of poor data quality leading to systemic failures.

Likewise, the impact on how AI enhances decision-making and risk management reflects adoption maturity, the trend showing that the larger the organisation, the sharper the resilience value from AI. The survey finds a vast difference in how respondents report how AI leads to a “significant improvement” (58% for larger firms v 18% for SMEs) and “strengthens resilience” (65% v 30%).

Looking ahead: one shared direction

Despite their different priorities, SMEs and large enterprises share the same destination. Both are driving towards a procurement function where human judgment and AI-powered intelligence operate side-by-side, to boost both the day-to-day and strategic planning roles of procurement professionals.

Each has its own focus. SMEs expect procurement roles to be augmented by AI, with a modest role evolution as teams upskill to become proficient in harnessing value from digital tools. Large enterprises anticipate widespread transformation and system-wide redesign, with 55% expecting major role redefinition and three in ten predicting the creation of new AI-centric roles.

In conclusion, the use of AI in procurement has shifted from what may have once looked like a passing trend into becoming an active element of strategic planning — driving value, forecasting risk, and shaping organizational resilience.

AI and Procurement in the UK: a strategic shift is already in motion

Procurement leaders in the UK are prioritizing resilience and effective forward planning

UK procurement leaders are at a turning point. While procurement was once viewed primarily as a cost-control mechanism, the function is now core to business continuity, resilience and long-term value.

A survey of 100 senior decision makers in finance or procurement with responsibility over supply chains in the UK, conducted by SAP Taulia in August 2025, reveals a clear shift in how procurement professionals perceive their impact.

Most of all, how AI is becoming the next major acceleration point in the procurement function’s constant move towards new technology developments.

A shift toward strategic collaboration

While 42% say their biggest priority today lies in optimizing cash flow and reducing risk, 40% of respondents believe their greatest impact will come from driving innovation through collaboration with suppliers. This marks a notable pivot from operational efficiency being the core, to a new focus on strategic partnerships.

Other areas expected to grow in importance include managing and minimizing operational risks (rising from 24% today to 36% in the future) and enabling smarter, data-driven decision-making.

Perhaps this shows a move towards a broader business strategy, with a stronger focus on strengthening supply chains for business continuity – which is where AI technology steps in.

Dealing with mounting challenges

However, procurement professionals are facing increasing pressure. Three-quarters (74%) report that procurement-related challenges have intensified over the past year, with 15% noting a significant increase.

The challenges that feature highest in the survey include navigating macroeconomic shifts such as inflation and tariffs (37%), balancing competing demands from procurement, finance, and treasury teams (37%), and managing internal negotiations around cost versus quality (32%).

As the role of procurement becomes more complex, professionals are looking for more predictive, faster tools and processes. Almost all those surveyed agreed it was time for leadership to take action to face up to those challenges.

This is where AI can become a key factor. However, there are questions over the commitment from senior leadership to prioritise AI investment and growth, much as the survey found in Germany. While over four in five (84%) believe AI and related technologies can address such challenges, only 20% report that procurement is a leadership priority for AI investment.

Growing adoption of AI tools

Nonetheless, despite a lack of prioritization at leadership level – perceived or real – procurement teams are increasingly adopting AI tools. Over half (52%) currently use AI-powered procurement tools, with 37% actively considering them. Generative tools (GenAI) are even more widely used, with 57% already using them and another 37% considering adoption.

These tools are being applied in different ways. While AI-powered procurement tools are more focused on cost-saving analysis and forecasting (40%), GenAI tends to be used mostly for supplier evaluation (35%) and decision-making data and insights (30%). This perhaps signals that access to specialised procurement tools that can already provide these capabilities remains limited.

Strategic benefits are evident

For those procurement professionals already using AI tools, the benefits are clear, with over four in five (82%) agreeing that AI use leads to procurement tasks shifting from manual to strategic work.

Increased productivity (30%), earlier risk identification (30%), reduced manual tasks (24%), and improved decision-making (26%) are all signs that AI has freed up time for more high-value, impactful work, and enabled greater innovation within their roles.

However, some concerns remain. Three in four professionals (75%) express some level of worry about the impact of AI. Examples include fears that AI could make it harder to demonstrate procurement’s value (35%) or cause the function to focus too heavily on cost savings instead of strategic value (23%).

Having said that, the UK’s fear regarding the latter point is more than doubled by respondents in Germany (50%), while the UK’s concern over job cuts (25%) is almost half that in neighbouring France (48%).

Nonetheless, the responses from UK professionals highlight the growing opportunity for AI to be harnessed collaboratively to help procurement teams build resilience and strategic influence.

Looking ahead: where AI will find value

Fast-forward five years, andover three in ten UK procurement decision-makers (31%) believe AI will have its biggest impact on risk detection and mitigation. This contrasts with France, where their counterparts expect procurement’s impact to grow most in sustainability and innovation.

Other key areas include sustainability tracking (29%), and contract management (27%). The professionals surveyed are most comfortable with automation in areas such as invoice processing and spend analysis (34%) but expressed a preference for human oversight for tasks involving supplier negotiations and contract drafting.

AI is here to stay and undoubtedly has a key role to play in the future of procurement in the UK. However, to fully realize its potential, organizations must align leadership priorities with what the professionals ‘on the ground’ need and strike the right balance between automation and human expertise.

Supplier Survey 2025/26: How Suppliers are Redefining Working Capital

In November 2025, SAP Taulia conducted its annual supplier survey. Now in its eleventh year, 10,804 suppliers from 129 countries were surveyed to uncover the latest trends in supply chains, and the opportunities and challenges facing businesses globally. Respondents encompassed a variety of job roles, including business owners, sales, and finance departments.

The following represents an initial overview of the findings.

In a global environment where persistent uncertainty is the new norm, the health of a business is inextricably linked to the health of its supply chain. This year’s survey revealed that suppliers maintain a resilient and optimistic outlook as they grapple with a new set of complex challenges in a dynamic market.

As buyers preserve their cash and pay their invoices later amid macroeconomic pressures, this creates a widening payment gap that puts a significant strain on suppliers’ working capital. This is fueling a fundamental shift in the financial landscape: The rise of the supplier.

This year, our findings show that:

• There is a clear demand for flexible, reliable, and supplier-controlled approaches to financing.
• Suppliers are proactively seeking liquidity on their own terms.
• They are moving away from traditional, rigid financing structures.
• Suppliers are evaluating every lever, from early payment programs to external liquidity options, to control their cash flow.

Theme 1: Cautious Optimism Amid Persistent Uncertainty

After two years of peak optimism, supplier sentiment has moderated slightly, with 82% expressing optimism compared to 85% in 2023 and 2024. This signals a new mood of caution.

Despite this dip, optimism levels remain high, as a vast majority of respondents are still optimistic about the year ahead. A small minority reported feeling pessimistic (4%), while 14% felt neutral.

This cautious sentiment is also reflected in a fundamental shift in supplier concerns. While growth remains a top priority, its focus has softened (46% vs. 53% last year) as suppliers navigate the challenging balancing act between innovation, risk and technology.

Concerns about new threats are increasing, particularly cybersecurity risks (28%) and tariffs (24%). Given the monumental implications these forces have on supply chain disruptions, suppliers may be focused on building resilience to mitigate these risks.

Amid these shifting priorities, AI is the only major area showing an upward momentum with concern growing from 38% previously to 44% this year, highlighting AI’s double-edged nature. While suppliers may be enthusiastic about leveraging AI’s predictive qualities to forecast supply chain risks, they may be apprehensive about the challenges of scaling adoption and defining clear business cases for investment.

Our AI in Procurement report also reveals a growing tension between strategic need and execution: while 82% of procurement leaders are eager to adopt AI, only 35% of their organizations’ leaders are prioritizing investment in procurement and supply chain management. Together, these findings paint a clear trend of supply chains that recognize AI as essential but remain uncertain of bridging the gap between investment and action.

Theme 2: The Impact of Tariffs

Tariffs now carry major implications for businesses worldwide. Since the Trump administration’s tariffs were announced on Liberation Day, ripples of uncertainty continue to be felt globally.

Suppliers have been impacted by tariff pressures, with one in four (25%) reporting squeezed profit margins and 23% facing increased input costs. In response, 18% are raising prices for customers to ensure business continuity.

However, a closer look reveals distinct differences across the globe. Suppliers in North America are feeling the most direct financial impact. For them, the top impact is the rising cost of goods, with 26% and 25% of suppliers reporting this in the US and Canada, respectively. Mexico stands out as feeling the most intense pressure, with squeezed profit margins being the top impact for 37% of suppliers.

By contrast, the dominant theme across Europe and Australia is uncertainty. Suppliers from these regions frequently chose “Unsure/cannot say” as one of their top three responses, notably in Germany (30%), France (32%), the UK (34%), and Australia (31%). This highlights a widespread sense of unpredictability exacerbated by trade policies.

The pervasive uncertainty caused by tariffs, with over one in five suppliers globally (22%) unable to quantify the impact, recalls our oCFO Perspectives eBook, The Impact of Tariffs on Finance. Tariffs have caused supply chain complexity, requiring businesses to rethink production, supplier networks, and cost structures. Despite this, tariffs can be a catalyst for greater resilience and adaptability among businesses.

Theme 3: The Widening Payment Gap

The gap between when suppliers expect to be paid and when they receive payment is widening. Late payments are on the rise, with over half of suppliers (55%) being paid late, marking a slight increase from 51% last year. On-time payments have declined to 37% this year, compared to 42% in 2024. This shift suggests that buyers are preserving their own cash as a critical buffer against macroeconomic uncertainty, leading to cash flow pressures falling on their suppliers.

Suppliers are therefore now seeking levers to optimize their cash flow and ensure operational continuity. When asked about the reasons for using early payments, the primary motivations cited by suppliers were to bridge cash flow gaps (28%), ensure payment predictability (21%), and to fund day-to-day operations (20%). These underscore how unreliable and delayed payments are fueling suppliers to get on the front foot to ensure cash flow.

Theme 4: The Rise of the Supplier: The Demand for Flexible and Reliable Early Payments

Faced with liquidity pressures as late payments persist, suppliers are taking control of their own cash flow via working capital solutions. This year, interest in early payments has climbed to a five-year high, with nearly seven in ten suppliers (66%) indicating this, marking an increase from previous years (63% in 2024 and 61% in 2023).

Suppliers continue to remain aware of the barriers presented by traditional programs, citing being in a good cash position (29%), high costs (22%), and not being offered the option by their customers (21%) as the top reasons for not taking early payments. These responses suggest that while education may still be needed to inform suppliers about the benefits of early payment programs, the perception of these programs as a costly, emergency-only tool indicates a calculated decision-making process regarding their cash flow.

This marks a turning point in global supply chains. Suppliers are no longer just asking for liquidity; they are turning towards flexible and affordable options that put them in control. This is powerfully illustrated by the financing tools they are using. Alongside early payment programs (16%), suppliers are turning to on-demand, self-serve options such as credit cards or virtual cards (22%) and lines of credit (16%), which rank among the top 5 most used sources of external liquidity.

This is the new paradigm of the empowered supplier. Suppliers’ clear preferences for flexible, on-demand financing send a clear mandate to the market to provide solutions that offer control, transparency, and reliability.

Theme 5: SAP Taulia Empowers Suppliers with Simplicity, Control, and Partnership

As outlined above, suppliers today face a dual challenge: worsening payment delays and financing solutions that lack the flexibility and transparency they require. This has fueled a fundamental shift toward a supplier-centric approach, where businesses seek greater control over their own working capital.

The experience of suppliers from our network confirms that SAP Taulia is delivering on this new mandate, with 76% of suppliers rating their experience as positive. This satisfaction is driven by an experience consistently described as “simple,” “easy to use,” “efficient,” and “user-friendly.”

Crucially, the value is most apparent for suppliers who engage with our solutions. The experience score soars to an 87% positive rating among suppliers who have used early payments in the last year.

As a trusted partner for businesses, SAP Taulia builds scalable, supplier-first early payment programs that provide the control and flexibility suppliers need. Through an intuitive portal, suppliers can manage their invoices and choose to get paid on their terms, accelerating payment by an average of 47.8 days. By providing predictable cash flow at highly competitive rates without running auctions, we empower suppliers to strengthen their financial resilience and focus on high value activities.

A Strategic Imperative for the Year Ahead

The dynamic between buyers and suppliers is evolving. As businesses navigate ongoing uncertainty, the widening payment gap is no longer just a business challenge, but a catalyst for the rise of the empowered supplier.

Suppliers are now more discerning and proactively seeking financing solutions that offer flexibility and control, departing from unreliable payment practices. Looking ahead, the takeaway for buyers is clear. Those that offer predictable, on-time, or early payment will be valued partners, securing the trust and partnership needed to thrive in today’s dynamic environment.

Insight, Technology and Impact: Our Top Stories from 2025

A Year of Transformation and Insight

The year of 2025 has been defined by fundamental global shifts in our economy. Businesses learned how to adapt and thrive, all while navigating persistent uncertainty. In a year of evolution, we became SAP Taulia.

Our We are SAP Taulia video marked this landmark moment, emphasizing our commitment to creating a global network of opportunity and building resilient supply chains. We are now more deeply embedded in SAP than ever before, and our three brand pillars are the heart of everything we do: trust, innovation, and purpose.

To help businesses navigate today’s landscape, we are dedicated to sharing the most valuable insights and stories from our journey towards building the future of finance. Join us as we reflect on our highlights from 2025.

The Challenge of 2025: Navigating Persistent Complexity

With over 15 years of experience in working capital solutions, we empower businesses to operate with confidence in any environment. This year, we helped businesses navigate a complex landscape through our research that examined major headwinds from multiple angles.

\We started by examining high-level economic pressures. Our CFO Perspectives eBook, The Impact of Tariffs on Finance, explored the ways tariffs are reshaping financial strategies, and how businesses can find a competitive advantage despite volatility. Our annual Supplier Survey provided a crucial voice for our network of millions of suppliers. We found that as buyers hold onto cash as a buffer against uncertainty, suppliers’ need for predictable and flexible cash flow becomes a priority.

Amid rising pressures, the role of procurement underwent a profound transformation, making it central to business and supply chain continuity. Our AI in Procurement research revealed how the function’s challenges have increased and identified critical AI use cases to help leaders transition from proactive to predictive.

The Rise of Technology and Automation for Resilience

As businesses grapple with the challenges outlined earlier, leaders are adopting technology and automation. In 2025, we brought many of these conversations to the forefront.

Our on-demand webinar with Andy Lee, SAP Taulia’s Head of Receivables Finance, and Anders Liu-Lindberg, CCO of BPI, offered CFOs and finance leaders actionable strategies on enhancing transparency, adopting end-to-end automation, and diversifying funding sources to bolster confidence in business financial strategies.

Takeaways from SAP Connect, SAP’s latest flagship event, were shared by Thomas Mehlkopf, Chief Revenue Officer for Treasury and Working Capital Management, SAP in two blogs: Building supply chain resilience with embedded finance and Turning payables into an engine for growth. Featuring real-world examples, Thomas explored how SAP Taulia transforms the ERP system into a strategic command center for cash management and supplier liquidity.

Looking ahead, our content explored the future of payments. Our Next-Gen Payments eBook delved into the rise of digital payments, and how adoption can help CFOs gain a competitive advantage. SAP Taulia’s Charles Brough and PayPal’s Sharyn Tan also led a discussion on stablecoins in our Taulia Treasurers’ Club webinar series. Read their blog to learn how this digital currency can enhance liquidity management and future-proof working capital strategies.

Our Real-World Successes

At SAP Taulia, we believe that customer success is our success. Throughout the year, we were proud to share the inspiring journeys and successes of our valued customers.

\We showcased how global leaders across industries, from pharmaceuticals giant Pfizer and telecommunications leader Telkom, to industrial powerhouses Visy and Sasol (in a joint story with SAP), have partnered with our working capital solutions to achieve business success and strengthen supply chains while optimizing liquidity. We featured the success of Memphis Scale works, a supplier from our network, and how they streamlined processes with SAP Taulia.

We also demystified the path to working capital success in an implementation story featuring a major logistics company. To achieve a successful SCF program, they worked with SAP Taulia to establish a foundation for future optimization and a vision beyond finance.

As a trusted partner for our customers and partners, these stories testify to our goal of providing our clients with the tools they need to thrive in a dynamic market. These interconnected successes, from the global corporation to the small supplier, truly define why customers partner with SAP Taulia.

The Journey Continues…

Reflecting on 2025, a clear narrative emerges: leveraging deep insights, embracing technological innovation, and celebrating real-world success are themes that have guided our content and conversations throughout the year. Looking ahead to 2026, we will continue to help our customers and partners build resilient financial supply chains and contribute to a sustainable future. The journey continues, and we look forward to navigating it with you.

Practical AI use cases in corporate treasury

Artificial Intelligence (AI) has moved beyond a buzzword to become a transformative technology in corporate finance. A 2025 PwC survey reveals that nearly half (49%) of technology leaders surveyed stated that AI was “fully integrated” into their firm’s core business strategy. To find out more on how Finance leaders are positioning AI in their corporate strategies, read our research conducted in partnership with Opinium.

Corporate treasury plays a big role in your organization’s financial stability. Treasury managers are moving away from manual, error-prone processes. Instead, corporate treasury focuses on substantive, practical applications that deliver measurable value in efficiency and risk management.

AI serves as a “co-pilot,” augmenting human expertise rather than replacing it. An AI functionality can learn from data, spot trends, and make accurate predictions. And Treasury staff can use AI to manage liquidity, optimize cash flow, control financial risks, and ensure the smooth flow of funds across all operations.

Core AI applications in treasury operations

Treasury managers can implement AI tools to improve cash flow forecasting, streamline payments, and detect and prevent fraudulent transactions.

Enhanced cash flow forecasting

Traditional forecasting relies on historical averages, which can be inaccurate in volatile markets. Sands Partners explains that overestimating demand based on historical data may result in excess inventory. Whereas, underestimating demand can lead to stockouts, missed sales opportunities, and customer dissatisfaction.

You need accurate cash flow forecasting to plan production, allocate resources effectively, and manage staffing efficiently. Without proper planning, you may damage relationships with suppliers and customers.

AI transforms forecasting by analyzing vast datasets from ERPs, bank statements, and even external economic indicators.

Use AI to predict customer payment delays based on historical payment patterns. Managers might use that information to insist on a cash deposit before each order is filled. If your business is seasonal, AI can combine historical sales data with demand forecasting to plan cash management.

How does your cash management forecast compare to actual results? AI can perform the variance analysis so you can make adjustments moving forward. AI-powered tools generate more accurate and granular forecasts, resulting in optimized borrowing, reduced idle cash, and enhanced working capital management.

Streamlined payments and working capital optimization

Even if you process hundreds (or thousands) of transactions, AI allows you to make informed decisions about every transaction and maximize working capital.

Businesses that retain useful data can train AI models and enhance their performance. For example, many companies are training AI to provide clients with more customized marketing experiences.

Dynamic discounting for early payments

Dynamic discounting is a solution that offers suppliers the option of receiving early payment in exchange for a discount on their invoices. The supplier can receive cash inflows sooner, and your firm can retain more working capital.

How much of a discount should you offer a supplier? AI can analyze a vendor’s payment history and financial standing to optimize dynamic discounting strategies, offering the right discount in exchange for early payment.

Automated cash application

According to a Stanford Business School study, AI helps businesses by automating repetitive tasks and identifying issues in real-time. Matching invoices to purchase orders and incoming payments can be a time-consuming task; however, AI can streamline the process.

AI, using Machine Learning (ML) and Natural Language Processing (NLP), can automatically match incoming payments to outstanding invoices, even when remittance information is unstructured or missing. This accelerates cash application and reduces days sales outstanding (DSO).

How and when you pay suppliers is another challenge. You need to consider the time and cost of processing the payment, while also maintaining a strong supplier relationship. An AI tool can analyze a payment’s size, required delivery speed, and supplier capabilities to recommend the most cost-effective payment type, such as ACH or an instant payment method.

Advanced fraud detection and risk management

As technology advances and businesses implement more technological solutions, the risk of fraud increases.

For example, a fictitious payee occurs when an individual sends an invoice with a company name and address that is very similar to an actual vendor. The individual hopes that the business will not notice the slight difference and pay the fraudulent invoice. AI can prevent fraud by speeding up the transaction review process.

If the accounting department carefully reviews incoming invoices and reconciles the bank account quickly, the risk of paying a fake invoice decreases. AI algorithms learn an organization’s standard payment patterns and can flag anomalies in real-time, such as deviations in amount, frequency, or geographic location.

It can also analyze communications to identify signs of Business Email Compromise (BEC) scams. In a BEC scam, a third party emails the business and attempts to have an employee pay an invoice, make a purchase, or wire funds to a fraudulent account.

These fraud detection strategies prevent significant financial loss, reducing the number of false positives that require manual review and protecting the company’s reputation.

Automated reconciliation and reporting

As mentioned above, reconciling the bank account quickly reduces the risk of fraud. The cash account may have more transactions than any other account, and high volumes also increase the risk of errors.

AI can automate a significant portion of the bank reconciliation process by intelligently matching bank statement entries with general ledger records and suggesting corrective actions for discrepancies. AI-powered chatbots can handle routine internal queries about payment status or treasury policies, freeing up the team to focus on more complex tasks.

The strategic shift: From operational to analytical

J.P. Morgan states that: “Treasury’s traditional back-office function is no more. In today’s workplace, treasury has transformed into a strategic operation that can drive a company’s bottom-line growth.” An effective treasury department adds value by optimizing investment and working capital strategies, as well as streamlining the vendor payment process.

Automating repetitive tasks allows treasury professionals to shift their focus from manual processing to higher-value analytical and strategic work. AI augments human capabilities with superior data processing and analytical insights, enabling treasury to become a more strategic partner to the business.

Leveraging AI to transform corporate treasury

AI is already delivering tangible benefits in treasury through smarter forecasting, robust fraud detection, and streamlined operations. Adopting these practical applications is key to building a more efficient, resilient, and strategically impactful treasury function for the future.

Ready to see how technology can transform your treasury operations? Discover how SAP Taulia can help you optimize working capital and strengthen your supply chain.

The strategic role of account receivable (AR) financing

Liquidity is the golden ticket to organizational growth. Every day that goes by during a 30-, 60-, or 90-day payment term is a day you could have been deploying that cash into strategic initiatives, such as expanding inventory or funding groundbreaking R&D.

When your funds are tied up in accounts receivable, you risk missing valuable opportunities. Spending time chasing down and waiting on invoice payments isn’t always the best use of resources. Because of this, leading companies are now turning to modern, strategic methods to transform their balance sheet, improve DSO, and bolster liquidity, namely Accounts Receivable financing (AR financing).

AR financing is no longer considered a tool that’s just for companies in distress. It has evolved into a legitimate and smart financial lever that can help you get ahead. While competitors wait on the sidelines to get paid, you can leverage invoice financing to turn unpaid invoices into immediate cash and reinvest that capital for higher returns.

With mounting inflation, economic uncertainty, and tariff-related pressures, it has never been more crucial to enhance cash flow and prioritize proactive receivables management.

Why proactive liquidity management is essential for modern companies

Operating in a world of rising risk and tightening margins means cash flow needs to be managed proactively, not reactively. Optimizing your cash flow doesn’t just help your business stay afloat; it’s a tool for strategic growth.

Here are four key reasons you should treat liquidity management as a non-negotiable part of your financial strategy:

● Ensure operational continuity: Cash is essential to make payroll and maintain day-to-day business operations. Having cash on hand also allows you to manage your inventory levels and pay suppliers on time, maintaining positive partnerships.

● Move with agility: Liquidity allows you to seize unexpected growth opportunities when they arise, like bulk-buy discounts from suppliers and market expansion opportunities.

● Reduce risk: Weather the storm and shield yourself from risks associated with market shifts or unexpected late payments.

● Increase stakeholder confidence: A strong balance sheet demonstrates financial stability and increases confidence among investors, lenders, and your board.

Why traditional liquidity solutions may not best serve your business

Although widely used, traditional tools for improving liquidity may no longer be suitable for today’s riskier, fast-paced business environment.

While bank drafts or lines of credit can help you secure cash quickly, they come with strict covenants, variable interest rates that make it expensive and unpredictable to borrow, and the potential to impact your company’s overall credit standing negatively. On the cash flow statement, these transactions appear as a cash increase under financing activities, which is considered a debt.

Traditional business loans share similar challenges. Slow approval processes and significant collateral requirements make it challenging to seize time-sensitive opportunities. Business loans also reflect an increase in cash under financing activities, indicating an increase in debt on the cash flow statement.

Finally, while it may be tempting to consider delaying supplier payments as a way to free up cash, it’s not worth the potential risk of damaging critical supplier relationships and your reputation. Delaying supplier payments may reflect increased cash under operating activities on the cash flow statement, but it also increases your accounts payable on the balance sheet.

Consider accounts receivable financing as a smarter alternative

With AR finance in place, you no longer have to contend with the downsides of traditional liquidity measures, such as those listed above.

Receivables finance helps you convert receivables into cash in days, not months. Instead of waiting for your customers to pay you or for your loans to get approved, you can get cash on hand to deploy in your business in a matter of days. This is ideal in businesses where time is of the essence to capitalize on strategic opportunities.

As you scale your business, accounts receivables financing becomes even more valuable, as it grows automatically with your sales, unlike a credit line that stays at a fixed amount. Additionally, all sales remain confidential, eliminating the risk of compromising your meaningful customer relationships.

Modern finance platforms, like SAP Taulia, give you more options than ever – even ones that won’t affect your balance sheet. SAP Taulia has the option to structure receivables finance as a true sale of receivables, meaning you incur no debt. You’re just making your receivables work harder for you.

How to decide when receivables financing is right for you

Receivables financing could be a good fit if your business is:

• Experiencing rapid growth and has a significant amount of working capital tied up in new invoices.
• Operating in an industry with varying demand by season.
• Needing to strengthen your balance sheet without taking on any additional debt.
• Wanting to standardize payment terms across your entire customer base.

When is AR finance not the right option? For companies that may require a large amount of cash for a CAPEX purchase, like a new factory or a significant amount of machinery, a traditional bank loan could be a better option.

Get technology-driven liquidity at your fingertips

FinTech platforms have revolutionized working capital management, offering a new suite of products and services that can help you improve your balance sheet and accelerate access to cash like never before. Not only do today’s systems speed up liquidity, but they also automate workflows, reduce manual effort, and provide real-time visibility into your company’s entire financial picture.

With a platform like SAP Taulia, you get:

• Seamless integration with SAP for an end-to-end, familiar, and unified financial ecosystem.
• Real-time analytics to help you make informed decisions faster.
• Automated invoicing, reconciliation, and approvals to reduce mundane tasks, so your team can focus on strategic work.
• Access to a comprehensive network for diverse, trusted funding partners.
• True-sale receivables finance that won’t add debt to your balance sheet.
• Data pulled from multiple sources, providing comprehensive modeling.

Get technology-driven liquidity at your fingertips

Accounts receivable financing has evolved beyond a tool for companies in distress. It’s a strategic, tech-powered solution for enhancing liquidity, streamlining efficiency, and mitigating risk. Don’t let your receivables sit idle. They have an essential job to do.

Ready to see how you can unlock the cash trapped in your receivables? Watch our latest on-demand webinar on strengthening liquidity.

Would you like to discuss your specific liquidity challenges? Contact us to schedule a personalized consultation with one of our expert advisors in working capital management.

Releasing Cash and Revolutionizing Supply Chain Efficiency with Embedded Finance

The concept of embedded finance is nothing new – it has been around for over a decade. Often lauded as a transformative “tool,” it’s more accurately understood as a paradigm shift – a new way of delivering financial solutions directly within business workflows.

What has changed today, however, is that, thanks to both the access to data and the AI tools to drive decision-making around it, vision is now becoming a reality, particularly in its capacity to unlock liquidity and revolutionize supply chain operations.

What is embedded finance?

The core premise of embedded finance within the B2B landscape lies in integrating crucial financial services directly into the platforms that businesses already utilize for their daily operations.

This integration, exemplified by SAP’s robust ecosystem and SAP Taulia’s embedded finance capabilities, allows companies to address critical pain points, such as liquidity gaps, and significantly bolster their relationships with suppliers by providing them with early access to funds as needed.

The benefits of embedded finance for businesses

Key financial services, once separate and often cumbersome to access, are now being woven into the fabric of core technology systems. The traditional friction associated with securing financing or managing payments is significantly reduced, leading to faster transaction cycles, improved cash flow predictability, and a more robust and resilient supply chain ecosystem that is accessible quickly and easily – with no extra investment or implementation required.

Beyond these core services, the impact of embedded finance extends to several other critical areas. For instance, it facilitates more granular data analysis within SAP systems, offering insights into payment behaviors, risk profiles, and operational bottlenecks that were previously difficult to unearth.

This data-driven approach enables companies to make more informed decisions, optimize their financial strategies, and proactively address potential issues before they escalate.

Democratizing capital

Furthermore, embedded finance is fostering greater financial inclusion within supply chains. Smaller and medium-sized enterprises (SMEs), which often struggle to access traditional credit due to stringent requirements or lack of collateral, can now leverage their transactional data within B2B platforms like SAP Business Network and SAP Taulia to qualify for financing.

This democratizes access to capital, enabling a broader range of suppliers to participate and thrive within global supply chains, ultimately leading to greater innovation and competitiveness.

Bridging the gap with AI

Building the bridge between technology platforms and their function-based users has been at the heart of technology development since the first moves from green screens to modern UIs. However, when it comes to data analysis, this remained the domain of specialists until relatively recently.

The advent of natural language processing, however, means that the bridge has now been built, and for decision-makers in the finance function, this is a game-changer.

Through AI tools like Joule, they can not only find answers in the data but also turn answers into decisions and then actions. It is now possible to use AI tools to identify the best way to raise funds and then set in motion the processes required to do it.

What does the future of finance look like?

The future of embedded finance in supply chains, particularly with advancements from SAP and SAP Taulia, promises even more sophisticated integrations. We can anticipate further blurring of lines between financial and operational activities, with real-time financing options triggered by events within the supply chain – for example, an invoice is issued and sold as a receivable at the same time, enabling a business to receive the funds immediately.

This level of automation and contextual relevance will further reduce manual intervention, minimize errors, and accelerate the flow of goods and capital.

As embedded finance continues to mature, its impact on operational efficiency and financial agility within B2B environments, heavily supported by solutions from SAP and SAP Taulia, is set to be truly transformative.

It’s not merely about offering financial products; it’s about fundamentally reshaping how businesses interact with money within their daily operations, creating a more connected, efficient, and resilient global economy.

This evolution marks a significant leap forward in managing liquidity and optimizing supply chain performance, ensuring that businesses are not only capable of meeting demand but also equipped to thrive in an increasingly dynamic but also unpredictable economic environment.

AI in Procurement: How AI is Reshaping Risk, Resilience and the Human Role

In 2025, SAP Taulia, in partnership with Opinium, surveyed 600 senior decision-makers in finance and procurement roles across six markets: the UK, US, Germany, France, Australia, and Singapore. Respondents were evenly distributed across regions and industries, representing both mid-sized and large enterprises.

The following represents an initial overview of the findings.

Procurement is undergoing a profound transformation. As SAP Chief Procurement Officer Nikolaus Kirner notes, the industry is moving “from transactional to strategic”, reshaped into an intelligence-led capability driven by the irresistible rise of artificial intelligence (AI).

Kirner envisions procurement teams that are “smaller, smarter, and faster”; driven by automation to eliminate repetitive work, and by augmentation to empower better strategic decisions.

However, this transition will only succeed where leaders communicate the purpose behind change. If procurement embraces AI intelligently – by consolidating data, improving forecasting, and strengthening risk detection – it can become what Kirner calls the “intelligent hub of the organization”.

Our research builds on that vision by analyzing:

• How procurement leaders can scale AI to build long-term resilience
• How AI is already being adopted in procurement
• Where it is delivering measurable value
• What risks and barriers still constrain progress

AI Adoption and Strategic Momentum

Our research showed that across the 600 global leaders surveyed, convictions about AI’s potential as a structural shift are strikingly consistent:

• 87% agree procurement is shifting from manual processes to more strategic, value-adding work.
• 82% believe AI will play a major or moderate role in overcoming procurement challenges.
• 88% say automation will free teams to focus on higher-value activities such as relationship management, risk mitigation, and long-term value.

Generative AI adoption is already mainstream, with 63% of leaders using tools such as Microsoft Copilot or ChatGPT. Leaders foresee broad deployment across areas including but not limited to financial systems, cybersecurity, customer-facing functions and supply chain operations.

Where AI Is Already Delivering Value

Interviews and data reveal five clear use cases:

1. Automation of high-volume transactional work, such as invoice matching or spend analysis, unlocking thousands of hours annually, reducing approval cycles and cutting purchasing costs.
2. Improved forecasting accuracy through larger, integrated datasets and supplier performance predictions.
3. Enhanced risk management, with 36% using AI for risk monitoring across supply chains, to help detect geopolitical and environmental risk earlier.
4. Proactive planning, with 87% reporting a shift from reactive to predictive workflows.
5. More time for strategic work, as AI compresses analysis cycles that once took days or weeks, reducing administrative burdens.

Leaders consistently describe AI as a tool that speeds up data interrogation, flags anomalies, and supports category teams with rapid insight. However, they also highlight the enduring need for human judgment, particularly in negotiation and supplier relationships.

Procurement’s Repositioning Through AI

44% of procurement leaders say cash-flow optimization has the greatest impact on outcomes. Looking ahead, they expect AI to shift value toward product reliability, customer experience and broader business resilience. In doing so it can help businesses anticipate disruption and inform better decisions.

The Concerns about AI

While enthusiasm for AI is high, leaders are candid about the barriers they face. Many of these challenges arise not from the technology itself, but from organizational readiness, uncertainty over the use of data, and potential cultural hesitations from staff.

Data Quality/Data Literacy

Interviewees repeatedly identify data as the defining obstacle:

• Lack of standardization
• Fragmented ownership
• Inconsistent system integrations
• Cultural reluctance to share data

Poor-quality or siloed data undermines AI’s effectiveness. However, leaders also note that AI can help build data literacy and transform raw data into insights if there are foundational structures in place, and cross-functional collaboration between procurement and finance to share data.

Skill Gaps/ Cultural Resistance

Our report found widespread concerns about capability and understanding:

• 35% of leaders not using AI say they don’t understand its benefits.
• 33% cite lack of internal AI expertise.
• 33% highlight misalignment between digital transformation strategy and procurement.

On a broader level, 40% worry AI will overemphasize cost savings, 39% fear difficulty demonstrating procurement’s value, and 37% are concerned about job losses. Underlying many of these fears is uncertainty about how roles will change and whether teams will be supported through that transition.

The Effect On The Human Role

Leaders remain cautious about the implications for teams:

• 40% fear AI will push procurement back toward cost-cutting rather than strategic value.
• 39% worry it may reduce perceived value of procurement roles.
• 37% are concerned about potential job losses.
• 81% express concern about the impact of AI on their teams.

However, the report overwhelmingly demonstrates that AI augments human capability, rather than replaces it.

Interviewees stress that curiosity, critical thinking, data literacy, and change management will define the most successful procurement teams of the next decade.

Security, Compliance, and Trust

Data privacy was another central concern, with 36% citing data security as the primary barrier to adoption. Several leaders prefer to use internally developed AI tools with strict controls, ensuring sensitive spend data remains protected.

Scaling AI Successfully: A Roadmap

The report identifies several critical enablers for sustainable AI scaling:

1. Start small and automate high-volume, high-impact areas first—invoice matching, intake-to-pay, spend analysis.
2. Standardize data and strengthen integrations to enable accurate insights.
3. Build psychological safety so teams feel confident experimenting.
4. Invest in human capability: storytelling, strategic thinking, curiosity, and data literacy.
5. Embed AI into workflows, not as standalone tools, to ensure seamless collaboration

Procurement at the Sharp Edge

The report emphasizes procurement’s evolving role at “the sharp edge” of business survival. AI’s greatest strategic contributions lie in:

1. Intelligent liquidity and working capital optimization – 43% of those surveyed seek AI-enabled spend analysis and 39% automating invoice processing.
2. Strengthened supply chain resilience – integrating real-time risk signals to enable earlier interventions and better scenario planning.
3. Decision Intelligence – accelerating analysis-to-action cycles and enabling multi-variable simulations that humans cannot replicate.
4. Human oversight as a strategic advantage – Leaders emphasize keeping “hands on the wheel,” ensuring judgment, context and ethical oversight.

A Strategic Imperative for the Next Era

AI is no longer optional. It is a foundational capability that will determine whether procurement becomes a reactive cost centre or a strategic engine powering resilience, innovation, and liquidity. The organizations that will lead are those that:

• Use AI to eliminate friction
• Strengthen decision-making
• Expand human capability
• Build trust, transparency, and safe experimentation
• Align finance, procurement and technology teams around shared goals

As SAP Taulia’s perspective makes clear, the future belongs to procurement teams that treat AI not as a threat, but as a force with which to collaborate to make a bigger impact.

Adapting and Thriving Amidst Tariff Upheaval 

Tariffs, regulatory shifts, and supply chain disruptions fundamentally redefine cost structures and market strategies. This places unprecedented pressure on CFOs to balance risk, liquidity, and growth.

In SAP Taulia’s eBook, Impact of Tariffs on Finance, we draw on perspectives from our experts and corporate finance leaders. While the current climate presents significant challenges, it has also created opportunities for businesses ready to innovate.

While businesses cannot control external factors like tariffs, geopolitics, or broad economic uncertainty, they can control their response. Success will be determined by the ability to digitize, plan proactively, and act with agility. It is time for businesses to get their house in order, find the right tools for resilience, and build stable foundations for growth.

Facing the Impact of Tariffs

Tariffs have driven significant shifts in global spend, forcing CFOs to rethink cost structures and sales teams to adapt pricing strategies.

Over the past year, SAP Taulia data highlights a mixed picture of supply-chain reallocation across APAC. China saw a drop from $84.4m to $74.8m (−11%), which suggests that supply chains have shifted away given high tariffs.

However, strong alternative sourcing hubs are emerging. Taiwan (+1,507%), Vietnam (+489%), and Indonesia (+197%) stand out as the biggest winners, which aligns with the narrative that tariff and trade pressure encouraged companies to diversify into alternative APAC countries.

Meanwhile, within Europe early payments in Germany increased by 53%, possibly helped by Germany’s significant fiscal stimulus earlier in the year, which initially boosted investor confidence and drove inflows into European equities to counteract the impact of tariffs.

In one instance, a global pharmaceutical company faced significant challenges managing working capital across its highly complex, multi-regional global supply chain.

By deploying SAP Taulia, this pharmaceutical giant transformed its supply chain financing strategy, creating a resilient, flexible and data-driven network capable of withstanding global trade volatility and tariff uncertainties. The result was a $150 million working capital improvement, 15-day improvement in payment terms, and 600+ supplier enrolments.

Opportunities Hidden in Disruption

However, in the face of such upheaval, tariffs are also adapting quickly and creating opportunities, turning disruption into a competitive advantage.

Many CFOs are seizing the moment to reconsider their location strategy, diversify sourcing, renegotiate supplier contracts, and accelerate digital transformation. Platforms like SAP Taulia are helping CFOs gain real-time cash visibility, improve predictive analytics, and unlock liquidity through working capital solutions.

Accelerating digitalization and AI adoption may be the most significant opportunity. Companies need better tools for productivity, scenario planning, and integrated decision-making.

Tariffs affect everything from production to sales to financial forecasts. They are deeply interconnected and can’t be updated in silos. SAP helps link these plans together so companies can analyze impacts holistically and make faster, smarter decisions.

At the same time, working capital solutions like Taulia are helping businesses adapt their investment strategies. Whether freeing up cash to fund a new plant or offering dynamic discounting to secure supplier loyalty, these tools give CFOs flexibility when markets shift.

With competitors competing for the same suppliers, tactics such as dynamic discounting and supply chain financing can make a company more attractive to work with, which can create a real competitive advantage.

The Mandate for Digital Transformation

Market disruptions expose inefficiencies and highlight the need for better tools and systems. In the ‘gravy days,’ companies often overlook inefficient processes. However, production planning, material tracking, and cash forecasting tools become critical when markets tighten.

Many companies already have powerful tools at their disposal, such as SAP’s planning and inventory systems, but underuse them until disruptions force them to utilize their full capabilities.

Lately, we’ve seen a shift from clients using process improvements to building new technology platforms capable of handling complex data environments and faster predictive insights.

For instance, many private equity firms are investing heavily in upgrading their tech stacks to operate at the speed they need to increase deal volumes.

Companies need more advanced planning mechanisms to integrate cost control, cash flow visibility, and strategic agility. AI-powered forecasting tools can simulate multiple potential futures, enabling CFOs to make real-time decisions and accelerate adaptation in volatile environments.

By integrating agentic AI capabilities through tools like Joule, SAP’s AI assistant, CFOs can run complex tariff simulations in minutes rather than weeks.

Next steps: resilience and growth

As tariffs continue to reshape trade dynamics, we believe the next step is for CFOs to focus on building organizational agility and digital-first capabilities. The next phase is less about surviving disruption and more about preparing for a “new normal” defined by constant change.

Solutions like SAP and SAP Taulia are central to helping companies manage working capital. The SAP Business Data Cloud, layered with AI, enables scenario analyses that integrate production, sales, and financial forecasts into one holistic view.

Meanwhile, SAP’s Global Trade Services automates compliance checks and simulates trade impacts, while the SAP Business Network helps strengthen collaboration between buyers and suppliers. With Taulia’s working capital solutions, businesses gain more flexibility and control.

Ultimately, the only certainty in business is uncertainty. The nimbler and more resilient an organization is, the better it weathers any storm.

Find out how SAP Taulia can be a strategic partner in helping businesses stay compliant, resilient, agile, and competitive in our eBook, Impact of Tariffs on Finance.

SAP Taulia internal insights (2025)

Journey to SCF success

Launching a sophisticated supply chain finance (SCF) program can be a transformative undertaking for companies as well as their suppliers. And for one world-leading transport and logistics company, working with SAP Taulia marked the beginning of a highly successful implementation journey.

Starting the journey

At the beginning of the project, the company was looking to launch a supply chain finance (SCF) program that would strengthen the company’s balance sheet, improve working capital metrics and support the health of its suppliers. A key goal was to deliver value to all shareholders, while providing a smooth onboarding process that could accommodate large numbers of suppliers with minimal friction.

As such, the company was seeking a simple, easy-to-use solution with a modern design. Given the need for simplified KYC/AML processes, as well as multiple funding options, it was clear that a non-bank solution would be best suited to the company’s needs.

Where cost was concerned, the focus was on finding a platform that offered low fees for the company and its suppliers. Crucially, the company was looking for a platform that would not just act as a financing tool, but also help to drive strategic supplier engagement.

Navigating the implementation

After considering the options available, the company opted for SAP Taulia. The implementation was nothing if not ambitious, given that the company had tens of thousands of suppliers in Europe alone. It was critical that the overall process should be as simple as possible, while keeping numerous internal shareholders aligned.

To ensure a smooth implementation, the company focused on one business unit and two pilot countries in the first instance, with SAP Taulia providing project management for the pilot countries.

Key to the implementation’s success was adopting an effective communication strategy to educate suppliers on the program’s benefits. Another important success factor was choosing a solution that was available in all the relevant countries and currencies.

Launching the program…and beyond

By choosing a non-bank solution – and a partner able to optimize the onboarding process – the company was able to bring large numbers of suppliers onto the program quickly and easily. Over 2,000 suppliers were successfully onboarded across 13 countries with different setups, including countries with more challenging regulatory frameworks.

The average acceleration rate was over 80% for onboarded suppliers, illustrating the value of the program to the company’s business-critical vendors. As a result, the firm was able to strengthen supplier relationships and improve the resilience of its supply chain.

Another notable feature of the implementation was the company’s close cooperation with SAP Taulia, which involved co-innovating to introduce platform improvements and new features.

For the company, the project has highlighted two key principles for success. The first is the importance of defining a vision that goes beyond finance. And the second is to view a successful SCF project not as a final destination, but as the foundation for future optimization.

Harnessing stablecoins in corporate treasury

Stablecoins have evolved from an experimental technology to a tool with the potential to transform corporate treasury – removing many of the barriers to fast and cost-efficient cross-border payments. So what do Treasurers need to do to take advantage? PayPal’s Sharyn Tan and SAP Taulia’s Charles Brough share their takeaways from a recent Treasurers’ Club event.

Stablecoins and digital payments have a vital role to play in reshaping corporate treasury operations. The energy around this topic is palpable – but questions remain around how companies can use stablecoins to enhance liquidity management, improve cash visibility, and streamline cross-border transactions.

To shed light on this topic, Sharyn Tan, Head of Product Liquidity and New Products for Treasury at PayPal, joined a recent Treasurers’ Club event hosted by SAP Taulia’s Charles Brough. During the session, Sharyn shared her views on the role stablecoins can play in transforming treasury and how treasurers can future-proof their working capital strategies.

In this blog, Sharyn and Charles reflect on their key takeaways from the discussion. If you missed the session, or if you’d like a reminder of the main topics covered during the event, read on.

The big picture

A fundamental shift is underway in the world of payments. The way in which companies manage money is evolving fast – and while traditional payments aren’t going away, stablecoins are emerging as a significant force with the potential to reshape corporate payments.

As we heard during the Treasurers’ Club discussion, what’s driving this evolution is a desire for speed, transparency, and efficiency, particularly in the area of cross-border payments.

But in order to adopt new technologies, companies will first need to adapt their operational models and risk management strategies.

Stablecoins: from experimental technology to corporate tool

As we heard during the session, not all stablecoins are created equal – so it’s important for treasurers to have a clear understanding of this developing landscape.

Various stablecoins are now available, each with its own backing mechanism and regulatory status. PayPal USD (PYUSD), which is issued by Paxos Trust Company, a New York Department of Financial Services chartered limited purpose trust company, is a regulated stablecoin with one-to-one backing in US dollars and highly liquid short-term US government securities. Other examples of US dollar backed stablecoins include USDT and USDC.

We also discussed the maturing regulatory environment. Governments and regulatory bodies are moving away from outright rejection of stablecoins and are increasingly developing frameworks that enhance consumer protection, adding legitimacy for corporate adoption.

With use cases expanding beyond crypto trading, we are now seeing leading enterprises exploring how they can harness stablecoins to transform their corporate treasury operations – for example, in transactions such as large cross-border dividend payments and intercompany funding as well as paying vendor invoices.

For banks, meanwhile, stablecoins present both challenges and opportunities. On the one hand, stablecoins may play a role in reducing reliance on traditional correspondent banking – but at the same time, banks are looking at ways to integrate stablecoin capabilities and develop interoperability with digital assets.

Key learnings from the frontier

During the discussion, we talked about some of the ways that corporate treasurers can benefit from stablecoins:

• Stablecoins offer significant efficiencies: For example, they can drastically reduce settlement times from days to hours. They can also help treasurers free up working capital that’s stuck in transit – and their 24/7 transaction capabilities can overcome traditional banking cut-off times.

• Programmability features: The blockchain technology underpinning stablecoins allows for smart contracts and automation. For treasurers, this can enable precise, just-in-time liquidity management and automated payment workflows.

• On-ramping and off-ramping considerations: On-ramping and off-ramping – in other words, converting fiat currency to stablecoins and back again – are activities that rely on trusted financial partners, and are a significant source of friction.

• US dollar dominance continues…for now: On-chain volumes are overwhelmingly denominated in USD, due to the currency’s liquidity, stability, and established utility. However, other currencies and regional hubs are actively working to establish their own stablecoin ecosystems.

• The ‘wallets’ concept: During the session, we heard about a potential future in which digital wallets – rather than traditional bank accounts – become the primary means of holding and transacting digital assets, including stablecoins.

• Corporates balance sheet treatment of stablecoins is meaningful: Depending on its terms, stablecoins may meet the definition of a financial asset and be subject to different accounting frameworks. PayPal’s policy classifies PYUSD as a cash equivalent, which provides clarity over cashflow and reporting implications to use and hold it.

Taking action

So how can corporate treasury teams best leverage stablecoins? And how can they get started? We believe the following steps are key to making the most of these emerging opportunities:

1. Do your research: Before adopting stablecoins, investigate the backing, regulatory status, and specific features of any stablecoins you’re considering. As part of your due diligence, make sure you understand the accounting standards for holding stablecoins in your jurisdiction.

2. Engage with diverse stakeholders: It’s not enough to rely on your banks for information. Talk to a variety of industry players, fintechs, and other treasurers to gain a comprehensive understanding of the stablecoin landscape.

3. Educate and align your internal teams: You need to bring the relevant teams with you on this journey, so make sure you build internal knowledge across treasury, finance, legal, and compliance. This should include an understanding of what stablecoins are, how they are regulated, and their potential impact.

4. Think about usability: Solutions like SAP’s Digital Currency Hub bridge the gap between the core ERP and blockchain-based payment rails, so Treasury teams don’t have to leave their existing payments ecosystem to start using Stablecoin. This not only simplifies use but also reduces risk and helps manage compliance.
   
5. Start small with pilot programs: Identify specific high-friction or high-cost use cases – such as urgent payouts or cross-border intercompany funding – and start by running small-scale pilots. Then document the outcomes, tweak your processes as needed, and start scaling up.

6. Experiment with user experience: If possible, consider experimenting yourself with buying and selling stablecoins through available apps or platforms. This will give you a clearer understanding of the user journey and what’s needed for a positive experience.

7. Provide feedback to the industry: Once you’ve made some progress, take the time to share your experiences and pain points with banks and payment providers. Your feedback can help shape the development of stablecoin infrastructure and services.

Conclusion

The future of payments is being shaped by the developments we’re seeing today. To learn more about how your corporate treasury function can prepare for next-generation payments, check out the latest report in our CFO Perspectives series, which you can download here.

Staying Ahead in an Era of Tariffs and Economic Uncertainty

As business leaders, we know that economic shocks are not new. From the 2008 financial crisis to the COVID-19 pandemic, we have navigated disruptions that tested our resilience. Nonetheless, the current landscape of tariffs presents a unique challenge.

The announcements on 2 April 2025 hiked the average US tariff rate from 2.5% to 27%. Tariffs ranging from 10% to 50% placed on all the US’s main trade partners, hit global markets, and prompted swift retaliation from China, the EU, Canada and elsewhere.

Tariffs have increased costs across many industries and throughout the entire supply chain. For CFOs, though, the impact goes beyond higher costs, with compliance regulations adding to the burden. While tariffs are not new, today’s trade policies’ speed, scale, and unpredictability are creating pressures that many finance leaders weren’t prepared for.

This is a topic that comes up in nearly every conversation I have with customers. In our upcoming eBook, Impact of Tariffs on Finance, we will analyze how finance teams are responding to these challenges and turning them into opportunities.

The CFO’s Modern Dilemma

Unlike past economic shocks, when companies could eventually recalibrate forecasts, trade policies today are constantly shifting. Especially in publicly traded companies, it’s challenging for CFOs to provide forward-looking guidance. That sustained uncertainty creates more pressure than we have seen in past crises.

For many CFOs, the challenges are twofold: managing operational impacts today while setting the foundations for long-term resilience.

Internally, CFOs are under intense pressure to deliver accurate forecasts, manage liquidity, and control costs. Finance teams are expected to run sophisticated “what-if” scenario analyses across pricing, sourcing, and production strategies while managing competing priorities between departments.

Meanwhile, external pressures for CFOs include managing growing stakeholder expectations while navigating frequent regulatory changes. Investors, rating agencies, and financial institutions alike are closely watching profitability and liquidity. Loan covenants remain strict despite external shocks, forcing CFOs to preserve cash even when tariffs drive up costs.

The ripple effect is a growing strain on working capital. To safeguard against disruptions, many companies are stockpiling inventory, a move that locks up significant cash but creates a cascading challenge.

Furthermore, these dynamics aren’t just operational – they affect internal decision-making. Supply chain and manufacturing leaders want higher stock levels to secure supply, while treasury and finance leaders want to protect free cash flow. This can create healthy tension inside organisations that requires integrated, data-driven planning.

To navigate this, companies must recalibrate their working capital strategies, balancing short-term resilience against long-term financial health while operating in a volatile environment..

Turning Pressure into a Catalyst for Change

If there’s one unexpected outcome from tariff pressures, it’s the acceleration of AI adoption. Companies will need more advanced planning mechanisms to manage cost control, cash flow visibility, and strategic agility, and almost every company I speak to now has a generative AI agenda. It’s become a catalyst for productivity and smarter planning.

According to SAP’s AI adoption in 2024 insights survey, only 32% of companies currently use AI in finance functions. This is a clear signal that planning and working capital management are ripe for transformation.

Our data, from the SAP Network, confirms the impact of tariffs on procurement costs. Comparing accelerated spend from 2024 to 2025, we can see that 18 companies operating in Consumer Goods, Information Technology, Energy, Communication Services, and Industrials have posted increases of more than 100%.

It is worth pointing out that while we believe the majority can be attributed to price increases and is directionally correct, the numbers also include volume increases.

These increases, however, do suggest that these sectors are absorbing the highest tariff-related costs or expanding procurement aggressively, possibly due to supply chain shifts, inflationary pressures, or strategic stockpiling.

Shifting trade patterns have already created a global realignment. McKinsey’s 2025 Global Trade update found that the average geopolitical distance of trade fell by 7% between 2017 and 2024, indicating that economies are trading more with politically aligned partners.

While all sectors have been affected, those heavily dependent on Asian supply chains have been hit the hardest. Industries tied to manufacturing, electronics, and imported materials face greater cost pressures and inventory risks than others.

Many of these companies had immature operational models and weaker technology infrastructure. As a result, they’re playing catch-up to an extent.

From my perspective in Stuttgart, Germany, the impact is real. We have a strong, export-heavy automotive industry, and tariffs are especially painful, leading to supply chain issues. As a direct consequence of these tariffs, both Porsche and Mercedes have announced layoffs recently.

But uncertainty extends far beyond one industry or one country. The effects are global because supply chains are global, and no sector is completely insulated.

A Blueprint for Action

To navigate volatility effectively, businesses should take a dual-track approach for short- and long-term strategies.

In the short-term:

• Enhance agility with data-driven strategies and real-time financial forecasting
• Adopt AI-powered scenario planning to respond rapidly to changing conditions
• Use working capital solutions to maintain liquidity during supply chain transitions
• Strengthen supplier relationships for priority access and pricing advantages.

In the long-term:

• Digitize core processes across finance, supply chain, and compliance
• Integrate planning across functions to ensure a single source of truth
• Maintain flexible financing tools to adapt as needed
• Upskill finance teams to focus on strategic analysis, scenario planning and digital tools.

The ability to plan for multiple scenarios, prepare for shocks, and maintain supplier liquidity is what will separate successful companies from the rest. Scenario planning requires a single unified data layer connecting finance, production and supply chains.

SAP’s Business Suite provides this foundation, enabling companies to run fully connected, end-to-end analyses across functions that break down silos and accelerate decision-making. When combined with SAP Taulia’s working capital solutions, businesses gain more flexibility and control.

CFOs need to be able to meet these challenges in the short term, while using the experience to help prepare for future challenges ahead. Our suite of working capital management solutions can help customers stay compliant, adaptable, and competitive in the midst of uncertainty.

Find out more about this in our upcoming eBook :Impact of Tariffs on Finance.

1. Capital Group, US Treasury Department. Customs duties used as a proxy for tariff revenue. Latest data available through August 2025, as of 18 September 2025.
2. The safety net companies put in place for themselves to stave off higher prices induced by tariffs is fraying
3. AI adoption in 2024: SAP survey insights

Turning payables into an engine for growth

In a recent session at SAP Connect, SAP Taulia’s Thomas Mehlkopf discussed how multinational businesses can turn their payables into a source of profit and an engine for sustainable growth.

For multinational businesses, today’s landscape is being shaped by economic uncertainty, supply chain complexity, and the pressure to grow.

While cash may be king, for many companies it is currently trapped in inefficient working capital cycles. But what if you could turn your payables from a cost center into a strategic engine for growth?

There’s no denying that traditional approaches to payables leave much to be desired. Static payment terms are negotiated once, and then left untouched for years. Manual processes eat up time, generate unnecessary costs, and leave your firm at risk of errors.

Worse still, all of this puts a constant strain on your most valuable asset: supplier relationships.

Replace rigidity with flexibility

Fortunately, there’s another option. By moving towards a modern, AI-driven strategy, you can replace rigidity with flexibility, and turn your payables into a strategic gool for funding growth.

SAP Taulia offers a suite of solutions embedded into your SAP ecosystem that can transform the way you manage working capital:

• Dynamic Discounting allows you to use your own cash to pay suppliers early in exchange for a discount. By using AI to analyze your cash position, cost of capital and supplier behavior, the solution optimizes the timing and the discount amount to maximize your risk-free return on cash.

• Supply Chain Finance uses third-party funding to pay your suppliers early and extend your payment terms, thereby improving your cash flow and strengthening your balance sheet. Suppliers gain fast, affordable access to cash, while you preserve your own working capital.

• Virtual Cards automate supplier payments through a secure, seamlessly integrated experience within your ERP system and the SAP Business Network. This delivers faster transactions that enhance working capital and operational efficiency.

The real power here is flexibility. For example, if you have excess cash at the end of a quarter, you can instantly deploy it via Dynamic Discounting to boost your margins. The next quarter, if you need to preserve cash for a capital investment, you can switch to Supply Chain Finance.

By switching between these strategies in line with your liquidity position and strategic goals, you can use your payables to fund growth, improve EBITDA, and even drive critical ESG initiatives.

So far so good – but what does this look like in practice? The following three case studies illustrate some of the ways companies are unlocking the potential of their payables.

Case study 1: Turning the treasury function into a profit center

A major telecommunications company had a clear mandate from the board: to achieve ambitious cost savings of $10m in year one, scaling to $20m annually.

While the company had cash, it was sitting idle in bank accounts and earning minimal returns. Manual processes made it impossible to run an efficient early payment program at scale.

The company turned to SAP Taulia’s Dynamic Discounting program, both because of its deep SAP integration and the AI-driven business case analysis. The program was rolled out with widespread adoption, with 420 suppliers enrolled in just eight months.

The success of the program was phenomenal. The program achieved a strong 7.4% weighted average APR, allowing the company to earn a consistent, risk-free return on cash that had previously been underutilized.

As a result, the company exceeded its targets, achieving $14.8 million in discounts in the first year, and $21.7 million in year two.

Case study 2: Incentivizing suppliers to meet ESG standards

The second company – a multinational automotive manufacturer – needed to support an ambitious corporate sustainability agenda, including achieving a fully sustainable supply chain. The challenge was to move beyond audits and scorecards, and incentivize suppliers to meet specific ESG standards.

To achieve this, the company adopted a combined Dynamic Discounting and Supply Chain Finance program, built on the SAP Taulia platform. By segmenting its supplier base, the company was able to identify suppliers that met its ESG criteria, and use the platform to offer them preferential, lower-cost rates for early payment – thereby creating a financial reward for sustainability.

With high supplier adoption, the business was able to use its financial supply chain to drive its ESG goals, while improving its own working capital position and strengthening its balance sheet.

Case study 3: Achieving a unified working capital strategy

Pharmaceutical firm Pfizer’s treasury team was looking to align its cash optimization efforts with the procurement team’s focus on supplier relationships and value.

However, this effort was hampered by a fragmented systems landscape, including regional bank portals and legacy fintech platforms. Global suppliers had to navigate multiple portals and sign different contracts for different regions – and it was difficult to create a unified working capital strategy across treasury, procurement and finance.

To address these challenges, Pfizer consolidated its enterprise onto SAP, creating a global source of truth for all data. The company also integrated SAP as its single, global fintech platform.

As a result, Pfizer is now able to decide whether P&L or balance sheet improvement is more critical at any given time, and deploy Dynamic Discounting, Supply Chain Finance and Virtual Cards as needed.

The company’s suppliers benefit from a streamlined, simple experience through a single portal. They are also able to access early payment at a more favorable financing rate, tied to Pfizer’s strong credit rating – which provides a boost to their liquidity and builds goodwill.

Liquidity as strategic asset

These three stories provide a snapshot of how different companies are using tailored approaches to liquidity in order to achieve different business objectives.

After all, liquidity isn’t just about keeping the lights on – it’s also a strategic asset that can help companies achieve their growth ambitions. And AI-driven technology is the key to unlocking this value.

With the right tools at their fingertips, companies are better positioned to realize their strategic goals, whether that means funding an R&D project, enhancing efficiency or building a more sustainable supply chain.

Whatever your priorities, SAP Taulia provides the technology, flexibility and expertise to help you control and maximize your liquidity.

Building supply chain resilience with embedded finance

Supply chain disruptions are a fact of life – but with the right tools, companies can build truly resilient supply chains.

From geopolitical tensions to natural disasters, the last few years have brought no shortage of momentous events that have disrupted trade routes and manufacturing hubs. But the most dangerous threat isn’t always the headline-grabbing disaster – sometimes it’s a silent crisis that happens invoice by invoice, payment by payment.

For companies around the world, slow capital movement and poor financial visibility can undermine operational efficiency. Manual processes, missing paperwork and approval bottlenecks can all delay payments to suppliers. And the numbers are hard to ignore: SAP Taulia’s 2024/25 Supplier Survey found that 51% of suppliers are paid late – and for one in five, payment is delayed by more than 30 days.

As well as adding days or even weeks to the payment cycle, these inefficiencies can lead to a dangerous lack of visibility, rendering buyers unaware of the financial stresses within their supply bases, and putting supply chains at greater risk of disruption. If a supplier fails because of a cash flow crisis, the buyer’s entire production line could grind to a halt.

To build resilience, it’s clear that companies need to close this liquidity gap.

Embedded finance in action

So how can companies address these challenges? The answer lies in a powerful shift in thinking and technology known as embedded finance. With financial services directly embedded into their operational systems, companies are better placed to move capital instantly and contextually.

This is where the SAP Taulia advantage becomes clear. By integrating working capital solutions seamlessly into the native SAP environment, SAP Taulia transforms the ERP system into a strategic command center for cash management and supplier liquidity.

When companies are looking to support a diverse ecosystem of suppliers, they also need a diverse portfolio of tools to meet their needs. As such, SAP Taulia advocates for a multifaceted approach that includes virtual cards, dynamic discounting and supply chain finance.

Virtual cards

Within this toolkit, virtual cards are particularly agile and versatile. Using SAP Taulia’s virtual cards solution, companies can pay their suppliers instantly without the need for complex file handling. This is particularly suitable for paying smaller suppliers that may lack the desire or ability to participate in more formal financing programs.

When an invoice is posted, SAP Taulia’s technology works with the ERP to automatically issue a virtual card number (VCN) to the supplier, enabling them to process the payment immediately. Reconciliation is automated in the buyer’s ERP.

Single-use numbers and pre-set limits eliminate the risk of fraud, theft or overcharging. Companies can also use virtual cards to extend their payment terms and optimize cash flow, with suppliers receiving payment straight away.

Dynamic discounting

Dynamic discounting is a solution that enables buyers to use their own cash to pay suppliers early in exchange for a discount. Suppliers can choose when to accept payment, with discounts applied on a sliding scale – the earlier the payment, the greater the discount.

For buyers, dynamic discounting provides attractive, risk-free returns on surplus cash while reducing the cost of goods purchased. Suppliers, meanwhile, gain access to affordable liquidity while reducing their Days Sales Outstanding (DSO). With certainty over when payments will be received, suppliers can also forecast their cash flows more accurately.

Furthermore, dynamic discounting can help to build a more resilient and stable supply chain by helping to improve the financial stability of key suppliers.

Supply chain finance

Alternatively, companies may wish to preserve their own cash for other strategic priorities – in which case, supply chain finance may be a more attractive option.

Like dynamic discounting, supply chain finance enables suppliers to receive payment early, but in this case payment is provided by a third-party funder. As such, buyers can maintain their standard payment terms while enabling suppliers to access early payments.

Supply chain finance mitigates the risk of supply chain disruption by helping suppliers access the liquidity they need to operate and fulfil orders – a particularly valuable option for high-growth suppliers or those operating in volatile markets.

Flexible funding

Better still, companies don’t have to choose between dynamic discounting and supply chain finance. SAP Taulia’s Flexible Funding model allows businesses to switch seamlessly between self-funded dynamic discounting and third-party-funded supply chain finance – or even run both programs at the same time, targeting different supplier segments.

For suppliers, there is no difference between the two options – either way, they can use the same interface and can access a reliable, predictable source of cash.

The role of AI

Having access to a powerful portfolio of tools is only part of the story. What makes these solutions truly strategic is the artificial intelligence layer that can elevate working capital management from a reactive discipline to one that’s both predictive and proactive.

Within the SAP Taulia platform, AI is not just a buzzword – it’s a core competency that drives value-added capabilities:

• Predictive spend analysis analyzes supplier behavior using millions of anonymized data points. It then recommends the most suitable discount rates for early payment offers, maximizing supplier adoption and financial returns.

• Intelligent decision automation uses AI to recommend the right financing lever for the right supplier. It can also prioritize payments to critical suppliers in order to prevent potential disruptions.

• Cash analytics provide actionable insights into cash flow across the business using AI-powered models. This can help finance teams make smarter, data-driven decisions.

It’s clear that the market is ready for these opportunities. In SAP Taulia’s latest Supplier Survey, 38% of suppliers cited AI as a top priority for improving their own operations, demonstrating their willingness to embrace intelligent, data-driven tools.

To build a stable supply chain, companies need to prioritize the financial health of their suppliers – and embedded finance can play a powerful role in supporting this. By integrating working capital tools into core SAP workflows, SAP Taulia enables companies to react in real-time and take strategic financial actions when they’re needed.

For true agility, we also believe companies need access to an integrated portfolio of solutions. By deploying a combination of AI, virtual cards, dynamic discounting and supply chain finance, companies can build the flexibility and financial shock absorbers they need to navigate any disruption.

How Visy worked with SAP Taulia to build a supplier-first early payment ecosystem

Businesses continue to be challenged by elevated interest rates, liquidity issues and the risk of supply chain disruptions. And increasingly, suppliers are seeking out early payments from their customers – as reflected in SAP Taulia’s 2024/25 Supplier Survey, in which a record 63% of suppliers expressed an interest in early payments.

In light of this growing trend, Visy needed a scalable strategy to meet the expectations of its network of suppliers. By partnering with SAP Taulia, the company has built a supplier-led early payment ecosystem that has improved cash flow visibility and deepened supplier trust – all without compromising the company’s working capital goals.

The challenge: Growing supplier pressure and manual limitations

Headquartered in Melbourne, Australia, Visy is a global leader in sustainable packaging solutions. The company has a network of 8,000 suppliers, and actively uses around 5,000 of these suppliers every month.

Like many companies, Visy found that its vendors were increasingly asking for early payments to meet liquidity gaps. But manual processes and fragmented systems were making it difficult to scale early payments across the company’s network of suppliers.

Initially, the company focused on meeting this need with credit card payments, but this proved to be an administrative burden. As Richard Xuereb, General Manager of Finance (APAR), explains: “We started the credit card journey well before we had a platform, and that was a nightmare. While it worked, keeping track of it administratively was very difficult.”

Partnering with SAP Taulia

It was clear that a more sophisticated solution was needed. So after reviewing the options available, Visy opted to work with SAP Taulia to build a scalable, supplier-first early payment ecosystem.

There were a number of reasons for selecting SAP Taulia. For one thing, Visy needed a solution that would enable it to process supplier invoices as efficiently as possible. As Xuereb explains, “You can have the best early payment program, but if you’re processing invoices 10 days after they were due, it serves no purpose.”

Also compelling was the ability to access multiple early payment methods from a single platform, including virtual cards, dynamic discounting, and supply chain finance. In addition, the company wanted a platform that would give suppliers full visibility over the status of their invoices and when they would be paid.

Other reasons for choosing SAP Taulia was its supplier self-service functionality, which gives suppliers control over the timing of payments and their chosen payment method. And of course, the need for robust security to protect suppliers’ invoice information was paramount.

Implementation and collaboration

The implementation was a significant undertaking, which involved registering over 7,000 suppliers on SAP Taulia.

Today, 1,600 suppliers are using Virtual Cards and more than 70 are accessing Supply Chain Finance. Supplier onboarding has been integrated into procurement workflows. Invoices reach the platform within 3-4 days, enabling suppliers to access true early payments.

“The way we’ve designed our program is that whether you are using supply chain finance, virtual cards, or dynamic discounting programs, there will be a flag on all invoices telling you if they are available for early payment,” explains Xuereb. “If you’re registered, you can just go ahead and draw down on them.”

He adds that cross-functional communication between finance and procurement has proved key to the program’s success. “Just as you are educating your suppliers, you need to educate your procurement teams, as they are the ones who are out there,” he reflects. “They have to be aware of what they are selling.”

Results and strategic takeaways

The program has resulted in multiple benefits for Visy and for its suppliers. The system’s automation means that invoices typically hit the platform within 3-4 days – but as Xuereb explains, “That also depends on how neat the supplier invoices are.” Consequently, suppliers are motivated to improve the quality of their invoices so they can be uploaded onto the system faster, expediting the opportunity for early payment. And the use of a unified platform across all payment types has led to fewer support tickets and invoice disputes.

With SAP Taulia, Visy has been able to provide suppliers with greater transparency – and that, in turn, is helping to build long-term goodwill with suppliers. Likewise, the company’s procurement team is able to use the program to negotiate more effectively with suppliers. As Xuereb notes, “We’re able to offer them shorter terms without actually impacting our own DPO.”

He adds that for a long time, the procurement team has been able to negotiate on the product and the price, but without having the ability to discuss terms. “Now we have something the procurement guys can take back to those suppliers, and really reach the same goal without either one sacrificing.”

Suppliers, meanwhile, have been able to gain more flexibility over their own cash flows. According to Xuereb, “What appealed to us about SAP Taulia was its agnostic approach. We did not want to tie our suppliers down into any specific mode of early payment – nor did we want to limit ourselves to certain banks or card companies.”

Moving forward with early payments

By partnering with SAP Taulia, Visy has built a resilient and scalable program for its network of thousands of suppliers, while aligning the company’s finance and procurement teams more closely.

Visy’s journey illustrates how early payments can provide a win-win for both buyers and suppliers, particularly when flexibility and visibility are prioritised. And as Xuereb observes, “Everyone is wanting faster cash.”

For other companies considering a similar route, he recommends going through the supplier base and looking at the terms suppliers are currently on. “Then have a look at the suppliers you know who’ve been coming to you, and look at how each of the options available can actually solve that problem.”

As Xuereb concludes, “The way to look at this is, ‘My suppliers should be jumping at this. So why shouldn’t I go and offer it to them?’”

To learn more, watch the webinar recording here.

Programmable payments and the future of finance automation

One of the major challenges identified in our 2024 joint global survey with Mastercard, “The payment challenges that suppliers are facing”, is how payment delays can lead to cash flow issues. In a volatile supply chain environment, enterprises of all sizes may struggle with managing payments across multiple jurisdictions, especially with longer payment cycles.

Arguably the most innovative development we’re seeing now in the payments space is the burgeoning move towards automation in digital payment systems. Payment Factories are the first step towards driving automation. While still a few years out, programmable payments where transactions and processes are automatically executed based on any number of predefined rules, is on the horizon and companies who have already embraced digitization through a Payment Factory set-up are well prepared for the next (r)evolution.

To facilitate programmable payments, smart contracts and blockchain technology is used to execute transactions automatically in line with predefined rules. The issuer can dictate the terms directly within the store of value – an asset that maintains its value, rather than depreciating – by ‘programming’ rules and conditions. Programmable payments are made once that predefined set of conditions is met.

The aforementioned smart contracts are central to this. These are self-executing contracts with the terms of agreement directly written into code, thus reducing the need for intermediaries such as banks or brokers. Also vital is the use of virtual cards – unique digital cards for online payments, typically linked to a physical bank account or credit card – and the increasing use of artificial intelligence (AI) to automate processes, detect fraud and make real-time decisions5.

When combined, these technologies are arguably revolutionizing payments, creating an ecosystem where payments are faster, more secure, and easier to manage.

Digital payment rails in automated payment workflows

It’s likely that businesses will feel increasing pressure to offer faster payment options as customer interest grows in this area. A record 92% of US consumers have used some form of digital payment in the past year. Meanwhile, EU instant payment transactions are forecasted to grow from €3 billion in 2024, to €30 billion in 2028 – an average annual growth of 50% – according to McKinsey’s Global Payments in 2024.

The new wave of digital payment rails is centered around technologies that address specific needs in modern automated payment workflows. Stablecoins offer price stability and cross-border efficiency to help maintain consistency in purchasing power, and their near-instant settlement times allow automated payments in real time, boosting supply chain efficiencies.

Meanwhile, Central Bank Digital Currencies (CBDCs) bring government-backed trust and regulatory compliance. This boosts confidence that they will maintain value with the traditional fiat currencies with which they are aligned and contribute to stability. As a result, automated payments could potentially be used in areas such as government payments, payroll or the public sector.

Virtual cards, meanwhile, are especially useful to help both businesses and consumers control recurring automated payments. This includes subscription services, or one-time payments, such as in e-commerce, and providing expenses control for businesses when issuing virtual cards with pre-defined limits.

“Many people still see virtual cards as the digital form of a physical card with a temporary, randomly generated 16-digit number, without fully considering the broad range of opportunities they offer,” said Rebecca Meeker, Senior Vice President, B2B partnerships at Mastercard in the aforementioned survey report “The payment challenges that suppliers are facing”.

“But if we shift to thinking of virtual cards as assets, buyers could start using them to manage their cash balance, tap into a credit line for working capital or explore financing opportunities,” she added.

Put together, these new solutions are designed to enable more efficient, automated, and compliant payment processes. When used effectively, they can help both businesses and individuals transact seamlessly in a constantly evolving digital economy.

How SAP can help provide solutions

For companies looking to reduce costs, enhance control, and mitigate operational risks with digital-first payment solutions, SAP is at the forefront of providing flexible, secure, and scalable solutions.

With the SAP S/4HANA Cloud solution for advanced payment management, businesses can centralize payment handling and monitoring, set up in-house banking capabilities, and in combination with SAP Multi-Bank Connectivity also ensure secure and efficient between your SAP system and banks.

The key benefits are:

• Centralized Payment Handling allowing for group-wide approvals, payment monitoring, and cash management.
• In-House Banking Capabilities that support intercompany payments, payments on behalf of subsidiaries, and central incoming payments
• Seamless Integration combining payment factory and in-house cash functionalities into one solution connected to hundreds of banks, which minimizes integration efforts and simplifies the overall payment process
• Enhanced Visibility and Control providing comprehensive visibility into payment processes and cash flows, enabling better control and decision-making

SAP’s payment solutions enable real-time visibility into transactions, ensure seamless compliance with regulation, provide cost saving and risk minimization opportunities. At the same time, they build the foundation for any payment innovation, including programmable payments.

Discover how next-gen payment technologies, from embedded finance to autonomous treasury management, are transforming finance in SAP Taulia’s latest eBook. Get ahead of the shift. Download it here

Making the most of early payments: 5 recommendations for procurement leaders

Early payment programs play a vital role in helping companies build trust with their suppliers and make their supply chains more resilient. Suppliers, meanwhile, can benefit from early payment programs in multiple ways, from improving cash flow to increasing their stability and building stronger relationships with customers.

Given the myriad challenges of the current market, it’s no surprise that suppliers are becoming increasingly proactive in requesting early payments. Indeed, SAP Taulia’s 2024/2025 Supplier Survey found that interest in early payments is higher than ever, with 63% of suppliers expressing an interest in early payments.

During a recent webinar, industry experts from Visy, ANZ Bank and SAP Taulia discussed the growing trend of supplier-driven early payment requests, and what this means for procurement leaders.

Here are five takeaways from the discussion.

Lesson 1: Supplier needs have fundamentally shifted

Business conditions continue to present significant challenges. Alongside geopolitical uncertainties, access to credit is tightening up – and higher interest rates are taking their toll on suppliers, particularly those that had invested in growth when rates were lower.

At the same time, suppliers continue to experience issues as a result of late payments from their customers. As James Brown, Head of Market Management at ANZ Bank observes, late payments have a “domino effect” that impacts small businesses, hindering their ability to pay their own suppliers.

This challenge is magnified by the focus many small businesses are placing on certainty over their cash flows. In practice, this may mean that when companies receive invoices, they pay them straight away in order to gain clarity over how much money is available. But this places additional pressure on suppliers’ working capital, which is made worse when customers pay their invoices late.

Given these challenges, it’s no surprise that suppliers are increasingly requesting and accessing early payments from their customers – and businesses need to meet this shift proactively by offering solutions that meet their suppliers’ needs.

As Bob Glotfelty, Chief Growth Officer at SAP Taulia, recalls: “I’ve spoken to many suppliers over the last ten years who have said, ‘If it wasn’t for an early payment program, we would have gone out of business.’”

Lesson 2: Flexibility and transparency are crucial in early payment programs

When it comes to implementing an early payment program, flexibility and transparency are both important success factors.

Where transparency is concerned, it’s important to be clear with suppliers about how they can benefit from a program, says Richard Xuereb, General Manager of Finance (APAR) at paper, packaging, and recycling firm Visy. “But at the same time, we need to tell them what we’re going to gain. Of course there’s something in it for us. We’re trying to stay healthy. And the better our credit rating is, the better we can help suppliers, because their cost of funding is going to be lower.”

On another note, Xuereb observes that early payment solutions need to enable supplier choice. As such, it’s important to be clear with suppliers about the options available to them.

“Everything we do in the supply chain finance space, or in dynamic discounting and virtual cards, is all 100% supplier choice,” he explains. “If I can’t convince you, it’s better for you not to do it.”

Lesson 3: Bridge the gap between Procurement and Finance

In many companies, procurement and finance teams are somewhat disconnected from each other. But given that early payment programs affect both working capital and supplier relationships, cross-functional collaboration is essential to a successful program.

As Brown explains, early payments is one area in which finance and procurement can come together and truly collaborate. “The traditional way of banks looking at working capital is to look at a company’s receivables, payables, inventory, and cash conversion cycles, and provide solutions that solve the working capital gap at a very high level,” he says.

“But once you get behind the curtain and see the actual data behind the suppliers, you can see where solutions like early payments can actually have direct benefits on a supplier, rather than at the finance level.”

When introducing a program, it’s essential to achieve internal alignment between the relevant departments. For procurement-led programs, this should involve consulting finance and treasury teams, and making sure all parties are aware of the goals of the project. Without this type of collaboration, there is a risk that programs will fall short of achieving their stated goals.

Lesson 4: Leverage an agile toolbox, not a one-size-fits-all approach

It’s also important to realize that the different flavors of early payment programs are not mutually exclusive.

By combining different programs, companies can offer their suppliers a more flexible approach to suit the needs of different businesses. For example, Visy has opted for a multi-pronged approach, which includes virtual cards, supply chain finance (SCF), and dynamic discounting.

As Brown explains, each of these types of programs can deliver early payments to suppliers, but each has different characteristics that provide different benefits.

“SCF has a really important role for a certain part of the supply base; virtual cards work exceptionally well for another part of it,” he notes. “Dynamic discounting gives the buyer some benefits when they have excess cash.”

Lesson 5: Make strategic investments in technology to reduce friction

Many businesses are looking to reduce manual intervention and friction in their payables and collections processes through strategic investments in technology.

For one thing, visibility into the status of invoices is non-negotiable when it comes to the success of an early payments program. “We needed to make sure that our invoice processing was as efficient as we could,” explains Xuereb.

“A supplier will see the invoices that have been loaded. They can monitor the invoices, so they can rest assured that the invoice they sent to Visy has actually been processed. It will tell them whether the invoice is blocked. It will tell them when the invoice is due.”

Likewise, suppliers need to have full visibility over the payment options available to them. And automation is essential when it comes to making sure that programs are both scalable and auditable.

By partnering with a vendor like SAP Taulia, companies can streamline the experience for their suppliers, with easy enrollment and access to full payment and invoice-level detail. What’s more, our flexible funding model makes it simple to offer both supply chain finance and dynamic discounting, while providing suppliers with a consistent experience.

Conclusion: Supplier-led flexibility is the future

The shift to supplier-led early payments is a transformation, not a trend. Organizations that can adapt to their suppliers’ evolving expectations will be better placed to build stronger and more resilient supply chains while optimizing their liquidity strategies.

AI-Powered Cash Flow Management: Predictive Analytics for Optimized Finance

Cash flow problems are a leading cause of business failure. Forecasting future cash flows is crucial, and as highlighted by Deloitte, treasurers prioritize it. However, traditional cash flow forecasting methods are often time-consuming, labor-intensive, and inaccurate, hindering effective financial decision-making. This blog explores how AI and machine learning are transforming cash flow management, enabling predictive analytics for optimized financial forecasting and working capital management.

The limitations of traditional cash flow forecasting

Traditional cash flow forecasting involves manually inputting data from disparate sources like ERPs, CRMs, and accounting software. This process is inefficient, prone to errors, and relies heavily on historical data, which may not accurately reflect future market conditions. Furthermore, these methods struggle to adapt to market volatility and “black swan” events. Without accurate cash flow visibility, businesses struggle to make informed decisions, potentially missing growth opportunities or facing unexpected borrowing costs due to unforeseen economic downturns.

How AI is transforming cash flow management

AI and machine learning are revolutionizing finance, particularly cash flow forecasting. According to our recent survey, a majority of finance leaders are already leveraging AI-generated insights. AI-powered finance tools analyze real-time data from various sources, enabling more accurate and adaptable forecasts.

Benefits of AI in cash flow forecasting

• Automation: AI automates manual processes, freeing up finance teams for strategic work.
• Improved Accuracy: AI algorithms analyze complex datasets, identifying patterns and improving forecast accuracy.
• Real-time Insights: AI provides up-to-the-minute data and alerts for proactive cash flow management.
• Scenario Planning: AI simulates various scenarios (best-case to worst-case) to assess potential impacts on cash flow.
• Early Warning Systems: AI identifies potential liquidity issues by detecting irregularities and predicting future cash positions.

Applications of AI in cash flow management:

AI can be applied across various cash flow management activities:

• Cash collection: Predicting late payments, analyzing payment patterns, and automating reminders.
• Inventory optimization: Tracking stock in real-time and forecasting demand.
• Invoice processing automation: Extracting data through optical character recognition and automating invoice processing.
• Working capital optimization: AI can predict and optimize working capital needs, maximizing efficiency and resource utilization.

Choosing the right AI-powered cash flow solution:

Key considerations when selecting an AI-powered cash flow solution:

• Integration: Seamless integration with existing ERP and accounting systems.
• Security: Robust security measures to protect sensitive financial data.
• Customization: Tailored solutions to meet specific business needs and priorities.
• User-Friendliness: Intuitive interfaces and features like virtual assistants for ease of use.
• Vendor Support: Comprehensive training and ongoing support from the vendor.

The future of AI in cash flow management:

The role of AI in cash flow management will continue to expand. Predictive analytics will enable businesses to anticipate future trends and risks, while prescriptive analytics will guide optimal decision-making. AI will also play a critical role in mitigating financial risks by analyzing data, simulating complex scenarios, and quantifying threats, as highlighted in this Deloitte survey.

Embracing AI for cash flow optimization:

Embracing AI empowers businesses to automate processes, reduce costs, improve interdepartmental communication, and centralize cash flow data. Improved forecasting accuracy leads to better financial planning and decision-making, reducing financial and fraud risks.

Contact us to learn how Taulia can help you leverage AI for predictive cash flow insights and optimized financial performance.

Financial Agility in the Age of AI: A Strategic Imperative for Aerospace & Defense

The winds of change are sweeping through the aerospace and defense industry. A surge in defense spending, driven by geopolitical realities and amplified by targets like the 5% GDP investment endorsed by the US and NATO allies, presents both a golden opportunity and a formidable challenge.

While increased demand means the potential for growth, the industry’s notoriously complex supply chains face unprecedented strain, potentially locking up billions in capital (on SAP Taulia’s platform, aerospace and defense businesses saw spend increase by 25.3% from 2023 to 2024, with spend continuing to rise during 2025). This influx of orders necessitates a delicate cash flow balancing act while continuing to avoid costly supply chain disruptions.

This financial tightrope walk is further complicated by the industry’s increasingly important pursuit of sustainability. Reducing costs and improving resource efficiency by moving to greener technologies, such as sustainable aviation fuels, demands substantial investment and operational agility. Combined with stringent regulatory landscapes and fluctuating project timelines, these pressures create a complex equation for financial professionals.

Payments and Cash Flow: A New Playbook for Value

Like the best CFOs in all industries, masterfully balancing risk and opportunity, those in the aerospace and defense sector must embrace innovative financial strategies. Two key areas stand out: optimizing payments and mastering cash flow. Long project lead times and intricate payment schedules across vast supplier networks create chronic cash flow bottlenecks within A&D, hindering innovation and responsiveness to market demands.

Since aerospace and defense components are often manufactured in much lower volumes (hundreds or thousands annually) than other industries (millions or tens of millions), economies of scale are difficult, if not impossible, to achieve. The industry therefore relies heavily on sole-source suppliers, yet the greater the dependency on individual suppliers, the greater the impact of any bottlenecks and the higher the risk to the business.

The solution is to leverage AI-powered tools to gain real-time visibility into payment flows, predict incoming payments based on behavioral patterns, and automate payment reconciliations. Early payment options for suppliers improve cash flow and strengthen vital supplier relationships.

Seamless ERP integration further streamlines operations, as demonstrated by a major aerospace manufacturer: $18.7 billion in early payments has been provided to suppliers via SAP Taulia over the past three years, with access provided to 99.6% of their supplier base.

Agility and Automation: The AI Advantage

Rapid response and adaptability are non-negotiable in today’s dynamic market. The ability to rapidly scale operations, meet fluctuating demands, and adjust to changing project requirements hinges on operational flexibility and robust financial management. AI-powered solutions offering fast ramp-up capabilities, simplified supplier onboarding, same-day payments, and scalable, user-friendly interfaces empower companies to seamlessly adapt without jeopardizing financial stability.

Furthermore, AI can revolutionize fraud detection within increasingly complex supply chains. By detecting unusual patterns from typical transaction profiles, AI minimizes the rejection of legitimate transactions and maximizes the accuracy of fraudulent payment identification. This is crucial in a world where electronic payments are the norm and fraud is an ever-increasing threat.

Regulatory Compliance and Continuous Optimization

Aerospace and defense companies in Europe, in particular, face unique regulatory hurdles. Solutions with multi-currency and multi-geographical capabilities are essential for streamlining international transactions and ensuring compliance with complex European regulations. Enhanced cross-border collaboration between buyers and suppliers increases transparency, reduces supply chain friction, and fosters resilience.

The transformative power of AI extends to continuous optimization. From benchmarking against industry peers and risk modeling to analyzing supplier behavior, AI’s ability to absorb vast amounts of data and generate insightful scenarios empowers businesses to act faster, with greater cost efficiency and insight.

The Future of Aerospace & Defense Finance

The future of the aerospace and defense industry is an ascent powered by AI. By embracing innovative financial solutions like those offered by SAP Taulia, companies can optimize liquidity, accelerate processes, enhance cash flow control, and gain a decisive competitive edge. The combination of cutting-edge technology, strategic financing partners, and streamlined processes positions businesses for success in this exciting new era.

To learn more about how SAP Taulia can help your organization navigate the complexities of the aerospace and defense finance landscape, contact us today.

The Evolution of Payments: What’s on the horizon?

Payment rails are the lines that link businesses and individuals for hundreds of years. Much has changed though since the days of walking into a bank and sitting opposite a pinstriped clerk to make a payment – and more change is yet to come.

In fact, at least 32% of global transactions will be conducted via instant payments, e-money, and direct debit by 2028, according to the World Payments Report 2025 by the Capgemini Research Institute for Financial Services. This reimagining of financial services is both fueling and responding to an ecosystem where costs, speed, and availability matter, with fewer pauses and borders – resulting in significant opportunity for businesses and consumers alike.

Why embrace digital payments

Real-time payments enable the instant transfer of funds between parties, bypassing traditional banking hours or delays caused by intermediary institutions. Payments are settled within seconds or minutes, as opposed to the hours or days associated with conventional bank transfers. Digital payments not only offer enhanced security through encryption and authentication protocols, but also integrate smoothly into websites, mobile apps, and point-of-sale systems, which helps facilitate an easy and seamless experience for customers.

No business wants to be left behind in the world of e-commerce growth, the ability to tap into new global customer bases, and access to data insights into spending behavior that digital payments can potentially bring. It’s clear that enterprises and financial institutions should embrace digital payments to stay competitive, improve customer experience, reduce costs and adapt to a rapidly changing financial ecosystem. By integrating secure, fast, and convenient digital payment solutions, businesses can not only meet customer expectations but also position themselves for growth in a more global, digital-first economy.

The role of artificial intelligence technology

AI-driven fraud models will expand to better consider consumers’ digital identity and personalized spend insights to combat the growing complexity of fraud.

Caution remains however over how AI-driven scams will affect the payments landscape. The rise in generative AI (GenAI) technology has enabled fraudsters to engage in more sophisticated and scalable scams to vulnerable businesses. Deloitte’s Center for Financial Services predicts that GenAI could enable fraud losses to reach $40 billion in the United States by 2027.

Strategic impact

The strategic impact on liquidity management, global commerce, and business efficiency has been a wake-up call for traditional banks. At the same time, FinTech and technology providers have released constant innovation that allow straight-through processing and integration of instant payments in business applications such as ERP systems.

Banks may need to look at a multi-rail approach, one that maintains a solid hold on existing global payments revenue infrastructure but delves into the possibilities that instant payment services can provide. “Access to liquidity and working capital remains crucial for companies of all sizes, especially smaller ones,” said Sébastien Delasnerie, Executive Vice President, Commercial Cards at Mastercard, in Taulia’s Virtual Cards report. “Faster payments will bring greater certainty, enabling businesses to both optimize their working capital and reduce their reliance on other forms of credit to finance their operations,” he added.

Regulators have been pushing for instant payments, such as in the European Union, which mandates EU banks to comply with the SEPA Instant Credit Scheme. This ensures euro-denominated instant payments can be sent and received within 10 seconds, enabling more and more companies to look into the option of modernizing their payment landscape to benefit from the opportunities.

Digital currencies are certainly expected to play a bigger role in the future as well given their potential to run 24/7 and effectively borderless at significantly lower costs.

Decentralized ledgers: An outlook

Traditional finance (TradFi) refers to the infrastructure that shores up most financial transactions today – banking, loans, investments and payments – and is defined by centralized control and regulation. Decentralized finance (DeFi), by contrast, removes the third-party ‘middleman’, with a peer-to-peer system using blockchain to enable users to transact directly with each other – no banks necessary.

Blockchain technology is the backbone of much of this shift as it offers a decentralized ledger that records transactions securely and transparently. It is arguably fundamentally changing financial transactions, not least by eliminating intermediaries but also by streamlining payment processes, lowering transaction costs, and reducing settlement delays.

Indeed, the blockchain in the banking and financial services market is growing rapidly, from $6.98 billion in 2024 to $10.85 billion in 2025, a Compound Annual Growth Rate (CAGR) of 55.3%. This has been driven by demand for real-time transfers, digital banking, and government initiatives. It is projected to reach $40.9 billion by 2029, a CAGR of 39.4%.

Many businesses welcome the possibility of integrating blockchain technology to enhance visibility into their global cash flows and improve transparency in transaction status and routing. However, it is crucial that these flows and their respective processes are seamlessly integrated into existing systems to avoid creating silos that could lead to process inefficiencies. Such inefficiencies would undermine the efforts of Treasurers to maintain a unified perspective on liquidity and associated foreign exchange risks.

Much of the movement towards these newer forms of payments is focused on international transactions, which can be time-consuming and costly under TradFi systems. For this reason, stablecoins – built on blockchain networks and pegged to the value of a stable asset to maintain a fixed value and reduce volatility – can be a practical option for cross-border payments. Meanwhile, by being backed by a centrally regulated banking system, Central Bank Digital Currencies (CBDCs) – a digital form of a country’s fiat currency – offer an alternative to private digital currencies or cryptocurrencies.

Without a doubt, the payment landscape is evolving for the better. Are you ready?

Discover how to optimize working capital, enhance cash flow visibility, and leverage cutting-edge payment solutions in our Next-Gen Payments eBook, recently released by SAP Taulia.

Solving same-day payments for supply chain finance

SCF programs run by technology vendors offer many benefits – but due to the number of partners involved, it can take several days for suppliers to receive early payments. In a recent initiative, SAP Taulia worked with the supplier of a major European company to solve this challenge and deliver same-day payments.

Early payment solutions like supply chain finance (SCF) come in different flavors. In the case of bank-run programs, suppliers receive early payments from a single bank.

But other options are available – and companies like SAP Taulia operate with a multi-funder model that allows customers to access funding from a network of banks.

The multi-funder model comes with numerous benefits: it allows customers access to a broader pool of capital at competitive rates, as well as mitigating risk, boosting resilience, and providing greater flexibility.

Programs provided by third-party vendors also tend to offer scalability benefits, enabling buyers to offer SCF to large numbers of suppliers, rather than just a small selection.

Cascade of processes

Two challenges many businesses have is unpredictable cash needs and time-sensitivity of payment settlement, or even worse, both simultaneously. These companies have been underserved in the SCF Industry as SCF payments can take multiple days from payment request to payment settlement.

When a supplier hits the ‘pay me early’ button, this triggers a cascade of processes for the buyer, SCF provider, partners, and investors. Each of these stakeholders has processes that take time to complete – and for some SCF providers, early payments can take up to five days to be paid into the supplier’s account.

If the customer approves its invoices promptly, there is still a sizeable window in which suppliers can request early payment via their SCF platform. But if customers are slower to approve invoices, this window can be significantly truncated. As a result, suppliers may find they are not able to accelerate their payments by as many days as they would like.

Delivering same-day payments

During conversations with one particular customer and its supplier, the issue of late invoice approvals and the impact of that on the supplier’s ability to use the available factoring program to ensure payment before month end was raised.

We wanted to address this need, so we invited the supplier to work with us and our partners to develop a faster payment process. Additionally, the customer was keen to start accessing a same-day payment option quickly – which meant we had just one month to build, test, and pilot the new functionality and go live.

Meeting this challenge was a team effort. We worked with our network of stakeholders, including partners and investors, to pull out all the stops and get the new functionality ready on time.

The tight timeline was met successfully, and since December, this company, and many others, have utilized this feature through SAP Taulia to accelerate millions of dollars in invoices.

To make the most of this new functionality, we took the opportunity to release both a same-day and a next-day payment option, alongside a standard two-day payment cycle – thereby bringing the benefits of speedier payments not just to our pilot supplier, but to many other businesses besides.

Overcoming challenges through collaboration

Listening to feedback from our customers is vital when it comes to meeting their needs and driving innovation.

This initiative is particularly impressive because it demonstrates that our network of stakeholders is just as committed to our customers as we are. The partners and investors we work with are creative, flexible, and driven to be the best at what they do.

By working closely with our partners, we can overcome challenges, exceed people’s expectations, and deliver features that make life easier for businesses across our network.

Lessons from successful M&A financing: insights from treasury professionals

Mergers and acquisitions (M&A) present strategic growth opportunities, but their success hinges on effective financial planning and execution. A recent discussion among treasury professionals, highlighted critical lessons on M&A financing transactions. Here are the key takeaways and considerations for treasury teams navigating complex acquisitions.

1. Early involvement of treasury is essential

One of the biggest takeaways from the discussion was the importance of the treasury’s early engagement in the M&A process. While corporate development teams identify targets and negotiate terms, treasury must be kept in the loop to assess financing options, risk exposures, and market conditions.

Considerations:

• Treasury should maintain regular discussions with corporate development teams to anticipate potential transactions.
• Early-stage involvement helps in planning credit facilities, foreign exchange (FX) hedging strategies, and debt market positioning.
• A structured internal alignment process ensures that finance, tax, legal, and investor relations teams are ready to act quickly when deals move forward.

2. Structuring financing for flexibility and cost efficiency

Financing strategy plays a crucial role in executing large transactions efficiently. The group discussed using a mix of bridge financing, term loans, and debt capital market (DCM) issuances to optimize costs and maintain financial flexibility.

Lessons Learned:

• Minimizing underwriting fees: By keeping a single underwriter until the debt capital markets transaction was completed, syndication costs can be reduced.
• Balancing short-term liquidity and long-term debt: A mix of bridge financing and long-term bonds helped structure repayment timelines around expected cash inflows.
• Strategic syndication: Initially working with a single bank helps mitigate information leaks. Later, the syndication process expands to include core banking partners.
• Rating agency considerations: Companies should assess the potential impact of M&A financing on their credit ratings and establish a clear roadmap to restore financial ratios post-acquisition.

Key Takeaway:

A flexible financing structure, designed with cost efficiency in mind, ensures that M&A transactions do not unnecessarily strain a company’s liquidity or credit rating.

3. Managing foreign exchange and interest rate risk

Cross-border acquisitions introduce currency risk, making FX hedging a critical component of M&A financing. The discussion revealed various approaches to managing FX risk, including deal-contingent forwards, FX options, and natural hedging strategies.

Best Practices:

• Choosing the right FX instrument: While FX forwards are cost-effective, they can become risky if a deal falls through. Deal-contingent forwards, though more expensive, eliminate exposure if the transaction does not materialize.
• Balancing cost and certainty: FX options for a major U.S. acquisition, ensuring downside protection despite the premium cost was discussed as an option for large deals where banks were unable to offer deal-contingent forwards.
• Integrating FX strategy with business operations: Some companies leverage existing hedging programs from their trading businesses to offset M&A-related FX risk.

Takeaway:

FX risk management should be tailored to deal specifics, balancing cost and risk exposure while considering alternative hedging mechanisms within the business.

4. Keeping the internal stakeholder group small and experienced

M&A financing involves multiple internal teams—treasury, tax, legal, accounting, investor relations, and financial planning. However, involving too many people early on can slow down decision-making and increase the risk of leaks.

Best Practices:

• Form a core team: A small, experienced group across functions ensures swift decision-making.
• Maintain pre-approved documentation: Having standardized legal documentation for credit facilities expedites execution when deals are imminent.
• Use financial modeling for scenario planning: Companies should assess different financing scenarios, including the impact of credit rating downgrades, to ensure the business can absorb potential changes.

Takeaway:

A well-prepared and tightly coordinated internal team can streamline M&A financing execution while minimizing disruptions.

5. Timing and market conditions matter

Successful M&A financing also depends on market timing. The discussion highlighted that while companies cannot always control when opportunities arise, they can prepare by monitoring market conditions and planning issuance strategies accordingly.

Considerations:

• Market environment impacts financing strategy: Interest rate cycles, liquidity conditions, and investor appetite affect the cost and feasibility of debt issuance.
• Calendar planning: Companies should avoid financing transactions during periods of market volatility, major central bank decisions, or geopolitical uncertainty.
• Seasonal cash flow considerations: Structuring bond repayments around the company’s strongest cash flow period to reduce liquidity risks.

Takeaway:

While M&A opportunities can emerge unexpectedly, treasury teams should maintain a state of readiness, factoring in market conditions and internal financial cycles to optimize financing decisions.

6. Expanding the role of Treasury in non-cash deals

While the discussion primarily focused on cash-settled transactions, there was interest in the growing number of share-based deals in the U.S. Oil and Gas segment. Treasury’s role becomes even more critical in such cases, as equity considerations introduce new financial and hedging complexities.

Key Considerations:

• Valuation impact: Treasury teams should work closely with investment bankers to assess the impact of share-based deals on financial metrics.
• Market perception: Investor relations must manage communication to ensure that shareholders and rating agencies understand the rationale behind share-based transactions.
• Hedging equity risk: Share price volatility needs to be managed, particularly if a transaction is settled partially in stock.

Takeaway:

As share-based transactions become more common, treasury teams must expand their expertise to support equity financing decisions and related risk management strategies.

The cost of late payments: How cashflow struggles ripple through the economy

Less than half of suppliers are paid on time. These late payments don’t just hurt individual businesses – they’re harming the economy.

Late payments don’t just harm individual suppliers; they impact whole industries, slowing growth, blocking up supply chains and even impacting jobs and pay. Yet despite these wide-reaching consequences, the problem persists — 51% of suppliers report frequent late payment, with 20% experiencing delays of more than 30 days.

While larger businesses may have the financial resilience to absorb delayed payments, small suppliers feel the impact even more acutely. Almost half (49%) of the respondents in SAP Taulia’s latest annual Supplier Survey were small businesses with revenues under $10 million. For many of these smaller suppliers, late payments can determine survival.

The growing burden of late payments

Less than half (41%) of suppliers say their buyers typically pay on time, a figure that has remained unchanged from last year but is a steep decline from the 54% who reported as such in 2019. Worse still, some buyers habitually pay well beyond due dates – 20% of suppliers reported that payments are typically delayed by over 30 days, and 7% experienced typical delays exceeding 45 days. Only 3% of buyers pay early, offering rare relief in an otherwise cashflow-challenged landscape.

There are many reasons why buyers may pay late – errors in an invoice, inefficient systems, or their own financial challenges are just a few. But while these delays may be understandable, they still create significant challenges for suppliers, especially smaller businesses that depend on timely payments to operate and grow.

Beyond those individual suppliers, late payments have knock-on effects on supply chains, business relationships and ultimately the broader economy. Creating a payments environment where both buyers and suppliers can succeed means finding solutions that work for both sides.

How late payments impact the economy

When suppliers can’t count on being paid on time, the financial uncertainty trickles down through the entire supply chain. Here are some of the impacts:

• Cashflow crunch. For suppliers, a missed or delayed payment can mean difficulty in restocking inventory, covering operational expenses and payroll, or servicing debts. In extreme cases, and especially for small businesses, these can make it difficult for the supplier to keep operating.
• Strained business relationships. Repeated late payments can damage a buyer’s credibility, making suppliers hesitant to enter into future agreements or causing them to enforce stricter terms.
• Supply chain disruptions: A supplier experiencing financial strain due to unpaid invoices may struggle to fulfil orders, leading to delays further up the supply chain. This can cause production slowdowns and shortages.
• Job losses: When businesses can’t maintain healthy cashflow, they are less likely to hire new employees and invest in innovation, and may even struggle to make payroll.

None of this is good news for the economy. Late payments cost the global economy $1 trillion annually, according to the European Commission, while a 2021 survey by QuickBooks found that mid-sized businesses in the US were owed an average of $300,000 in late payments, with 89% saying these were holding back growth. For small businesses, the threat can be existential – a report published in 2016 by the UK’s Federation of Small Businesses said that 50,000 companies would have avoided going out of business in 2014 if they had been paid on time.

Stopping late payments

Evidently, buyers and suppliers alike need payment solutions.

Many suppliers are turning to early payments to help mitigate the impacts of slow-paying customers, with nearly two-thirds (63%) of respondents in our Supplier Survey expressing interest in doing so. For small businesses, reliance is even more pronounced – 70% of respondents with revenues under $10 million reported using an early payment solution in the past year.

Early payments provide a practical solution by offering suppliers quicker access to funds they are already owed. Importantly, early payment solutions work in favor of both suppliers and buyers: suppliers get access to working capital when they need it, while buyers benefit from strengthening their supply chains and securing early payment discounts.

The SAP Taulia Supplier Survey analyses responses from more than 9000 businesses across 129 countries. For more insights, read the full report

7 insights from The Rise of AI in the Finance Function report and debate

Brady Cale, CTO, considers the findings of SAP Taulia’s research into AI with peers

The rise of artificial intelligence (AI) in the finance function is not a future state; it is here and now. SAP Taulia’s research into AI adoption by the finance function and discussions with finance leaders reveal high levels of trust, experimentation, and a core belief that AI will empower finance teams to deliver much more to the organization.

AI is like Detroit in the early days of the automotive sector; we understand the power of the technology, but we have no way of knowing the speed with which it will transform our lives – just as those early pioneers of the automobile had no concept of how fast the car would revolutionize the world of transport and everything impacted by it.

The finance teams and their leaders are essentially the pioneers of enterprise AI adoption. The SAP Taulia survey into The Rise of AI in the Finance Function finds that over half (53%) of global finance functions rely on AI for decision-making, 59% of senior management being the main AI users. An early indication of the impact can be seen in the results, with 45% of the surveyed leaders planning on hiring AI specialists into their teams.

SAP Taulia surveyed 600 global finance leaders and found that 97% are using AI or plan to use AI over the next two years to improve process automation and efficiency, and a further 96% for cash forecasting.

Respondents believe inventory and supply chain management are the functions that have the most to gain from the deployment of AI. Here are some further key takeaways from the survey and our recent webinar on AI.

Takeaway 1: Empowered teams

AI empowers teams to analyze data rather than spend time collating data. Eli Soffer, Head of Corporate Finance at Amdocs, said of the survey findings and this trend: “I don’t see machines making decisions. I see AI co-piloting, and the technology is helping people with the knowledge to get to better decisions faster, through validation and assurance. So, they are spending more time on understanding the data.”

This has the power to empower all areas of the finance function. For example, risk teams could have direct access to data about credit availability, the business regions, market size insights, and funds available.

This data currently relies on a series of manual processes; AI can surface all that data and guide decision-making. As the survey finds: “AI’s true value lies not just in presenting figures, but in offering actionable insights. A mere notification of a change in turnover is ineffective unless it provides the underlying reasons and actionable strategies for improvement.”

Takeaway 2: More models, and better ones

Finance functions that use AI to do the data-heavy lifting will improve the quality of the models they use for decision-making. Finance teams have been using models to inform decision-making for a long time, and you cannot run a global finance function without some reliance on models, as there are just too many factors to consider.

With AI enablement, finance functions can use deeper, more complex, and more detailed models to improve decision-making, as the report states, organizations can generate more precise forecasts by analyzing a broader array of inputs – 50 instead of just five. Such extensive analysis is beyond the capabilities of even the most seasoned statisticians.

SAP Taulia’s models draw from dozens of data sources, encompassing billions of data points. In a landscape where commercial success hinges on making timely and accurate decisions, no organization can afford the luxury of weeks spent manually sifting through vast datasets, only to arrive at outdated conclusions.

Takeaway 3: Trust the AI

Finance functions will only benefit from AI if they can trust it. When AI is trusted, then it is used. Our own experience revealed that when AI users were presented with two different styles of result, one that looked like an answer from ChatGPT, and another that was a Google search result, complete with citations of where it found the information for its answer; the finance professionals preferred the Google-like result so they could validate the answer.

This ensures that the finance function knows they have control and can double-check the workings of the AI, in much the same way as they would an intern.

The report finds that trust in AI for process automation, inventory, supply, cash, and planning management is high. Eli Soffer from Amdocs rightly points out: “You cannot expect the technology to get you the right answer if your data is misleading or your documentation is not up to date.” Data quality is vital to trust in AI.

Takeaway 4: A new era of decision making

With over half of finance leaders using AI-generated insights for commercial decision-making, it is clear we are entering a new era. In some cases, AI is helping inform decision-making; for example, by matching credit details with the questions in application forms, this improves insight and can accelerate the decision-making process, which drives business growth. For other corporate decisions, finance leaders can rely on real-time data; Eli Soffer states: “In meetings, we are moving from prepared slides to live analytics, which pushes forward decision making, so we are making decisions at a much faster pace.”

Takeaway 5: Process improvements

With improvements in decision-making, business processes right across the organization will improve. In our own organization, an AI chatbot has broken down the walls between organizations within the company to help our colleagues with corporate processes such as invoicing, pay slips, and procurement practices. Soffer says similar systems at Amdocs are saving staff time.

Takeaway 6: Getting started

Finance functions may wonder where to start the adoption of AI. Eli Soffer realized the best use cases for AI would come from his team members. “Give teams the tools, and they will begin to pull rather than be pushed. We are doing basic training on AI for all finance employees, and we did a “Shark Tank” event and took smart analytics on the General Ledger idea into development. There is a limit to what organizations can do top down, but if you have ideas coming up, that multiplies.”

Takeaway 7: Invest in your people

To get the right ideas from your people, invest in them so they develop confidence in AI and don’t block the technology because they fear it will replace their positions. Eli Soffer has done this: “We are doing basic training on AI for our finance employees. Each session is 30 interesting minutes.”

The rise of artificial intelligence (AI) in the finance function is not a future state; it is here and now.

Getting real value from it requires the right combination of man and machine and a commitment to educating and upskilling. Get that right and the benefit will reach far beyond the function.

Navigating the disruptive impact of tariffs in 2025

It will come as no surprise to anyone that tariffs were top of mind in my recent discussions with CFOs and Treasurers at the SAP CFO Exchange and SAP Treasury Council event.

It is not simply the tariffs themselves that are the challenge, it is the unpredictability as to how, where and when they will be implemented. On Thursday we woke up to the news of a new 25% tariff being levied by the US on all car imports. The impact of this alone is significant and is on top of the tariffs already implemented, which in themselves are worth more than the GDP of Switzerland.

There is no doubt that the ripple effect will create further challenges. Germany’s debt reform announcement and the impact it has had on the interest rate on 10-year German bonds (increasing by almost 0.5% in just a few days) is a perfect example.

The uncertainty coupled with the additional costs that tariffs bring are placing substantial financial strain on businesses, leading to tighter cash flows and reduced profit margins. To navigate this challenging environment, companies are being compelled to shift their strategies and implement robust contingency plans to anticipate and respond quickly and effectively to the financial repercussions.

Technology as a strategic enabler

Technological advancements, particularly in the realm of artificial intelligence (AI) and data analytics, are emerging as invaluable tools for businesses seeking to manage the high level of uncertainty on many fronts.

AI-powered tools can provide predictive insights into potential tariff changes, identify vulnerabilities within supply chains, and optimize, for example, inventory levels to ensure adequate stock without excessive overheads.

By leveraging these technological capabilities, businesses can make informed decisions and proactively adjust their operations to minimize the impact of tariffs. Very often, these scenario analyses are still done in silos by sales, procurement, and finance, often involving home-grown spreadsheet solutions.

Without a doubt, this raises more and more concerns among CFO and Treasurers as it essentially means flying half-blind, making decisions without seeing the full picture.

Restructuring supply chains for resilience

In response to the uncertainties and disruptions caused by tariffs, businesses are reevaluating and restructuring their supply chains.

A notable trend is the shift towards sourcing from suppliers located in closer proximity to reduce reliance on imports and mitigate the risks associated with trade disputes. However, as we have seen with the tariffs levied against Mexico and Canada, nearshoring is not always the answer.

Last week Nvidia announced that it will be spending hundreds of billions on a shift towards a more US-based supply chain. Hyundai also announced a record investment in the US of $26 billion.

Of course, for some organizations, the answer is not to do more with the country imposing the tariffs, but less. Airbus for example, recently announced that it may simply prioritise other markets. As arguably the world’s most successful aircraft manufacturer, it has the ability to make those kinds of choices, but not every business can do that.

And reconfiguring supply chains comes with its own costs. Longer-term operational and workforce costs may increase in addition to the short-term costs associated with the shift in strategy.

Financial strategies for cash flow optimization

Tariffs not only impact profitability they have a direct impact on liquidity. The imposition of a 25% tariff may also mean a 25% hit to a company’s free cash flow.

Mitigating against this is difficult, especially with the uncertainty around the size, timing, and geographical impact of the tariffs. This is where effective scenario planning becomes so important.

AI can be hugely useful here. Give it access to the full set of data (sometimes a challenge in itself), and not only will it give you ‘if this then that’ insights, but it can also make recommendations as to the best routes to take to mitigate risk and seize opportunities.

Economic implications and recessionary risks

Beyond the business, tariffs can have far-reaching consequences for the overall economy, potentially leading to slower growth rates and increased risks of recession. Therefore, liquidity becomes even more critical to maximize, evening out cashflow, and bridging funding gaps.

With uncertainty rising around inflation and interest rates, exploring innovative financing options that won’t increase debt, such as supply chain financing with flexible funding models, is also prudent.

Collaboration with experts for strategic advantage

Partnering with financial and technology experts can provide businesses with the specialized knowledge and tools necessary to navigate the complexities of the tariff landscape and the overall economic uncertainty.

These experts can offer valuable guidance on financial risk management, supply chain optimization, and technology implementation, enabling companies to develop and execute effective strategies to mitigate tariff-related risks and capitalize on emerging opportunities.

Conclusion: Proactive adaptation for sustainable success

Tariffs represent a formidable challenge for businesses engaged in global trade. However, by embracing technological advancements, restructuring supply chains, implementing sound financial strategies, fostering open communication, and collaborating with experts, companies can position themselves for sustainable success in an increasingly complex and uncertain trade environment.

Effective scenario planning, proactive adaptation, and a commitment to innovation will be the key differentiators as, once again, we enter an age of uncertainty.

Staying ahead in a complex regulatory landscape

Predicting regulatory direction has always been difficult, but perhaps never more so than today. The challenge is uncertainty but also divergence. While there have always been differences in the regulatory environments around the world, today, countries and regions are heading in very different directions in some key areas.

A good example of where we see both divergence in approach and a high level of uncertainty is the issue of late payments. There’s no denying that late payments are a significant challenge for suppliers everywhere. SAP Taulia’s latest Supplier Survey, which gauged the views of almost 12,000 respondents, found that over half of businesses are paid late by their customers on average. This places additional pressure on cash flow and working capital, adding to today’s macroeconomic environment challenges.

Last year, the EU proposed legislation designed to prevent late payments by introducing stricter enforcement measures and imposing a maximum payment term of 30 days. The European Parliament adopted the measure in April of this year; however, the path to adopting these changes has not been straightforward. In July, it was reported that the controversial package of new rules had been shelved after it failed to attract sufficient support from EU member states. In October, Global Trade Review reported that the Commission is expected to introduce an alternative text at a later date.

Without an official announcement, it is currently unclear whether the regulation has been withdrawn or will be amended and finally passed. Either way, the proposals have prompted many questions from our customers.

The story so far

The existing EU Late Payment Directive, adopted in 2011, attempted to address the challenge of late payments, but many argued that it had significant shortcomings, including a lack of monitoring tools and enforcement mechanisms.

The amendments, which were first proposed by the European Commission (EC) in September 2023, aimed to revise the existing Directive with tougher rules and stricter penalties for late payment, such as:

• The introduction of a single maximum payment term of 30 days, which is down from the current 60-day term.
• A requirement that interest for late payments is calculated daily and added to the amount due.
• Making the payment of interest automatic and compulsory until payment of the debt.
• Removing any ability for the creditor to waive its right to claim interest for late payment.

While it may have been well-intentioned, the new package also prompted several concerns about the impact of these requirements on both buyers and suppliers. For one thing, a one-size-fits-all approach ignores the prevalence of longer payment terms in certain sectors, such as mining and construction. In addition, some suppliers actively choose to offer longer payment terms as a competitive differentiator.

As well as restricting the freedom to negotiate payment terms, there was some concern that the proposed rules could prompt corporations to renegotiate prices with their suppliers. Likewise, European businesses argued that the new rules could place them at a disadvantage compared to non-EU competitors.

The introduction of mandatory 30-day terms could also significantly threaten the viability of supply chain finance programs. These programs provide an especially useful lifeline for small and medium-sized businesses looking for flexible and affordable financing options such as early payment programs; tighter regulation could mean they lose this flexibility.

The bigger picture

Beyond the EU’s Late Payment Regulation, efforts are underway in other jurisdictions to tackle the challenge of late payments and remove friction from invoicing and payment processes. In the UK, for example, developments include replacing the Prompt Payment Code with a new voluntary Fair Payment Code. Under the new Code, businesses can apply for Gold, Silver, and Bronze awards. The Gold Award is given to firms that pay at least 95% of invoices within 30 days.

The UK is also introducing new reporting requirements, which build on the existing Reporting on Payment Practices and Performance Regulations 2017. While the new rules are intended to increase transparency around companies’ payment practices, approval has not been universal: The Institute of Chartered Accountants in England and Wales (ICAEW), for example, has questioned the appropriateness of the annual report as a vehicle for public policy objectives.

Meanwhile, global efforts to further the adoption of e-invoicing also have a role in addressing the late payments challenge by improving payment efficiency. In Latin America, for example, many countries have adopted regulatory frameworks for e-invoicing or Continuous Transaction Control (CTC) systems, which not only tackle tax evasion but also increase the efficiency of invoicing processes. Meanwhile, the Federal Reserve is working with the Business Payments Coalition (BPC) to promote the adoption of e-invoices in the U.S.

E-invoicing is certainly a powerful tool that helps speed up invoice approval while reducing errors and delays. However, as a report by the EU Payment Observatory notes, “e-Invoicing has great potential to improve payment efficiency, yet it doesn’t necessarily improve payment behavior.” As such, it should be seen as a “powerful complement to regulatory intervention” and not a standalone remedy.

What next?

The regulatory landscape is nothing if not complex. As the recent developments in Europe have shown, the path to adoption isn’t always straightforward — adding to the difficulties businesses may face in navigating these changes. But with the right support and expertise in place, businesses can ensure that they are in the best position possible to mitigate against the risk of changes and adapt when they arise. Digitization can do much to help businesses streamline processes, increase efficiency, and minimize regulatory risks. It is also crucial, however, that any solution provider also comes with the expertise to help you leverage the tools you have in the right way and can be the long-term partner you need to move with you through this evolving landscape. This requires not just technical expertise and a wider understanding of your ecosystem but also a global outlook that helps you navigate the diverging paths of financial regulation.

To find out more, read SAP Taulia’s latest white paper, Direction of travel: Mapping the global regulatory landscape in 2025 and beyond.

What does 2025 have in store?

The last 12 months have brought no shortage of changes around the world, from momentous election results and the continuing stresses of geopolitical turbulence to a slower-than-expected rate-cutting cycle by central banks.

The rate of change in technology has proved no less significant, with conversations around AI, virtual cards, and digital currencies developing at breakneck speed.

But what about the year ahead? Which challenges will companies be focusing on, and how will technology help companies address the fundamental challenges they face, from manual processes to geopolitical risks? Here are some predictions for 2025 from SAP Taulia’s leaders.

Harnessing AI in the finance function

“Excitement around the potential applications of AI is likely to continue in 2025. As the business landscape evolves, no one can afford to ignore the opportunities that AI presents.

“In the finance function, AI has a key role to play in helping CFOs drive transformation, automate repetitive processes, and boost operational efficiency, in turn freeing up finance professionals to focus on more strategic tasks. Likewise, AI has the ability to provide valuable insights, such as predicting market shifts, optimizing decision-making, and improving contingency planning.

“Where working capital is concerned, AI can help businesses predict their future cash flows and increase the efficiency of their invoicing processes, as well as indicating the best payment terms or discounts for individual transactions.

“AI has much to offer, but this won’t happen overnight, and it does require clear goals and high-quality data. In 2025, CFOs and finance directors will need to keep informed about the opportunities presented by technologies such as AI and identify how these can translate into real opportunities to drive value for their companies – while also remaining attuned to the possible risks.”

– Rene Ho, CFO, Taulia

Driving payment efficiency

“Today’s businesses want payment products that can give them automation, frictionless experiences, and smooth implementations while meeting their specific needs. But they’re also paying ever-closer attention to the needs of their suppliers when it comes to accessing reliable payment methods.

“As the payments landscape continues to evolve in 2025, businesses will be looking for ways to execute payments quickly, securely, and efficiently. Suppliers, meanwhile, will be seeking payment methods that offer rapid transfer speeds and easy reconciliation, not least because of the ongoing challenges they face as a result of late customer payments.

“In 2025, I expect to see virtual cards rising to the fore as a solution that can balance the needs of both buyer and supplier, giving each side of this equation an opportunity to manage cash flow more effectively. Buyers can use virtual cards to include the long tail of suppliers within a working capital management program while paying suppliers in a way that works for them, with access to rich remittance data and analytics.

– Danielle Weinblatt, Chief Product Officer, SAP Taulia

Transformation through AI and innovative payment solutions

“AI offers an unprecedented opportunity to drive automation across the business, making smarter decisions faster, and unlocking opportunities to save costs. In particular, AI is a game-changer when it comes to helping businesses explore different financial scenarios, analyze their implications, and weigh up the options available.

“I believe AI has an enormous amount to offer businesses in 2025 – but only where there is a genuine use case. Many companies have heard a lot from their vendors about AI in a short space of time, and it can be difficult to cut through the noise and identify where real value can be found. With that in mind, SAP Taulia is very much focused on identifying use cases that can only be solved with AI by analyzing a massive amount of data sets, and this is also an area where we are collaborating closely with our colleagues at SAP.

“Turning to the topic of payment innovation, I expect to see more businesses exploring the role that digital currencies can play in streamlining cross-border payments. While widespread adoption is likely to take some time, there is a clear appetite for innovative payment solutions – as demonstrated by the recent news that PayPal had completed its first business payment in PYUSD, its in-house stablecoin, using SAP’s Digital Currency Hub to complete the transaction.

– Cedric Bru, CEO, SAP Taulia

Reconfiguring supply chains and harnessing data

“Against a backdrop of heightened geopolitical tensions, companies will continue to reconfigure their supply chains in 2025. As well as assessing potential challenges in key markets and shipping corridors, companies will also be weighing up the benefits of supplier diversification against cost efficiency. Likewise, companies will continue to seek greater diversification when it comes to using the right tool at the right time for working capital financing, from Supply Chain Finance, Virtual Cards to Dynamic Discounting to Receivables and Inventory Finance.

“There is also an opportunity for companies to increase visibility over different types of data in order to improve supply chain processes. For example, greater connectivity between sales and procurement data can make it easier for companies to predict future shortages of raw materials and adjust their approach accordingly.

“On a similar note, companies that have access to data across all business processes can pinpoint possible liquidity shortages and are much better placed to use the full power of AI to make informed decisions, for example, when it comes to working capital strategies.”

– Thomas Mehlkopf, Head of Working Capital Management, SAP & Taulia

Embracing the future, today

In the coming year, SAP Taulia will continue to support businesses as they seize the opportunities and navigate the challenges presented by an evolving business environment. Our solutions will play a key role in helping companies free up cash throughout the supply chain, streamline invoicing processes, and unlock opportunities for working capital efficiency.

At the same time, we will continue to monitor innovations in technology and identify opportunities to add real value to our customers’ working capital processes – all while giving businesses the flexibility they need to adjust to changing market conditions.

6 Considerations for Crafting an Effective Capital Return Program

Taulia Treasurers’ Club provides an opportunity for treasurers to meet each quarter in order to exchange views, explore trends, and discuss top-of-mind subjects with like-minded peers.

This quarter, the topic of choice was ‘Key considerations for capital return programs’. In the following blog post, we outline some of the key takeaways from the discussion.

Capital return programs: an overview

Capital return programs – in other words, initiatives to return capital to the company’s shareholders – can play an important role in helping companies achieve their goals. With a well-executed program, companies have the opportunity to increase shareholder value and maintain a competitive position.

Capital return programs can take the form of share buybacks or dividends paid to shareholders and may be funded either via the company’s cash holdings or by raising debt. As well as enabling companies to optimize capital structure and boost shareholder value, capital return programs can also be used to signal financial strength to the market.

But before treasurers can tap into these opportunities, careful planning is needed to balance considerations such as operational flexibility, investments in growth, and investor expectations while navigating the challenges presented by governance requirements, tax considerations, and market complexity.

From establishing minimum cash reserve thresholds to aligning your program with shareholder expectations, here are 6 takeaways from the latest Taulia Treasurers’ Club discussion about how to plan an effective strategy for your capital return program.

Takeaway 1: Define and assess ‘excess cash’ carefully

Capital return programs can be an effective way of putting the company’s excess cash to work. But first, it’s important to have a clear understanding of how much cash is truly available.

As part of this exercise, treasurers need to account for the company’s operational needs, capital expenditure (CapEx), any potential mergers and acquisitions (M&A) that might be on the horizon, and growth investments.

In particular, questions should be asked about the sustainability of excess cash. For example, is your cash the result of recurring, predictable cash flows? Or does it derive from one-off events, such as asset sales or exceptional collections? All of this should be factored in when deciding how much cash is available for the program.

Takeaway 2: Long-term planning is critical

Treasurers need to carry out long-term financial planning when preparing for a capital return program. This should involve a three- to five-year horizon supported by regular cash flow projections.

As part of this exercise, treasurers will need to balance the benefits of immediate shareholder returns against future growth opportunities – so it’s important to harness strategic foresight and plan ahead effectively.

Takeaway 3: Dividends vs buybacks

When it comes to devising a strategy for the capital return program, a key step is to weigh up the benefits and risks of the two main options available – namely, paying dividends to investors or using excess cash to buy back the company’s shares.

Dividends

• Benefits: Dividends offer some significant benefits as a means of returning capital to shareholders. For example, payouts are made on a predictable schedule, which is beneficial when it comes to attracting income-focused investors and signals that the company is financially stable.
• Risks: However, dividends also come with certain risks. For example, the need for regular payout commitments can result in less financial flexibility. There is also a risk that suddenly cutting payouts could damage investor trust and cause stock prices to fall.

Buybacks

• Benefits: Buybacks give companies the flexibility needed to adjust to variations in their cash flows and changing market conditions. They also increase the value of the remaining shares – thereby reducing the dilution associated with stock-based compensation – and indicate that the business is in a strong financial position. Furthermore, they can be used to support the optimization of the firm’s capital structure.
• Risks: On the flip side, buybacks may be significantly impacted by market conditions, and the timing of a program is essential as the exercise will deplete the company’s cash reserves. Shareholders, meanwhile, may interpret a buyback as a sign that cash isn’t being used to grow the company.

Takeaway 4: Address tax and structural complexities

For treasurers, another consideration is that capital returns programs need to be fully compliant with tax laws – particularly when it comes to repatriating offshore cash.

First and foremost, companies should determine whether the entity holding excess cash can return it to shareholders. If not, treasury will need to develop a plan to transfer it to the appropriate entity.

As part of this exercise, treasurers will need to develop frameworks that can minimize their legal and tax liabilities. Likewise, they should collaborate with their legal and tax teams to establish frameworks that enable the efficient movement of cash.

Takeaway 5: Governance and risk management are crucial

Different leaders will have different thresholds when it comes to setting the minimum level of cash reserves held by the company. Treasurers will therefore need to have a clear understanding of the board’s risk appetite and establish a consensus on the minimum cash reserve levels for the business – while building in flexibility in case circumstances change in the future.

Treasurers should also gauge the impact of capital returns on the company’s credit ratings, debt covenants, and financial flexibility and should align governance policies accordingly. Above all, treasurers should create clear and adaptable policies for evaluating and implementing their capital return strategy.

Takeaway 6: Align with shareholder expectations and industry norms

Meeting shareholder expectations is key when it comes to a successful capital return program. Where dividends are concerned, companies should set a predictable schedule for capital returns, such as annual reviews or dividend increases, in order to build trust with investors.

On another note, dividend and buyback strategies should be tailored to match the relevant investor profiles. For example, some investors will be looking for a predictable income stream, whereas others will be growth-oriented. To remain competitive and ensure that market expectations are met, the company should benchmark the program against industry peers and standards.

Conclusion

Whether you opt for dividends or buybacks, a well-executed capital return program can serve as a powerful tool for enhancing shareholder trust, optimizing financial performance, and maintaining a competitive position. The process does involve navigating a certain amount of complexity, and there are certainly some pitfalls to avoid – but by taking note of the 6 takeaways listed above, treasurers will be better placed to craft an effective and sustainable program.

Want to learn more from treasury peers? The Taulia Treasurers’ Club is an exclusive forum for treasurers to network, engage with like-minded peers on topics that are top of mind, challenge each other’s thinking and share best practices. The topics are driven by treasurers for treasurers.
Sign up for our Treasurers’ Club to learn more.

How are companies rethinking their liquidity management strategies in response to the recent degradation across major working capital metrics?

In the wake of economic uncertainty, many companies have experienced a degradation in key working capital metrics. This has a direct impact on liquidity, pressuring companies to optimize their liquidity management strategies to seize growth opportunities and establish long-term financial stability. To counter this turbulent period, companies are adopting proactive strategies, such as improved working capital management, enhanced cash forecasting, strategic financing, and the use of technology and automation.

Rethinking Working Capital

Given the degradation in working capital metrics, CFOs and finance teams are optimizing components of working capital to improve liquidity and ensure operational stability. To enhance Accounts Receivable (AR) management, companies are refining credit policies and improving the efficiency of cash collections. This involves closer collaboration between finance and sales teams to ensure credit policies are aligned with the company’s liquidity requirements, encouraging timely payments from customers.

Additionally, companies are leveraging AR financing, such as factoring or invoice discounting, to convert outstanding invoices into cash more quickly. This approach helps maintain liquidity, particularly in sectors where payment cycles tend to be longer.

Optimizing Accounts Receivable and Inventory

In response to supply chain disruptions and the need to maintain liquidity, companies are optimizing their inventory management strategies. Excessive inventory ties up cash that could otherwise be used for critical business needs. Consequently, businesses are using inventory financing to optimize their balance sheet while still keeping sufficient inventory.

Where possible without disrupting sales, companies are leveraging just-in-time (JIT) inventory systems or demand-driven inventory models to reduce inventory levels while still meeting customer demand. Along with the use of predictive analytics and inventory optimization tools, companies can forecast demand more accurately and maintain lean inventory levels to boost overall liquidity.

Cash Flow Forecasting in 2024

The volatility in working capital metrics has underscored the importance of accurate and real-time cash flow forecasting. Companies are investing in enhanced cash forecasting tools and processes to improve their ability to predict and manage liquidity needs, such as advanced data analytics tools that give real-time visibility into cash positions across the organization. By facilitating the accurate tracking of inflows and outflows, finance teams can anticipate liquidity shortfalls before they occur.

It is important to note that real-time cash visibility is crucial for industries with complex supply chains or seasonal demand, where cash flow can fluctuate significantly. With up-to-date insights into the company’s cash position, CFOs can make more informed decisions regarding capital allocation and operational spending.

Strategic Financing and Automation

To prepare for future uncertainties, many companies are incorporating scenario planning and stress testing into their liquidity management strategies. By modeling different economic, market, or operational scenarios, finance teams can assess how various factors, ranging from supply chain disruptions to changes in customer payment behavior, will impact cash flow and working capital. This approach allows companies to identify potential liquidity risks and develop contingency plans to address them. For example, if a company forecasts a potential shortfall in cash due to delayed customer payments, it can preemptively seek alternative funding to avoid a liquidity crunch.

The Role of AI and Digital Transformation

Digital transformation is playing an increasingly important role in liquidity management. By adopting automation tools and financial management platforms, CFOs can streamline processes, reduce manual errors, and accelerate efficiency. Many companies are investing in Treasury Management Systems (TMS) that integrate cash flow forecasting, payment processing, and liquidity tracking into a single platform. These systems offer real-time data and reporting, enabling CFOs to monitor cash positions more effectively and respond quickly to changes in working capital metrics.

Furthermore, AI and machine learning tools are being integrated into digital transformation strategies to enhance liquidity management. These technologies can analyze historical data and identify patterns in working capital behavior, helping CFOs predict future cash flow trends.

How CFOs Can Navigate Liquidity Challenges with Real-Time Cash Flow Visibility

In response to declining major working capital metrics, companies are transforming their liquidity management strategies for financial resilience. By optimizing working capital, enhancing cash flow forecasting, adopting advanced technology, and building strategic liquidity buffers, many companies are taking a more proactive approach to managing liquidity amidst economic uncertainty. These strategies provide the flexibility needed to adapt to changing market conditions and capitalize on growth opportunities as they arise.

CFOs, get ready for the next year. Download SAP Taulia’s newly released e-book, The Road Ahead: 2025 Trends & Insights for CFOs.

1. Source: 2024 and 2025 report, Journeys to Treasury
2. Source: Taulia, The rise of AI in the finance function
3. Source: AI-driven operations forecasting in data-light environments
4. Source: 2024 and 203 Gartner AI in Finance Surveys

Why should CFOs choose dynamic discounting?

Taulia’s CFO Rene Ho discusses dynamic discounting and explains how it compares to other financing options.

As CFOs, we know that maintaining a healthy cash flow is essential to the success of our businesses.

But short-term debt, slowing business growth and lengthy customer payment terms can all make it difficult for companies to meet their obligations and invest in growth. At the same time, seasonal business models can result in uneven cash flows, meaning that companies may need access to funding at certain times of the year to cover cash flow gaps.

In today’s environment, the challenges are all the more pressing. High inflation has ramped up costs, while supply chain disruptions have made it difficult to source essential products. Meanwhile, small businesses have been struggling to access traditional lending, not least because of the impact of bank failures in 2023, as well as the higher interest rate environment. While central banks have embarked on a rate cutting cycle, the environment remains uncertain, and interest rates are not expected to return to pre-pandemic rates.

On another note, late payments continue to present a challenge for smaller businesses in particular. Our 2023/24 Supplier Survey found that while many businesses are focusing on growth, more than half of respondents are being paid late by their customers on average – making it harder for businesses to fuel growth and pay their own bills.

Given these challenges, it’s clear that businesses have much to gain by accessing working capital financing – and I believe dynamic discounting presents a significant opportunity for CFOs to address cash flow gaps, unlock working capital and increase the predictability of incoming payments.

Dynamic discounting: the low-down

If your customer offers a dynamic discounting program, there are many reasons why it may be worth taking advantage of the opportunity to access early payments.

In a nutshell, dynamic discounting allows you to receive early payment for your invoices in exchange for a discount on those invoices. You can choose which invoices to discount and how soon to accelerate payment. The size of the discount will depend on how early the invoice is paid – the earlier the payment, the greater the discount.

As such, dynamic discounting provides access to a flexible form of funding, often at a lower cost than other available sources of funding. By accessing dynamic discounting, you can reduce your days sales outstanding (DSO) and shorten your cash conversion cycle. You can also gain more certainty over future cash flows by choosing when you want to get paid.

Better still, dynamic discounting is very straightforward to use. Providers like Taulia offer supplier-friendly platforms that make it easy to enroll in a program with just a few clicks – and you can also access full payment and invoice-level detail, without having to wade through cumbersome paperwork.

How does dynamic discounting compare to other financing options?

Dynamic discounting is not the only form of financing available to suppliers. So, how does it compare to some of the other options you might be considering, including other types of receivables finance?

• Business line of credit: Companies often use a business line of credit to draw down funds when they want, with interest payable only on the sum they have actually borrowed. This approach does have its advantages – for example, it’s more flexible than a traditional business loan and can help to bridge cash flow gaps – but businesses may need to provide guarantees and meet strict terms in order to qualify. Dynamic discounting, in comparison, is easy to set up, is not associated with strict conditions, and avoids the need for subsequent repayments.
• Invoice factoring: Another option is to factor your outstanding invoices – in other words, sell them to a third party. Typically, you will receive 70-90% of the value of the invoice straight away, with the remaining balance – minus a fee – passed on once the factor has received payment from your customer.
  
  While this does give you access to working capital, it is an expensive funding and legally intensive option that involves a loss of control over your invoices. There is also a risk that your customers may regard the use of factoring as a sign that your company is in financial difficulty. Compared to factoring, dynamic discounting is typically cheaper to access and allows your business to keep full ownership of its invoices.
• Asset-based lending (ABL): Another option is to use ABL to access a line of credit, with funding secured against assets such as accounts receivable, inventory or commercial property. This tends to be a more affordable source of funding than a line of credit. However, setting up ABL can be complex and time-consuming: it may involve documenting the collateral used to secure the loan, as well as going through a lengthy approval process. Again, dynamic discounting is quicker and easier to access.

In other words, dynamic discounting is easier to access than a line of credit, cheaper than invoice factoring, and simpler to manage than an ABL facility. At the same time, the flexibility inherent in dynamic discounting means that you can choose exactly how early to discount specific invoices – making this a valuable tool for helping you navigate unexpected costs, market stresses, and seasonal variations while investing in your company’s growth

Want to find out more about how Taulia’s Dynamic Discounting works? Take a quick tour of our platform today.

Suppliers reveal their payment pain points

The payments landscape is more challenging than ever for companies worldwide. Payment delays, high processing fees, and the risk of fraud can all affect small and medium-sized enterprises (SMEs) as much as large corporations.

As Taulia’s Chief Product Officer (CPO), I am keen to understand the payment challenges faced by businesses. To gain more insights into these challenges, our product team embarked on a global survey of more than 1,000 suppliers, both within and outside of the Taulia Network. Almost half of the responses were from companies with 50 or fewer employees.

Understanding payment preferences

One of our goals was to understand the factors that influence a supplier’s payment preferences. Over a third (35%) of respondents cited transfer speed as the main factor of consideration, with security and fraud prevention in second place at 30.4%. Tellingly, cost was the least important factor in determining a supplier’s preferred payment method.

We also wished to better understand the types of payments suppliers prefer to receive. While companies of different sizes had similar preferences, there was a clear regional difference: companies in EMEA and APAC favor wire transfers, while companies in North America prefer automated clearing house (ACH) payments.

Common challenges for suppliers

So which challenges are suppliers most concerned about when receiving payments from their customers? Our survey highlighted the following issues:

• Check payments: The top pain points included lost or delayed checks (33.5%) and the overhead required to process checks/manual processing (25.3%).
• Onboarding with a new customer: Over half of respondents cited registering on a supplier portal as a pain point, followed by due diligence (23.5%) and getting paid on time (23.2%).
• Cross-border payments: Here, the survey found the top challenges to be transaction costs (33.1%) and uncertainty around the final amount received (23.3%).
• Late payments: Just over 70% percent of respondents said that late payments make it difficult to operate their businesses effectively.

What suppliers want

Identifying the problems suppliers face in getting paid is the first step – so what’s the solution? To find out, the survey also asked suppliers about the types of payments that could help make their lives easier. We found that suppliers are looking for payments that offer three key attributes:

• Reliability – meaning that payments arrive when expected.
• Instant or near-instant transfer speed.
• Straight through processing to the supplier’s bank account.

We believe that there is one payment solution with the promise to tick all these boxes: virtual cards. In a nutshell, virtual cards are a form of digital payment that can be used in the same way as a physical card, with a 16-digit number. They offer fast, reliable transmission times, reduce the need for manual processing and reconciliation, and make it easier for suppliers to onboard new customers.

Beyond these features, virtual cards can bolster payment security. For example, companies can cap transaction values to an amount listed on an invoice and issue them digitally using an encrypted transport layer protocol. Fraud risk is also addressed by the use of randomly generated, unique card numbers for each transaction.

Of course, not all virtual card offerings are the same. Compared to other products available, Taulia Virtual Cards is the only virtual card solution to integrate comprehensively with Oracle and SAP ERP systems, and has an expanding roadmap for embedded functionality in SAP Ariba the Business Network. Our payment solution has an important role to play in transforming the market and opening up new opportunities for suppliers to better manage their cash flow.

To find out more, read our latest report here.

­Driving decarbonization with technology

In 2024, the SAP Procurement Industry Leaders Think Tank community has been diligently analyzing strategies for expediting supply chain decarbonization. During a recent technology briefing, SAP showcased the integration of its Sustainability solutions, including S/4HANA Green Ledger, SAP Ariba, and SAP Taulia. These integrated tools offer companies a comprehensive approach to address Greenhouse Gas Protocol Scope 1, 2, and 3 emissions efficiently and at scale. By leveraging this suite of solutions, SAP provides organizations with a robust framework for sustainability, enabling significant reductions in the carbon footprint across the entire value chain. This article outlines key insights from recent forums on sustainable procurement and provides actionable recommendations for achieving measurable outcomes.

Decarbonization, defined as the process of reducing CO2 emissions through the transition from fossil fuels, is a critical component in addressing climate change. Organizations face considerable challenges in navigating the multitude of standards and frameworks, particularly when addressing emissions within their supply chains.

In this intricate landscape, technology solutions play a pivotal role. They assist companies in enhancing visibility of their carbon footprints, integrating sustainability into procurement processes, and creating incentives for suppliers to adopt more environmentally responsible practices.

Decarbonization around the world

A key milestone in the global decarbonization effort was the 2015 Paris Agreement, which aims to limit the increase in global average temperature “to well below 2°C above pre-industrial levels”, while pursuing efforts to “limit the temperature increase to 1.5°C above pre-industrial levels.” But in practice, there are over 600 sustainability reporting standards, frameworks and initiatives around the world, with different countries approaching decarbonization in myriad ways:

• Europe: The EU’s regulatory efforts to tackle decarbonization include the Renewable Energy Directive, Energy Efficiency Directive, and EU Emissions Trading System (ETS), which requires companies to hold an allowance for each ton of CO₂ emitted. In addition, the EU Green Deal provides an overarching strategy for climate action, while the Carbon Border Adjustment Mechanism (CBAM) aims to address carbon leakage. Finally, the Corporate Sustainability Reporting Directive (CSRD) is a high priority for board members, and our sustainability solutions specifically highlight this directive as a key reason for investment.
• U.K.: Policies include a net-zero strategy to decarbonize the UK economy by 2050 and a commitment to achieve a fully decarbonized electricity system by 2035. Anti-greenwashing and sustainability labeling rules were also introduced earlier this year. Additionally, the UK plans to implement its own Carbon Border Adjustment Mechanism (CBAM) by 2027, aligning with the EU’s approach to addressing carbon leakage.
• U.S.: The U.S. has set a goal of 100% clean electricity in 2035 and a 2050 net-zero goal. The 2022 Inflation Reduction Act (IRA) is a package of measures, including tax incentives for clean energy and manufacturing.
• China: Responsible for 27% of the world’s greenhouse gas emissions, China is aiming to reach its carbon emissions peak before 2030 and achieve carbon neutrality before 2060.

Tackling decarbonization challenges

While these initiatives and frameworks are critical to accelerating decarbonization, reducing emissions, and limiting global warming, the fragmented, evolving landscape and the lack of a mature and universal emissions accounting standard or approach present significant challenges for companies. At the same time, businesses are under increasing pressure from customers, insurers, and potential employees to decarbonize faster.

In November 2023, research carried out by Accenture found that only 18% of companies were on track to reach net zero emissions in their operations by 2050, with 38% saying they could not make further investments in decarbonization in the current economic environment.

Procurement teams have a particularly important role in supporting companies’ sustainability goals. The emissions that occur within a company’s supply chain – known as Scope 3 emissions – can represent as much as 90% of the company’s total emissions. As such, procurement is the biggest lever companies can use to control greenhouse gas emissions.

This can be challenging, as the relevant activities are not under the company’s direct control. However, companies have much to gain by adopting sustainable procurement practices, such as collecting carbon footprint data from suppliers and integrating ESG assessments into the supplier selection process.

Approaches to leveraging technology to assist with decarbonization

For companies looking to integrate sustainability into their procurement operations, a best-of-breed technology approach can simplify data collection and provide specialized insights into supplier performance. This approach often involves using standalone or point solutions that focus specifically on sustainability metrics and reporting.

However, best-of-breed solutions may present challenges, particularly when integrating existing systems. Adopting new, separate systems comes with set-up costs, a learning curve, and the risk that suppliers may be slow to commit to these new processes.

In contrast, an ERP-centric or best-of-suite approach can offer a more cohesive and efficient solution. By leveraging the wealth of data embedded within a company’s ERP system, companies can maximize their existing infrastructure and gain deeper insights without requiring extensive new systems.

With an ERP-centric solution, companies can track energy consumption associated with specific orders, access supplier carbon footprint data, and encourage more sustainable supplier behavior through integrated supplier financing programs.

Sustainability solutions from SAP and Taulia

Using an ERP-centric approach, SAP and Taulia can support companies’ sustainability initiatives with a number of products that enable information to flow upstream from suppliers into the company’s procurement and finance systems:

• SAP Sustainability Footprint Management allows companies to calculate their corporate and product carbon footprints over time and use the results to drive sustainable decision-making. Companies can pull in master and transactional data from SAP S/4HANA Cloud and integrate supplier data and third-party sources.
• SAP Green Ledger provides visibility over the environmental costs of business decisions, ensures that these costs are visible up front, and makes companies proactively consider critical decisions related to their value chains.
• SAP Sustainability Data Exchange enables companies to request and share accurate product carbon footprint data while complying with industry frameworks and requirements sustainably. Features include collecting actual carbon footprint data from suppliers, sharing up-to-date data with business partners, and creating a single source of truth.
• Taulia’s Sustainable Supplier Finance allows companies to drive ESG collaboration across their entire supply chains, with financial incentives for suppliers who demonstrate commitment to environmental performance or meet social criteria. For example, multinational tire and rubber company Bridgestone has developed an award-winning sustainable supplier finance program that offers preferential discounts to suppliers with high ESG ratings. With 7,000 suppliers participating, the program enables the company to progress its long-term sustainability strategies and commitments.

Each solution listed above offers individual benefits to companies looking to address sustainability. But by using these solutions as a natively integrated suite, companies can optimize the entire procurement process, drive a deeper relationship between their procurement and finance teams, and boost relationships with ESG-focused suppliers.

Conclusion

As decarbonization continues to be a high priority worldwide, the burden companies face will only continue to grow. Unlike other technology-led solutions, SAP enables companies to drive decarbonization and tap into existing business information in an integrated way. By embedding these practices today, companies will be better placed to build more sustainable supply chains, improve their relationships with suppliers, and be ready for future regulatory developments.

How, why, and when to use virtual credit cards for your business

A virtual card is a digital payment method that can be used in the same way as a traditional credit card. But alongside the benefits of physical credit cards, like high payment security, virtual cards have a range of additional features that make them uniquely valuable to businesses looking to improve payment controls, accounts payable (AP) efficiency, and working capital management.

When virtual cards are integrated with AP automation software and ERP systems, transaction data can be captured and processed efficiently. This allows for real-time spend monitoring and automated reconciliation, decreasing the manual burden of spend analysis.

Virtual cards can also be used to pay suppliers who do not participate in supply chain finance or dynamic discounting solutions, extending working capital solutions to cover smaller tail-end suppliers.

Given their benefits, it’s worth considering adopting a virtual card solution in your business. In this post, we’ll explain how virtual cards work and how buyers can benefit from this type of payment.

How does a virtual credit card work?

In practical terms, a virtual credit card functions just like a physical card: it has a unique 16-digit card number, an expiry date, and a three-digit CVV (card verification value) code. You can use these details to make payments in the exact same way you would a normal credit card.

However, unlike a physical card, a virtual card does not use the same card number for every transaction. Instead, a unique number is generated for each individual specific purchase. Once the payment has been made, the unique card details become defunct and can no longer be used.

Supplier payment process

When a supplier is paid using a virtual card, the process typically includes the following steps:

1. Once a supplier’s invoice has been approved, payment details are sent to the virtual card provider.
2. A single-use account is created, and details of the virtual card are sent to the supplier.
3. The supplier processes the transaction using the virtual card account details. The bank authorizes the payment, and funds are made available in the supplier’s account.
4. Settlement data is then matched with the relevant payment instructions, and reconciliation takes place automatically in the buyer’s ERP system.
5. The buyer pays the bank in line with the agreed terms.

Why use a virtual credit card?

Businesses that use virtual cards can benefit in many ways, from greater payment security and spend control to automatic reconciliation and enhanced spend analysis. These are some of the top reasons to use a virtual card:

Payment security

Virtual cards provide significant security benefits compared to traditional credit cards, enabling businesses to reduce their exposure to potential fraud. Since they are designed to be used only once for a specified amount and purpose, they bear unique numbers and are non-transferable. Moreover, unlike physical cards, they can’t be misplaced, stolen, or cloned.

Spend control

Virtual cards allow expenses to be easily tracked and categorized. They can also be pre-programmed, enabling businesses to set limits for individual users regarding purchase types and transaction values. This helps to avoid maverick payments (whereby purchases are unauthorized or fall outside a company’s procurement policy) and facilitates adherence to budgets and accurate accounting.

Cash flow optimization

By paying suppliers using virtual cards, businesses can access benefits similar to those offered by supply chain finance and dynamic discounting solutions. Suppliers receive payment straight away, while buyers can keep hold of their cash for longer (in line with the payment terms stipulated in the virtual card solutions), resulting in cash flow improvements for both parties.

As such, companies can use virtual cards to improve their working capital management strategy for smaller suppliers that do not participate in SCF or DD solutions. This allows for a greater proportion of spend to be optimized, giving businesses more working capital to invest in growth for example.

Seamless payments

Virtual cards can integrate with a company’s ERP system. This enables companies to use a seamless payment mechanism within their existing AP software, eliminating the need for manual accounting and invoice and expense submission. Since each virtual card has a unique number, businesses can access a clear audit trail of transactions.

Spend analytics

Companies can also use preset data fields to gather relevant information throughout the lifecycle of a virtual credit card transaction. As a result, businesses can not only gain real-time oversight of spending but also use spend analytics to analyze spending patterns and forecast future cash flows.

How to use virtual credit cards in your business

Virtual cards are a versatile payment option that can be used in nearly all situations where traditional cards are employed. In addition to online payments, virtual cards can also be used for in-store contactless payments when added to a digital wallet on a device that enables near-field communication (NFC).

Common use cases for virtual cards include:

1. Supplier/vendor payments: By paying suppliers on credit terms, companies can preserve their working capital for longer. Suppliers receive payment almost as soon as details are entered into their point-of-sale system, while the buyer’s ERP system performs the reconciliation automatically.

2. Online purchases: Companies can increase their protection from fraud by using single-use or value-locked virtual cards for online purchases. Traditional cards run the risk of data breaches and details being compromised and used fraudulently when used for online purchases. This does not apply to virtual credit cards since the number expires after payment is made, which also removes the risk of credit card information being reused by the seller.

3. Employee expenses: Companies can also use pre-programmed virtual cards to improve their control over employee spending. Physical corporate cards – which are often used by employees for travel and other expenses – can be used to purchase goods and services without prior approval and require employees to keep receipts for tax and accounting purposes. With a virtual card, purchase data is retained automatically, providing greater visibility over employee spending behavior. Businesses can also impose spending limits, restrict transactions to approved suppliers, and adjust limits for ad-hoc purchases when needed.

Choosing a virtual credit card solution

Virtual single-use cards can help companies analyze spend, reduce the risk of fraud, and automate reconciliation. They can also help optimize cash flow and working capital for businesses and their suppliers. But to maximize the benefits of a virtual card solution, it’s important to choose the right provider.

Taulia Virtual Cards integrate seamlessly with your ERP without the need for IT project support and are also embedded into procure-to-pay workflows on the SAP Business Network. Our solution features robust payment controls and value-added tools and gives your suppliers access to rich remittance details.

Our partnerships with Visa and Mastercard mean that Taulia Virtual Cards can work alongside your bank’s virtual card program. In many cases, you can use your existing commercial credit line through our solution, thereby maximizing the return on your credit relationships.

Last but not least, by targeting suppliers that are currently underserved or not represented in your existing strategy, Taulia Virtual Cards can fill the gap in your existing working capital management solutions.

What trends should CFOs be aware of when planning their long-term ESG strategies?

As the clock is ticking, the time to act is now. In 10 years, the biggest risks for business will be linked to the environment, according to the World Economic Forum Global Risks Perception Survey.

We are witnessing a drastic global change. This environmental research is impacting other, non-environmental, risks.

Climate change directly affects inflation, as it causes an increase in product prices. High inflation reduces a country’s economic acceleration, also leading to unemployment. Every factor is related to the environment in some form. And because each factor is connected, putting ESG strategies at the center of operations is becoming essential.

By incorporating Environmental, Social, and Governance (ESG) factors into their practices, businesses can better anticipate and mitigate risks, thus minimizing potential losses. ESG is crucial as it aids in identifying and managing those risks, reinforcing social responsibility, enhancing long-term sustainability, fulfilling stakeholder expectations, ensuring regulatory compliance, and improving access to capital.

When planning long-term ESG strategies for your company, it is therefore important to be aware of upcoming trends:

ESG reporting

One major trend is the increasing emphasis on transparency and reporting standards with further mandatory disclosure requirements around the globe, such as the EU Corporate Sustainability Reporting Directive. According to the
EY Global Institutional Investor Survey, investors are also demanding greater transparency in ESG reporting, pushing companies to adopt more rigorous and standardized reporting frameworks. CFOs need to ensure their ESG data is accurate, reliable, and aligned with global standards to meet investor expectations and regulatory requirements.

Digital tools/Technology

Many companies have realized on their ESG journey that fulfilling the upcoming regulatory requirements requires investment in data management and technology. Gartner’s Annual Global Corporate Sustainability Survey recently highlighted the growing role of digital tools in advancing sustainability goals. Technologies such as AI, blockchain, and IoT can enhance data collection, monitoring, and reporting, but it all starts with data management. CFOs should invest in central data management to make, for example, carbon accounting an integral part of the balance sheet reporting, to streamline their ESG efforts and drive long-term sustainability as an integral part of the company-steering mechanisms.

The following, from Michael Quails, Managing Director at Deloitte Transactions and Business Analytics LLP, sums up the trends that CFOs need to pay attention to in the coming years:

“CFOs should stay on top of stricter ESG regulations and rising investor demand for ESG integration. Leveraging technological advancements and addressing climate risks are critical to sustainability planning. Embracing the circular economy and meeting growing stakeholder expectations for social impact are also essential. These trends are reshaping the business landscape, making it vital for CFOs to incorporate them into their long-term strategies.”

Proactive steps towards sustainability are essential for future success. Download and read the newest edition of the SAP & Taulia eBook series, CFO Perspectives: Unlocking Insights Through Conversation – Transforming Finance: The CFO’s Role in Driving Sustainable Growth here

How can CFOs and CIOs best collaborate to drive innovation in technology?

The relationship between the CFO and CIO is one of the most important partnerships in any business. However, CIOs may fall too much in love with new technologies, whereas CFOs are focused strongly on short-term returns. Here’s how to bridge that gap and maximize your technology investment.

Author: Thomas Mehlkopf, Head of General Manager and Head of Working Capital Management CoE at SAP

In the modern digitized economy, successfully leveraging technology has become the most decisive competitive advantage on offer to any business. One of the most important factors in doing so successfully is optimizing the relationship between the Chief Financial Officer (CFO) and Chief Information Officer (CIO).

These two roles, once confined to the more or less separate lanes of technology and finance, are now pivotal partners in achieving the kind of technology-driven transformation that not only enhances delivery, but also creates lasting value.

It’s not a case of CFOs vs CIOs. When both leaders collaborate effectively, harnessing their complementary skills and perspectives, they’re uniquely positioned to shape the future of their organizations. Shared commitments to continuous learning, open communication, and driving innovation are essential – along with a spirit of open collaboration.

The changing roles of CFOs and CIOs

Traditionally, CIOs focused on managing a company’s technology infrastructure, while CFOs oversaw its financial health and capital allocation. However, digital transformation has blurred these lines.

Today, CIOs are seen as key drivers of innovation, responsible for developing or acquiring new technologies that will improve business outcomes. At the same time, the role of CFOs has expanded to cover broader strategic responsibilities. Crucially, this includes evaluating the financial impact of investments in new tech and aligning them with long-term business goals.

Here are our tips and strategies for ensuring the CFO-CIO relationship delivers to the fullest.

1. Develop a shared vision for technology’s role

If you’re going to work together towards a common goal, it helps if you can agree on what that goal is.

To drive innovation successfully, the CFO and CIO must align on a shared vision of how technology will enable business success. This involves more than just agreeing on budgets – it needs a complete understanding of the company’s long-term objectives and how technology can bring you along the path toward them.

It will require a lot of discussion and debate, but also mutual respect for one another’s perspective and expertise.

The CFO’s financial angle complements the CIO’s technical expertise. CIOs may focus on how such technologies can drive operational efficiencies or enhance customer experiences, while CFOs are best placed to evaluate potential returns on investment and risks associated with early adoption.

Once these points of view have been integrated, it will be much easier to ensure that investments in tech are consistent with your broader business goals.

2. Communication, communication, communication

Every organization with more than a handful of people is vulnerable to siloing, and it can be especially risky for organizations with superficially different specialties such as CFO and CIO.

It may sound like a truism, but maintaining open and frequent channels of communication is absolutely vital – and unfortunately, easier said than done, especially in larger companies. Regular dialogue allows both leaders to share insights, understand each other’s challenges, and co-create solutions. Without strong communication, priorities can become misaligned, leading to uncoordinated efforts – and ultimately wasted time and cash.

Taking it further, the CFO plays a crucial role in translating tech investments into financial forecasts – i.e. deciding if the spend is worth it. Through regular, transparent conversations, CFOs and CIOs can together gather the necessary information to inform good decision-making.

3. Create joint accountability for tech investments

There’s no getting around it: innovation often involves risk. It can require the deployment of substantial capital, and while the CIO may see these investments as necessary for staying ahead of competitors, the CFO must balance this with the need to maintain financial stability.

One way to navigate this tension is to establish joint accountability. It can be a good idea to create a framework where the CFO and CIO have a shared responsibility for the success of technology investments. This means creating key performance indicators (KPIs) that reflect both technological and financial success of a project – i.e. measuring ROI and improved outcomes in whatever domain the solution is introduced.

Additionally, by leveraging their shared expertise, CFOs and CIOs can lead organizations through the uncertainty that often accompanies technological innovation. Taken together, their areas of responsibility cover some of a company’s greatest value-generating wings, and they are well placed to share insights with other stakeholders and bring them along on the innovation journey.

Also, more prosaically, on a personal level, shared accountability can be quite the motivator.

4. Leverage data and analytics for informed decision-making

It’s tough to flourish in the information economy without good information. In practice, this means a dedication to making data-driven decisions.

To achieve this, the CIO’s role in implementing the necessary data infrastructure complements the CFO’s focus on deriving actionable insights from financial data. Taken together, both functions can make more informed, holistic decisions regarding the potential value of an investment in technology and generate insights to share with other senior decision-makers in an organization.

5. Align budgeting processes with tech strategy

A common area of friction between CFOs and CIOs is budgeting for technology. Technology investments can be costly, and as pressures from stakeholders grows and the menu of new digital solutions lengthens, the CFO’s role in ensuring that these investments yield a high return is critical.

To overcome these challenges, it’s a good idea to foster a flexible approach to budgeting that adapts as the company’s technology needs evolve. For example, rather than setting a fixed annual IT budget, both leaders can collaborate to create a dynamic budget that reflects requirements that can shift rapidly, such as shifting to a more AI-driven approach or increasing cybersecurity measures. Methods like Zero-Based Budgeting with a clear focus on value creation can be quite beneficial.

Preparing for a future of constant change

A wise man once said, “The only constant is change.” As new technologies like AI and blockchain mature, and new ones come over the horizon, it’s vital that CFOs and CIOs work together to lead their organizations through the next wave of change.

This could include everything from developing strategies for integrating generative AI, harnessing expanding cloud capabilities, or building plans to enhance digital literacy across their organization.

When these two leaders collaborate successfully, it becomes more likely that companies will stay competitive, resilient, and future-ready – and the best way to do this is to create a culture of embracing these opportunities when they arise.

Being prepared to embrace change has never been more important – because even if you choose to forego the opportunity a new technology offers, there’s no guarantee your competitors will do the same.

Building trust in modern global supply chains

Supply chains rely on trust. Traditionally measured on cost and quality of service, recent events and enterprise digitization have created additional pressures, including resilience, adaptability, and sustainability in supply chain management. The crucial factor, though, is how trust is earned: by ensuring all parts of the supply chain process are rapid, secure, and trustworthy.

When it comes to international business, Amdocs’ success in managing its worldwide supply chain demonstrates how critical trust is.

Amdocs develops and provides specialist software to the telecommunications industry, enabling their customers to use cloud computing, deploy 5G, and automate their business operations. Listed on NASDAQ, they employ around 30,000 people around the world and work with a wide range of suppliers.

The company has built a trusted global supply chain, with digital payments at the core of its supplier relationships. Here’s a summary of the insights their approach to building trust in the supply chain offers.

The value of trust

While payment for products and services is undoubtedly a foundation of the supply chain, strong partnerships are built on much more than financial transactions.

Eli Sofer, Head of Corporate Finance at Amdocs, emphasizes that supply chains rely on authenticity and transparency, which are especially important during challenging times. He adds, “We have to be transparent and able to collaborate with them, particularly when either the supplier or purchaser faces difficulties.”

Typically, building trust is a long-term and painstaking process. Once established, it’s an asset, but if compromised, the consequences can be severe and far-reaching.

Nithai Barzam, President & COO of B2B payment security provider nsKnox, points out that while capital management solutions improve the transparency of the supply chain, new cybersecurity threats can put that trust at risk. “There are fraud vectors that can disturb the balance of a supply chain relationship, such as false invoicing and payment fraud, including social engineering and data manipulation,” he explains. “These are designed to divert payments to fraudulent accounts, leading to a complete breakdown in trust.”

To mitigate these risks and manipulations, nsKnox provides a robust, fraud-proof, and scalable solution for account validation and overall B2B payment fraud prevention. Their platform secures the entire process of sending and receiving funds and protects the master vendor file from unauthorized changes, shielding organizations like Amdocs and their suppliers from a wide range of threats, including social engineering, cyber-attacks, data manipulation, manual errors, and malicious employees.

Technology solutions to technology problems

To enhance the security of its supplier payments, and in partnership with Taulia and nsKnox, Amdocs is implementing these advanced fraud prevention solutions to safeguard its financial operations. But as fraudsters become increasingly sophisticated, Sofer is aware that finance teams will face even greater challenges, necessitating additional security measures. And while accounts payable teams are trained to identify suspicious emails, he admits that criminals remain a step ahead, becoming more adept at disguising their tactics.

The rise of artificial intelligence adds yet another layer of complexity, making fraudulent attempts even harder to detect and putting additional pressure on these teams. While technology plays a crucial role, Soffer emphasizes that there’s more to supply chain management best practices.

“When I led the adoption of Taulia at Amdocs, I didn’t see it as merely the next operational process. Instead, I branded it as a collaboration platform,” he explains. “The suppliers on the Taulia platform are our partners, and we’re opening a window that allows them to see and collaborate with us better.”

Soffer further notes that this approach enhances the value of partnerships through improved trust, stressing the importance of communication in implementing new finance processes and best practices.

“It’s crucial to communicate the reasons behind your validation processes, not just to suppliers, but also to procurement teams so they don’t have problems or oppose it in the future.”

Processes paving the way to supply chain trust

While effective communication sets the foundation for trust in supply chain relationships, it’s the combination of secure processes and smart use of technology that cements it. These elements don’t just work in siloed tandem, but together to create a payment ecosystem that’s both reliable and efficient.

According to Sofer, securing payments is about technology platforms working hand in hand with good practices. “Good processes rely on the right data, which is why my team and I have focused on ensuring all details are right before the payment is made, which protects both Amdocs and our suppliers.”

Still, creating the right processes isn’t just about the technology – it’s also about building new habits, like changing the way we lock the front door when leaving home. Regarding this, nsKnox maintains that finance teams need to develop similar routines for employing two-factor authentication and payment protection tech, which provides the necessary business balance of efficiency and security.

When it comes to supplier onboarding, Sofer sees this as a key moment to build trust from the start. Strong due diligence and asking the right security questions upfront go a long way. While standardized methods are great, especially for global businesses, platforms like Taulia give finance teams the flexibility to adapt to local regulations. It’s about finding that balance between consistency and local know-how.

Ultimately, well-designed platforms and processes can significantly reduce the risks faced by finance teams – not only streamlining operations but also playing a crucial role in building and maintaining trust with suppliers throughout the supply chain.

Key takeaways: How to build supply chain trust

There are many elements involved in building supply chain trust, but these are the key things to remember as you build a better strategy:

• Be authentic and transparent with suppliers
• Trust is hard won and expensive to rebuild if lost
• Payment platforms are an opportunity for buyers and suppliers to collaborate
• Secured digital payments platform increases efficiency
• Use payment protection solutions to validate supplier details and protect the partnership
• Fraud impacts buyers and sellers beyond just the monetary loss

For more information on how Taulia worked with Amdocs to build and maintain trust throughout their supply chain, including more insights from industry leaders, watch the full webinar.

15 best practices for M&A and refinancing transactions

Corporate treasurers have a key role to play in facilitating mergers and acquisitions (M&A) and spearheading refinancing activity. But complex financial transactions can be tricky to navigate, regardless of whether the business environment is calm, volatile or anything in between.

Achieving the best possible execution requires strategic planning and detailed preparation, from engaging stakeholders early to ensuring that appropriate hedging strategies are in place. By deploying the following 15 refinancing and M&A best practices, treasurers will be better placed to avoid potential pitfalls, protect their businesses from risks, and prepare for any eventuality.

1. Carry out dry runs

Companies can greatly benefit from conducting a dry run before embarking on a large transaction or M&A deal. Ahead of a major deal, companies can undertake simulations to identify potential issues and refine their strategies accordingly, which can save money and time.

By periodically running through the process, treasurers and their teams can also gain insights into market-clearing pricing and develop well-thought-out templates for future term sheets.

2. Engage the board at the right time

Knowing how and when to engage the board is crucial. Ahead of a major transaction, treasurers should aim to warm up the board with relevant numbers and scenarios that will pave the way for effective decision-making.

This can be as simple as informing the board about available debt capacity that can be accessed without impacting credit ratings – and likewise, how exceeding the stated capacity could impact the company’s credit rating.

3. Review your documentation and strategy

Treasurers need to review their existing documentation to avoid pitfalls and increase their knowledge of the levels of flexibility available. Before entering into commercial negotiations, treasurers should also think through their M&A strategy and assemble the relevant cross-functional teams.

4. Test scenarios to optimize cash flow management

As well as having a clear understanding of inter-month cash flows, treasurers should also aim to test a variety of scenarios, including EBITDA, working capital, capex, dividends, and buybacks. By doing so, treasurers can manage debt and balance sheets more effectively and improve their understanding of how the actual numbers align with projections.

5. Understand the impact of market volatility

When assessing the proposed execution window, it’s important to factor in current market conditions. For example, transactions that take place in the lead-up to a U.S. election or year-end can be affected by market volatility, which in turn may impact credit markets.

6. Gain a clear understanding of the banking support available

Avoiding any surprises regarding banking support is vital. Treasurers should take the time to understand the depth of support available, including their banks’ lending/underwriting capacity. Again, dry runs can help to determine which banks will be able to fulfill the company’s requirements and at what capacity. This helps to ensure a successful refinancing or M&A process.

7. Gauge the available headroom

To gauge headroom, treasurers should take a close look at the maturity profile of their existing debt instruments, including bank debt, commercial paper (CP) and bonds. As a rule of thumb, a flexible and well-spaced structure, such as a mix of term loans and bonds, will provide greater financing stability.

For example, a core M&A structure might include a mix of term loans and bridge facilities that can then be sold down to bonds, floating rate notes (FRNs), revolvers and CP in order to handle the company’s short-term needs.

8. Evaluate credit ratings and liquidity

Treasurers can gain more certainty about a company’s credit profile by conducting credit rating evaluations. Maintaining a balance between debt and liquidity—for example, by having standby revolving credit facilities (RCFs) in place—can also lead to greater flexibility.

9. Understand how business cycles affect working capital

When embarking on complex transactions, it’s essential to understand the cyclicality of the business and what this means for working capital. For example, treasurers should consider whether the loss of staff focus during M&A activity could impact the collections process.

Planning ahead and adopting suitable working capital tools can help avoid stressful situations during the first 90 days following the transaction.

10. Explore the use of off-balance sheet solutions

Treasurers should also explore the extent to which off-balance sheet solutions can be used without negatively impacting the company’s credit rating or reputation with customers. Gaining a clear understanding of the company’s sustainable capacities is a key part of this.

11. Review hedging strategies

It’s vital to spend enough time looking at proposed hedging strategies, particularly if the company operates across multiple countries with varying levels of complexity. Transparency in this process is important as a means of ensuring executive alignment and avoiding any surprises.

Simulations can also be useful when it comes to understanding the availability of hedging lines from banks for larger-scale transactions.

12. Manage interest rate and FX risks

Protecting the company from the impact of interest rate fluctuations and foreign exchange movements is a core responsibility for corporate treasurers. It’s also an activity that needs to be fully aligned with the company’s culture, for example by avoiding any speculation. The treasurer should regularly review existing debt plans with the CFO and know how to unwind these if needed – for instance, if a disposal generates a large cash inflow.

13. Take steps to prepare for a crisis

Preparing for possible future crises, such as a cyberattack, is another important step when preparing for a major transaction. To mitigate the risk of such a crisis, treasurers should ensure that their treasury systems can operate independently.

They should also have appropriate contingency plans in place, such as ensuring that bank systems can be used to make critical payments directly if needed.

14. Optimize smaller deals by integrating debt effectively

Where smaller acquisitions are concerned, treasurers should aim to integrate debt into existing structures in a way that avoids excessive costs. To drive a successful outcome, treasurers should also carry out a meticulous due diligence process and ensure that arrangements with local banks include flexibility regarding prepayment.

15. Be curious, be prepared

Last but not least, being curious and prepared is key when it comes to successful M&A and refinancing activity. By thinking ahead, managing risks effectively, and being ready for any eventuality, treasurers should not only achieve the best possible execution and protect the financial health of the company but also bolster their own long-term careers.

Three things I’ve learned about sustainability

Taulia CFO Rene Ho on what he has learned working to grow sustainable practices both within and outside of Taulia.

There’s no playbook or manual for building sustainability in any company, whether it’s in internal practices or in the products you offer to the market.

However, verifiable sustainable outcomes have become competitive advantages across a wide variety of industries, so no company can afford to ignore them.

As long ago as 2019, half the respondents to a survey of CFOs by Deloitte were reporting the biggest pressure to take on sustainability issues was coming from their customers rather than internal stakeholders.

This impetus has been complemented by increasing regulation. Last year, the EU introduced the Corporate Sustainability Reporting Directive (CSRD), which made ESG reporting mandatory for almost 50,000 companies across the EU. And, in July this year, the Corporate Sustainability Due Diligence Directive (CSDDD) came into force, aiming to foster sustainable and responsible corporate behavior.

Customer demand and legal obligations are powerful influences on corporate behavior – but what does it mean on the ground to address them?

Based on my experience, I’ve learned that there is no one-size-fits-all solution. Grassroots efforts are just as crucial as corporate policies, and CFOs have a vital role to play in creating a greener and more ethical economy for everyone.

Here’s what I’ve learned about how businesses should be approaching sustainability, boiled down into three key tips.

1. Sustainability doesn’t stop at the office door

When we take a holistic, top-down view of how we approach sustainability at Taulia, we try to focus on how we operate internally and how sustainability concerns are reflected in both our offer and our interactions with the wider business environment.

Importantly, we’ve learned that growing sustainability within a company is as much about culture as it is about how you shape your operations.

With that in mind, for some time now, we have held monthly sessions for Taulians on key questions around sustainability. The goal is to build awareness across our organization on everything from carbon emissions to mental health in the workplace and—of course—sustainability in supply chain finance.

Offices and teams can and do devote a day to working on a cause they feel passionate about; some of whom spent the day caring for the environment.

In isolation, none of these actions amount to much – but, together, they form an effort to promote a constant focus on sustainability throughout all of our working lives. In structuring these efforts, we are guided by three core ideas or goals: education, awareness, and action.

Any macro-level breakthroughs in how we work towards sustainability are, we believe, a product of the micro-level cultural efforts we make. So, while we are playing our role in initiatives like our parent company SAP’s goal of becoming carbon neutral by 2030, we strongly believe that ground-level efforts are just as important.

2. The market has shifted

One of the biggest cultural shifts we’ve seen has been in what questions come up in conversations with our customers.

It’s been a few years since we introduced our Sustainable Supplier Finance solution. It allows our clients to embed sustainability criteria in their supply chains by offering discounts to suppliers that display good or improving performance in ESG/sustainability. These performances are captured in data-led metrics and analyses produced by companies such as EcoVadis.

When engaging with our customers, we hear many questions about these metrics, how they’re captured and leveraged, and the increasing competition to provide them. The days when companies could get away with soft mission statements and non-binding statements seem to be over.

Instead of using imagery of green shoots and forests on the cover sheets of their communications, there is a clear and growing demand now for detailed, reliable, and actionable data. Prospects and existing clients constantly ask us about this data, how it’s gathered and verified, and what our partner firms’ credentials are, from their codes of conduct to their AML or KYC procedures.

3. The role of the CFO is vital

If metrics and disclosure are becoming ever more critical, this means that the role of the CFO is becoming central to any serious effort toward sustainability.

It makes sense that sustainability data is gathered, verified, and distributed by the finance department. CFOs are used to measuring and tracking non-financial achievements, carrying out risk analysis, and conducting other modes of internal monitoring.

Accordingly, they’re uniquely placed to track and analyze the added value contributed by sustainability measures. The tools for tracking and assessing these measures essentially boil down to internal cost accounting methods.

As senior internal stakeholders, CFOs can use their influence to define individual and aggregate performance criteria and encourage the development of new tools and solutions, such as internal dashboards. They have the big-picture, top-down view needed to both define goals and introduce the practices and technology necessary to achieve them.

Remember, to achieve effective sustainability, it’s essential to integrate it into your business culture as a core practice. This practice is fundamentally driven by data, highlighting the crucial role of the CFO and the finance team in any organization.

A letter of gratitude from a Taulia mom

In 2022, when my husband and I began conversations of expanding our family, we delved into numerous considerations. Were we prepared for the lifelong commitment of parenthood? Were we setting a child up for success? And what impact would this have on our lives? While we confidently answered “yes” to the first two questions, the third posed a challenge, particularly for me. While personal factors weighed heavily on my mind, the professional aspect became a recurring debate in my head. Having dedicated a decade to Taulia, I had not only witnessed the organization’s growth but my own growth as well, both of which I was extremely proud of. I had just worked on the most exciting (and extremely difficult) project thus far—an acquisition—and we had become a part of the SAP family. SAP’s global prominence opened doors to infinite possibilities. Was I ready to step away from it all for a while? Ultimately I knew that being a mom was important to me and after many discussions, we decided this was the right time for us. Despite my decision, I was determined to maintain the same level of dedication throughout my pregnancy, try to keep up with work during maternity leave, and come back like nothing had changed right after. I had a plan and was determined to make it happen.

We found out we were pregnant around Thanksgiving and while I was extremely happy, my brain automatically went into planning mode – I had work travel coming up, we had so many ambitious team goals for next year, and I was nervous how I would manage it all while ensuring I was taking care of this little human growing inside of me. The first trimester was rough – I had extreme morning sickness, or rather “all-day sickness” and a diet limited to plain cheese quesadillas dominated my days. On top of it all, I wasn’t able to share this struggle with anyone other than my husband and our bernedoodle. Although my memory during this time was limited, one story that sticks out is when I was to present at a board meeting early in the morning when my morning sickness was at its worst. I woke up extra early that morning hoping to get my morning sickness out of the way, got ready, and put a trashcan next to me just in case. Instead of practicing my talk track, I practiced what I would say if I suddenly had to go off-camera. Luckily it all went smoothly and no trashcan was required, but I remember thinking that if this was the first trimester, how would I make it through the rest of the pregnancy and when the baby was actually here?

After chugging along through the first trimester and once I was safely into the 2nd trimester I knew the time had come to share my news with work. I was a nervous wreck. With a plethora of projects and initiatives lined up for the year, especially under SAP’s umbrella, I decided to disclose my pregnancy to my manager and HR counterpart during our initial yearly planning meeting. Armed with a detailed outline of how we were going to accomplish our goals for the year even with me being out I nervously broached the subject. As I said the words “I am pregnant” in the meeting I found my eyes tearing up, partly due to nervousness and partly because I felt like I was letting the team down during a crucial period. However, their response was not what I anticipated. Instead of probing about project timelines, they showered me with expressions of joy and excitement. In that moment, work took a backseat as we celebrated this new chapter in my life.

After speaking to all the moms I knew, I came to the conclusion that 6 months was the right amount of time for me to take off to recover, acclimate to parenthood, and bond with my baby. However, the thought of being away for such an extended period seemed daunting. I didn’t want to come back too soon and struggle so I decided taking more time off and coming back stronger was a better option. Later that week I met with my manager for our weekly 1:1 and was going to tell him my plan of taking 6 months of maternity leave, coming back part-time for the first month, and then being back to a full-time capacity after that. When I started telling him my leave plan, I think he could sense my hesitation and interrupted me and said “Whatever you need, we will make it work. I want to support you.” And support he and all of Taulia did.

While all pregnancies are different, mine was filled with fatigue, and what felt like an endless amount of doctors appointments. I remember often thinking about what I would do if Taulia didn’t have a flexible work environment – many of these appointments and tests were hard to come by and the offices weren’t open on the weekends which meant I had to schedule them whenever they could fit me in which would sometimes clash with work. My coworkers would never hesitate to reschedule a meeting or repeat something my tired brain couldn’t comprehend the first time around. Not only this, but they organized our annual offsite in San Francisco so I could be comfortable in my own home at night, threw me multiple baby showers, and ultimately helped take on everything while I was out in addition to their jobs. “We are a team”, is a phrase I would hear often.

As I was getting closer to my leave, we brought on a senior HR leader to our team who would be my new manager. As soon as she started, it was like opening the floodgates. While she was still onboarding she was tasked with what seemed to be a new project every day and no time to spare in between her meetings. Despite this, every one of our meetings started with her asking me questions about how I was feeling, questions regarding exciting things like prepping our nursery, and sharing some of her own experiences. She knew I would be going on leave in a matter of weeks and instead of trying to get things moving along as fast as possible she constantly reminded me to enjoy this time in my life and how special it really was.

As I wrapped up projects and sent out my detailed spreadsheet with exactly who was doing while I was going to be out, I let my coworkers know that I was going to be around should they need me. After all, I was going to be at home with a baby that slept most of the time so I would have ample time to answer any questions. Every single person told me they would not contact me and that I should take the time for myself and my new baby. The first 4 months after giving birth were so much harder than what I was anticipating. The sleepless nights seemed like they would go on forever and my body and mind could barely keep up with what day of the week it was so answering questions and getting work done was out of the question. Some of my favorite memories during that time though were thanks to my amazing coworkers – sending my son the most thoughtful welcome gifts when he was born, celebrating my 10 year anniversary with Taulia, and getting check-ins from so many – none of which were work-related. I didn’t know how much I needed to disconnect at that time, but I’m so appreciative that not only did my colleagues allow me that time, but went above and beyond to ensure I felt their well wishes.

Going back to work after nearly 6 months was bittersweet. While I was looking forward to getting into a routine again and working on exciting projects, my son was now 6 months old and so much fun! I didn’t want to miss out on anything. Being able to start back up at a part-time capacity for the 1st month and from home, since Taulia has a work-from-home environment helped make the transition so much easier. It allowed my son and I to ease into our new routine. In between meetings, I would go downstairs to where he was being taken care of by my amazing mom and sneak in a cuddle and we would eat our lunches together. It made a transition I was nervous for much more bearable.

I’ve been back full-time at Taulia for nearly 8 months with a now 1 year old and feel right back into the swing of things. As I navigate the demands of work and motherhood, I am grateful for Taulia’s unwavering support. From accommodating schedule adjustments to celebrating milestones, my colleagues have been instrumental in making this journey more manageable and meaningful. As the saying goes, “It takes a village to raise a child,” and Taulia has been an integral part of my village. I am immensely grateful for the organization’s supportive culture and caring leadership, not to mention fantastic benefits that have made my journey into motherhood a truly special experience. Thank you, Taulia, for your support—from me and Veer.

TELUS drives growth with SCF

At the recent SAP Sapphire & ASUG Annual Conference in Orlando, Ashifa Jumani, Director of Procurement at Canadian telco TELUS, discussed how the company is using supply chain finance to free up cash flow for M&A, while furthering ESG goals through procurement processes.

Optimizing working capital management is an important activity for Canadian telecoms company TELUS. For one thing, the current economic climate highlights the need for better liquidity management. At the same time, frequent M&A activity means that freeing up cash flow is a significant priority for TELUS, as Director of Procurement Ashifa Jumani explained at the recent SAP Sapphire & ASUG Annual Conference in Orlando.

Supply chain finance is one tool that can enable companies to improve working capital and free up cash flow while giving suppliers access to finance at an advantageous rate – so TELUS decided to investigate this opportunity. “We ran the numbers to find out what the potential benefit would be, and how much cash we could free up by putting in supply chain finance,” Jumani recalls. “We also looked at our payment terms.”

As a result, the company found that its own payment terms were out of alignment with other telecommunications companies, some of which were paying their suppliers in 120 days. As such, the decision was taken to move from payment terms of 60 days to 90 days, while offering suppliers the option of early payment on their invoices via the supply chain finance program.

First things first

Key to the success of the project was having a clear understanding of the expected benefits of the exercise and the cost of the tools and resources that would be needed – although as Jumani points out, “it was actually very cost effective to put the system in place.” It was also critical to be able to communicate the project goals to the CFO from the outset.

“You need to be really clear on the benefits – what’s your working capital gain? Do you have a program in place for the suppliers?” says Jumani. “Because if you’re changing your payment terms, you need to put something in for your suppliers so they can get paid earlier.” For TELUS, the expected ROI of the project was based on generating working capital in order to reduce the amount of borrowing and the company’s interest costs.

While TELUS was already using Taulia as a partner for its dynamic discounting program, it was important to follow a thorough RFP process with different suppliers in order to understand the technology and methodologies available. As Jumani explains, “I’m in procurement so we do need to follow the purchasing policy and do a fair process. And we did end up choosing Taulia for our supply chain financing.” She adds that the existing dynamic discounting program meant that it was straightforward to turn on the SCF element when the time came.

Communicating change

According to Jumani, internal communications is key when it comes to implementing a successful SCF program: “Everyone needs to know what you’re doing, and no one should be surprised.”

Procurement at TELUS is decentralized, with over 12,000 suppliers affected by the project. Jumani’s team sent out a company-wide notice that the company’s payment terms would be changing from 60 to 90 days, and requested details of any relevant contracts from the relevant businesses. “Then the question was whether we were going to open up that contract to change the payment terms, or wait until it expired.” Legislation in specific markets also had to be factored in: Canada, for example, has prompt payment legislation that applied to some of the firm’s contractors.

Another important success factor was having a strong project manager who was able to engage people across various departments such as finance, treasury and legal. “And accounts payable was really key, because we needed them as a strong partner in helping us communicate with suppliers,” Jumani notes. Team members needed to inform suppliers about the new system and ensure that they were given six months’ notice of the change in payment terms.

Sustainable supply chain

Alongside its working capital management initiatives, the company’s procurement strategy is also shaped by a strong focus on ESG. The company has a climate action plan in place to tackle Scope 3 emissions with top suppliers, and partners with the Carbon Disclosure Project (CDP) to collect emissions information from suppliers. TELUS is also a member of JAC, a global association of around 27 telecom operators that are working with their suppliers to audit ESG criteria while reducing the burden on suppliers through a standardized approach.

In addition, TELUS includes corporate social responsibility (CSR) information in its RFPs to ensure that ESG criteria are considered as part of the supplier selection process. The company’s supplier diversity program, meanwhile, is focused on developing opportunities for diverse suppliers, including Indigenous businesses.

On another note, the company’s Supplier Due Diligence program screens the entire Tier 1 supplier base in order to identify any bad actors or sanctions violations. “Screening processes when onboarding suppliers is part of our CSR, as well as helping to make sure they are viable and profitable,” says Jumani.

Secrets of a successful SCF program

For other companies that may be considering a supply chain finance program, Jumani emphasizes the importance of understanding data in the first instance.

“Data is the most important thing – so make sure you understand where your suppliers are, what your current payment terms are and what the opportunity is, because that’s the ROI you’re going to take to your CFO.” In addition, she recommends that companies should look closely at the kind of funding they will need for the project, and ensure that the right people are involved.

Last but not least, choosing the right provider is paramount. “I’d class Taulia as a very strong partner – they helped guide us along the way with things like external communications to suppliers,” Jumani concludes. “Just sending emails is not going to be enough, so having a very strong follow up with suppliers is key to getting them onboarded.”

7 Reasons why you need a treasury compliance department

The argument for establishing a dedicated treasury compliance department has never been more compelling in an increasingly global business world fraught with hidden challenges and risks.

Tasked with managing and mitigating the risks associated with complex global operations, a treasury compliance department can play an essential role in financial organization and risk management. They help handle multiple bank accounts and prevent fraud and corruption while maintaining compliance across multiple regulatory environments.

Creating an effective treasury compliance department may take time and effort since adopting best practices in risk and compliance is a continuous journey, not a one-off exercise. But the good news is that wherever you are on that journey, there are steps you can take to strengthen your controls, adopt best practices, and achieve your goals.

In this blog, we’ll discuss seven key reasons why companies choose to establish a dedicated treasury compliance department. We’ll also cover best practices you can follow to optimize compliance and mitigate risk within your organization – from rationalizing bank accounts to adopting a centralized payment system.

1. Enhance compliance and control

Compliance with international finance regulations is non-negotiable for large multinational companies. Treasury compliance departments play a crucial role in ensuring that nothing is missed.

In short, the treasury compliance department ensures adherence to anti-corruption and anti-bribery laws, safeguarding companies from the risk of legal penalties or reputational damage.

When seeking to boost compliance, companies should consider whether IT or treasury should own key development and how a treasury compliance department fits into the organization as a whole.

Advice from experienced treasurers highlights the necessity for treasurers to maintain ultimate accountability and responsibility for these projects, encompassing both financial sign-off and their role as the end user and subject matter expert.

With the right structures in place, companies will be better placed to centralize their risk management activities while delegating tasks to local teams that are nimble enough to operate without incurring significant additional risk.

2. Increase the efficiency of bank account management

Companies can often accrue large numbers of bank accounts over time, particularly when they engage in frequent M&A activity. This can result in higher-than-necessary costs and inefficiencies, so dedicated resources may be needed to rationalize these accounts to a more manageable number.

With a streamlined account structure, companies can reduce costs and improve oversight, making it easier to comply with regulatory requirements. As part of this exercise, treasurers may also look at centralizing their banking relationships to a core group of banks, which can significantly reduce long-term costs associated with both administration and compliance.

3. Streamline processes with a centralized payment system

A centralized payment system can be a powerful tool that helps companies save time and creates a foundation for building further capabilities.

With the right system in place, companies will be better positioned to streamline their payment processes and improve operational efficiency, with visibility over all payments in a single location.

A centralized payment system also enables companies to adopt elements such as compliance checks, the four-eyes principle (meaning that decisions are approved by at least two people), and comprehensive access controls to prevent unauthorized maverick transactions.

That said, it’s important to recognize that the value of a centralized payments system will be determined by the percentage of payments flowing through it. To get the most out of a payments system, companies must also harness change management, eliminate exceptions, and monitor progress continuously.

4. Create the right environment for risk mitigation software

The building blocks listed above play a crucial role in helping companies mitigate financial risks, including fraud and payment errors. However, further steps are needed if companies are to continue on their journey to achieving better, more reliable compliance.

With centralized payment processes and robust monitoring systems, companies can create the environment needed for software that can quickly detect and flag potential fraud instances. This, in turn, allows them to respond rapidly to suspicious activity, correct errors in a timely manner, and adapt to constantly evolving cyber threats.

5. Standardize processes across subsidiaries

Companies that operate around the globe have much to gain by managing their treasury functions in a standardized way. A treasury compliance department can ensure that all subsidiaries follow the same financial standards and practices, thereby simplifying management and enhancing regulatory compliance.

Consolidating this responsibility under a dedicated, centralized department ensures that a consistent approach is adopted across global operations. This creates benefits in both efficiency and visibility, providing stricter adherence to compliance guidelines.

6. Reconcile local responsibility with global oversight

Managing a vast payments network that handles thousands of payments can be challenging. While a centralized signing authority is generally recommended, it’s important not to overlook the deep knowledge that regional treasury teams have of their local payments environments. For example, companies that keep responsibility local may be able to avoid the need for extra intermediaries and, therefore, respond faster to payment rejections.

When deployed effectively, the treasury compliance team can provide a strong foundation for centralized payments and global standardization while empowering local teams to flag suspicious or unusual payments using automation. At the same time, companies that funnel all possible payments through a single tool can benefit from visibility over their payments around the world.

7. Take part in technology decisions

Lastly, treasurers responsible for payments need to have a robust understanding of the technology being used for payments, compliance, and auditing. In practice, IT teams may not have the same level of understanding of payment processes as the treasurer, so it’s essential that the treasury department is involved in selecting and customizing payment technology, especially when third parties are involved.

Want to learn more from treasury peers? The Taulia Treasurers’ Club is an exclusive forum for treasurers to network, engage with like-minded peers on topics that are top of mind, challenge each other’s thinking and share best practices. The topics are driven by treasurers for treasurers. Sign up for our Treasurers’ Club to learn more.

Navigating the evolving SCF landscape with Taulia and ANZ

Supply chain finance solutions can help businesses build resilience in challenging times, and collaborations between banking institutions and FinTech companies are making those solutions easier to access than ever.

Since the pandemic, companies worldwide have faced significant challenges in obtaining the goods they need to do business. Product shortages, geopolitical conflict, and the impact of soaring inflation have all taken their toll on global supply chains.

To protect their businesses, many companies have opted to diversify their supplier bases or switch from a just-in-time to a just-in-case inventory model. However, more is needed if companies are to manage supply chain risks and achieve their business goals.

In this environment, technology has an increasingly important role to play in helping companies overcome supply chain challenges and address their evolving needs. As well as speeding up supplier onboarding and improving visibility across supply chain processes, sophisticated supply chain finance (SCF) platforms can also help businesses meet their sustainability goals by tracking their suppliers’ ESG ratings and incentivizing them to adopt more sustainable practices.

At the same time, banks and FinTech companies are working together to help corporates access the solutions they need, as illustrated by the strategic relationship announced by Taulia and ANZ, a leading bank in Australia, in May 2023.

This arrangement will provide ANZ clients with SCF and dynamic discounting solutions enabled by Taulia’s platform and technology. The main focus of the collaboration is on helping companies build more resilient and sustainable supply chains while giving suppliers access to cost-effective capital.

Transforming SCF with technology

Technology has had a transformative effect on supply chain finance over the last few years. For one thing, the rise of predictive technologies and artificial intelligence (AI) is opening up opportunities for businesses to use SCF more strategically, from monitoring suppliers’ financial health to pinpointing the APR at which suppliers might accept early payments.

Meanwhile, the use of electronic invoices and automatic invoice data capture is helping companies speed up invoice handling, eliminate paper from AP processes, and reduce invoice processing costs and errors while also making it easier for suppliers to submit invoices. More efficient invoice processes can boost the benefits of an SCF or dynamic discounting program: the sooner invoices can be approved, the greater the opportunity for suppliers to access early payment discounts.

Technology also has an important role in helping companies leverage SCF to achieve their ESG goals. According to the WEF, emissions from suppliers throughout the supply chain can represent up to 70% of a firm’s total emissions. Companies have much to gain by adopting SCF platforms that can not only monitor suppliers’ sustainability metrics but also incentivize suppliers to adopt more sustainable practices through access to cost-effective financing.

As Jessica Iacobucci, Head of Trade & Supply Chain Sales, Australia & PNG, Institutional Banking at ANZ explains, “The increased focus around Scope 3 emissions, especially the provenance aspect of it, is an important part of the evolving supply chain finance space and has become a key agenda for our customers.”

Evolving business goals

Developing economic conditions, regulatory reforms, and concerns about sustainability are shaping the solutions companies need to adapt and thrive. Platforms like Taulia have an important role in helping companies navigate difficult market conditions.

Supporting suppliers with liquidity can mitigate the risk of disruptions and delays and help companies build stronger relationships with their business-critical suppliers. In particular, modern solutions that provide fast and simple onboarding for suppliers make it easier for companies to diversify and strengthen their supplier base.

However, to meet the demands of the current landscape, companies need access to comprehensive platforms that offer more than just financing tools. “Our clients are looking to build sophisticated supply chain platforms,” notes Mary Ng, Director, Head of Supply Chain Sales, North Asia at ANZ. “They’re not just seeking a financing tool but end-to-end solutions.”

Solutions like Taulia’s platform can give companies more visibility across their supply chains while helping them monitor their suppliers’ financial health. Armed with more data and better visibility, companies can gain a greater understanding of their supply chains and make more informed decisions.

Building resilient global supply chains

At the same time, companies are focusing on increasing supply chain resilience. As a result of their experiences over the last few years, companies are all too aware of the need to protect their businesses and supply chains from future crises. This means addressing the risk of numerous types of disruption, from rising raw material costs to logistical delays and geopolitical conflict.

“When it comes to supply chain finance, we absolutely are finding companies focusing on building supply chain resiliency and looking at it not so much as an opportunity to benefit only themselves, but as an efficient tool to deliver capital and finance into the ecosystem,” comments Steve Scott, Head of APAC at Taulia.

As companies continue to strengthen their supply chains, industry stakeholders need to work together to develop robust and sustainable global supply chains. With technology playing an increasingly important role in the SCF space, it’s no surprise that many banks are partnering with FinTechs to support their customers with sophisticated solutions.

Banks have much to gain by working with FinTechs to provide solutions that can help companies increase the resilience of their supply chains while addressing compliance needs and providing the insights companies need to make effective decisions.

As Ng explains, “We are collaborating with third-party entities – like FinTechs and AI companies – to provide solutions, not just on the finance side but also on the supply side to give clients the visibility and tracking capability they are looking for.”

The importance of mitigating supply chain risks has never been more apparent. Companies need access to solutions that can protect their businesses from the threat of future disruption – but at the same time, they are also paying close attention to the role SCF technology can play in helping them achieve their sustainability goals. Collaboration between banks and FinTechs will prove increasingly key in bringing corporates the technology they need to navigate this evolving landscape and achieve their goals.

To learn more about this topic, read ANZ’s recent report, The Future of the Global Supply Chain.

Revealing AI’s Potential: the Role of the CFO

In the fast-paced landscape of modern business, finance processes that remain primarily manual create operational inefficiencies, lack foresight into financial trends, can contain errors, and prevent agility.

However, there is good news: by embracing technology, automation, and digitization, organizations can revolutionize their financial management. These advancements empower businesses to streamline processes, enhance accuracy, and make more informed decisions.

For CFOs and finance professionals, staying ahead of the curve is essential. Ask yourself the following questions:

• Has your company actively explored the value case of a digital finance transformation and its benefits in terms of process efficiency/G&A ratio, and employee and internal stakeholder satisfaction?
• Are your Finance processes set up to support your different business models and potential changes, such as subscription models?
• Are your financial processes fully digitalized and seamlessly integrated with other departments to foster end-to-end visibility and financial foresight in an ever-changing world?

If you find yourself answering ‘no’ to any of these questions, consider it an opportunity for growth rather than a setback. Embracing innovation isn’t just about staying relevant – it’s about propelling your organization forward. By updating your approach and engaging in digital transformation, you will position yourself and your company for success in today’s digital age.

AI-driven solutions contain a great amount of promise for financial roles: AI algorithms can analyze diverse sources of information, such as market inflation data, news, social media, trends, financial results from large companies, and analysis of public data from governments around the world.

AI tools can also simulate various economic scenarios and how these scenarios can impact the company in terms of revenue, cash flow, and profit. By simulating economic scenarios, companies can draw up more effective contingency plans, more closely reflecting potential market ups and downs.

Another key use for CFOs is as part of expense and travel management solutions. Those who use AI can study how employees spend money, find ways to save, and ensure that everyone follows company spending rules. CFOs can use these insights to spend money smarter, get better deals with vendors, and make everything more cost-effective.

But not everything is magic. Human participation is essential to making these tools more useful and reliable, and the CFO can play an important role in this regard moving forward.

When it comes to the predictions that an AI model produces, individual users can sometimes have misgivings. Having an expert who can create and then explain the models so that users know why the model makes certain predictions can mean that users are more likely to trust the model’s advice.

Having human knowledge and expertise when initially designing the model can mean that the results are also more easily understood.

That being said, responsible adoption of AI requires addressing ethical risks, regulations, and talent requirements. In this way, CFOs can be seen as leaders when managing this digital progress.

Next to creating responsible and reliable AI, the CFO must have relevant use cases. These can be divided into four categories, each with increasing complexities but potentially also more value upside: efficiency, effectiveness, expansion, and transformation use cases.

To conclude, it’s essential for CFOs to remain informed about emerging technologies to set the Finance organization up for the future and drive value for the entire company. As such, SAP and Taulia have released: CFO Perspectives: Unlocking Insights Through Conversation – CFO’s Beyond Figures – Steering Businesses into the Future.

In this e-book, you will find answers to the following questions:

• How is the CFO’s role changing?
• How can the finance function leverage AI, analytics, and other technologies to manage today’s market uncertainty effectively?
• What is the importance of the relationship between CFOs and CIOs with regard to digital transformation?

Download and read the newest edition of CFO Perspectives here

1. Gartner – Top 5 Priorities for CFOs in 2024
2. Gartner – Leadership Vision for 2024 – Gartner Top 5 Strategic Priorities for Chief Finance Officers
3. KPMG – AI and Financial Reporting Survey – what are companies doing and where do you stand?
4. CFO Insights Report: A New Role in Managing Uncertainty

EU late payment regulation: the working capital impact

On 12^th September 2023, the European Commission (EC) proposed a new late payment regulation that would revise and replace the Late Payment Directive 2011/7/EU. The proposed regulation could have significant implications for companies in Europe. So why is this new regulation being proposed, and what could the working capital impact be?

A summary of the EU Late Payment Directive

The existing EU Late Payment Directive was adopted in February 2011 to protect European businesses – particularly small and medium-sized enterprises (SMEs) – from the impact of late payments. However, in practice, late payments continue to be a significant challenge, with half of invoices in the EU paid either late or not at all.

And, while the Directive stipulates a payment term of 30 days for B2B transactions, this can be extended to 60 days or more “if not grossly unfair to the creditor”. In some cases, this means that payment terms extend to 120 days or more.

To address these issues, the EC proposes replacing the current Directive with a Regulation that would help bring fairness to commercial transactions, improve the resilience of SMEs, foster digitalization, and improve entrepreneurs’ financial literacy.

Crucially, the proposed regulation included a single maximum payment term of 30 days for all commercial transactions across the EU—a detail that has led to some controversy about the regulation’s impact on parties’ freedom to negotiate payment terms and on the supply chain finance sector as a whole. As such, the regulation has subsequently been amended to provide more flexibility regarding payment terms.

Understanding late payments

In a nutshell, late payments are payments that do not meet the contractually agreed due date. There are a number of reasons why companies may pay their invoices late: the buyer’s accounts payable processes may be inefficient, errors may occur during the invoice processing, or the buyer may deliberately delay payments to hold onto its cash for longer.

While delaying payments can improve the buyer’s working capital position, it has the opposite effect on the supplier, lengthening their Days Sales Outstanding (DSO) and reducing the predictability of their cash flows. When suppliers are paid late by customers, they may struggle to pay their bills and invest in growth. Late payments can, therefore, damage a company’s relationships with its suppliers and may even lead to less favorable terms in the future.

The EC argues that the root causes of late payments include “asymmetries in bargaining power between a large or more powerful client (debtor) and a smaller supplier (creditor)” – a factor that can result in suppliers having to accept unfair payment terms and conditions. As such, the new regulation proposes to redress this asymmetry by introducing measures to protect creditors from their debtors.

For example, under the new rules, interest on late payments would be automatic and compulsory, with creditors unable to waive their right to claim interest. The proposal also includes enforcement and redress measures to protect creditors from bad payers.

The burden of late payments explained in statistics

According to the EC, late payments cost the global economy $1 trillion annually. Stats uncovered by research conducted around the world continue to show that late payments have a significant impact on businesses and economies:

• In the U.K., research by the Federation of Small Businesses (FSB) has previously found that poor payments cost the U.K. economy £2.5 billion each year and that 50,000 business closures a year could be avoided if companies were paid on time.
• A 2021 survey by QuickBooks found that mid-sized businesses in the U.S. were owed an average of $300,000 in late customer payments, with 89% saying that late payments were holding back growth.
• According to research included in credit management services provider Intrum’s European Payment Report 2023, the cost to European businesses of chasing late payments equates to €275 billion.

Over the last couple of years, research by Taulia has found that late payments are on the rise. Our 2023-24 Supplier Survey found that 51% of respondents are paid late by their customers, up from 36% in 2021. Likewise, more suppliers receive payment very late: 8% of this year’s respondents said they receive payments more than 45 days late, compared to 3% in our 2019 survey.

Notably, the impact of late payments is all the more significant in an inflationary environment, as the value of cash is eroded over time. As such, it’s no surprise that a quarter of suppliers said they were interested in taking early payments every time and for every customer, up from 21% in 2022.

Variance in payment term lengths

While late payments present a significant challenge, it’s important to understand that payment terms can vary considerably between companies, as illustrated in Taulia’s International Payment Terms Database.

One reason for this variation is the impact of individual negotiations. However, different countries and sectors may also have their norms for payment terms: depending on the industry, standard payment terms could be net 30, net 60, or even net 90. A 2019 survey by Atradius, for example, found that average payment terms in Western Europe ranged from 21 days in the consumer durables sector to 37 days in the manufacturing sector.

In some industries, longer payment terms can play an important part in alleviating businesses’ cash flow burden. Longer payment terms tend to be more widespread in industries where large and complex projects are commonplace, such as construction and manufacturing. In addition, longer payment terms can be advantageous to buyers as a way of alleviating their cash flow challenges – and suppliers may offer their customers longer payment terms as a competitive differentiator.

Unforeseen consequences of the new EU Late Payment Regulation

This means that while the proposed regulation may address the challenge of late payments, there are also concerns that the new rules could negatively impact pricing, competitiveness, and business operations in the EU by adopting a one-size-fits-all approach. This could potentially result in certain unforeseen consequences.

For example, there has been concern that the proposed regulation does not account for cases where there may be good reasons for agreeing to longer payment terms. An article published by PwC Legal Germany argued that in the proposed regulation, “no consideration is given as to differing needs across various sectors where longer payment terms are normal and crucial to the functioning of markets”.

It’s possible that reducing payment terms could mean that large corporations renegotiate their prices with suppliers to reflect the need to pay invoices earlier. The proposed rules could also shift how working capital requirements are balanced between different parties in the supply chain. In addition, there is a risk that restricting all payment terms to 30 days could have an adverse effect on the viability of supply chain finance (SCF) in the region.

In light of these concerns, the proposed regulation continues to evolve. In March 2024, a draft version agreed by the Internal Market and Consumer Protection (IMCO) Committee included an option to extend payment terms to 60 days if contractually agreed and to extend to 120 days for ‘slow and seasonal’ goods. At a plenary session on 23^rd April, MEPs voted in favor of the amended proposal, with a notable exemption for the books industry. The proposed regulation is due to be put forward to the European Parliament following the European elections in June.

Conclusion

In summary, late payments continue to be a major challenge for suppliers everywhere. There is a clear need for a balanced regulation that can address the issue of late payments while also considering the complexities of commercial transactions.

Given that the implementation of the proposed regulation is likely to be a gradual process, companies will need a well-developed working capital strategy. Taulia provides a full suite of working capital solutions and is well-positioned to support businesses as they adapt to the new regulations.

Speak to Taulia for advice on how your business can adapt its strategy in response to these potential regulatory changes while meeting the challenges presented by today’s economic environment.

Or use our EU Late Payment Calculator to give you a snapshot of how this legislation, if passed, may impact your business and your suppliers.

A guide to contract lifecycle management

Contract lifecycle management (CLM) is a critical process in supply chain management that, approached strategically, can help optimize overall business performance.

Contract lifecycle management plays a key role in the broader practice of. It helps businesses ensure that their contracts with buyers and suppliers align with their overall business objectives.

A more effective approach to contract lifecycle management can achieve various benefits, such as driving supply chain efficiency, increasing operational resilience, and expediting growth.

So, what is contract lifecycle management (CLM), and how can a business benefit from improving its approach to it? In this guide we will cover everything you need to know about CLM.

What is contract lifecycle management?

Contract lifecycle management is the process of managing and supervising a contract throughout its lifecycle. Whereas simple contract management focuses on managing a contract from the point that it’s awarded, contract lifecycle management covers the whole process, from initiation to expiry or renewal, usually with a more strategic approach.

Benefits of CLM

An effective contract lifecycle management strategy can make a significant contribution to the efficiency of a company’s supply chain management process, as well as to its wider business objectives. It can be used to achieve terms that align with the company’s financial goals, as well as helping to improve relationships with both buyers and suppliers.

By improving their approach to contract lifecycle management, an organization can streamline processes such as buyer and supplier onboarding to increase operational efficiency and reduce the risk of human error.

The increased oversight over contract-specific performance also provides insights into how effectively partners throughout the supply chain meet their obligations and contribute towards financial objectives, making it easier to decide whether contracts are worth renewing. This enhanced visibility also ensures that all internal stakeholders can access the information they need.

In addition, by implementing appropriately rigorous checks during the contract creation processes, a CLM strategy can guarantee that contracts meet the required standards and regulatory requirements, allowing companies to mitigate the financial and legal risks of non-compliance.

CLM software

In the past, organizations had to manage their contracts using manual tools and processes prone to human error. Small companies might still manage the process manually, but as businesses scale up and deal with more contracts, it becomes increasingly important to simplify and streamline contract management processes.

Contract lifecycle management software is designed to facilitate this, offering a suite of tools that make managing steps throughout the contract lifecycle simpler, more efficient, and more transparent.

The contract lifecycle: Step-by-step

Understanding each step of the full contract lifecycle makes the importance of a refined approach to managing it more apparent. These are the main stages of the contract lifecycle:

1. Initiation: The first step is identifying the need for a new contract and initiating a request. This involves formulating a business case, informing key stakeholders, and designing the preliminary terms and conditions to include relevant legal requirements and suitable protection for both parties.
2. Negotiation: Negotiations are often the most challenging part of the contract lifecycle. During this stage, the parties involved can discuss proposed terms and conditions, raise any concerns and clarify points of ambiguity, before reaching a consensus and agreeing the final version of the contract.
3. Approval: Once a final version of the contract has been drafted, business and legal teams will ensure that it meets their requirements, with any further changes carefully documented. The final version approved by all parties should be clear and concise.
4. Execution: When all the parties involved have signed the relevant documents (either on paper or digitally) the contract comes into effect and becomes legally binding and enforceable. In order to avoid any misunderstandings, all relevant parties should be made aware of their contractual obligations.
5. Monitoring: After the contract comes into effect, it must be administered and monitored. This should include ensuring that the terms are complied with and addressing any deviations or discrepancies.
6. Expiry/renewal: When a contract comes to an end, the parties need to consider whether it should be terminated or renewed. When a contract is renewed, it may be extended on the existing terms. Alternatively, the original terms may be modified or renegotiated.

Why contract lifecycle management is important

Effective contract lifecycle management can play an important role in increasing efficiency and reducing operational costs. By establishing a clear contract management process and upholding it with the help of a CLM system, companies can ensure that their contracts are managed consistently and effectively.

Digitizing the CLM process offers particularly compelling benefits, allowing companies to automate routine tasks like contract creation or administration. It reduces the need for manual input, speeds up the entire contract process, and consolidates disparate contract-related functions into a single system.

Other benefits of CLM include the following:

• Streamline onboarding: Although contract lifecycle management and onboarding are seen as separate processes, CLM systems can help streamline, standardize, and strengthen the onboarding process for new buyers and suppliers.
• Improve risk management: By adopting a more conscious approach to CLM, companies will also be better placed to identify and assess buyer and supplier risk, implement controls and contingency plans, and ensure compliance with standards and regulations.
• Strengthen business relationships. By ensuring that contracts reflect the expectations and needs of both parties, businesses will be better placed to build mutually beneficial and lasting relationships that help to optimize their future performance.

Contract lifecycle management’s role in supply chain management

Contract lifecycle management is a key component of supply chain management. As such, there is an opportunity for companies to optimize their operational performance by increasing the effectiveness of their CLM process.

A revised CLM strategy should be oriented around existing supply chain management objectives to achieve broad-reaching benefits. If a business’s key supply chain objective is to lower supply chain costs, for instance, its CLM strategy should be focused on improving financial terms in contracts and reducing contract management costs.

CLM software can also be part of a broader supply chain management technology suite. Integrating CLM software with other systems, such as customer relationship management (CRM) platforms, supplier databases, and cash flow analytics platforms, gives companies a single source of truth for supply chain information across the business.

Improving supply chain resilience with CLM

CLM can also mitigate supply chain risk and improve business resilience against external threats, making it especially important in challenging economic or geopolitical environments.

In times of uncertainty, a reliable and effective CLM process can play a critical role in maintaining strong relationships with buyers and suppliers, ensuring that the flow of goods and services continues smoothly.

This, combined with CLM software’s improved contract performance insights, reinforces an organization’s ability to protect itself from supply chain disruptions.

By facilitating mutually beneficial supplier and buyer relationships, effective CLM can contribute to a stronger and more resilient supply chain that is well-equipped for today’s rapidly evolving business environment.

Cash is King – The importance of working capital optimization for 2024

This decade-old saying could not be more relevant in 2024: Cash is King.

Free cash flow and measures to improve working capital stands out as a top priority for CFOs due to its profound influence on a company’s financial resilience, competitive edge, and capacity to generate sustainable value for stakeholders. This emphasis is particularly crucial amidst the ever-evolving and unpredictable landscape of modern business.

Inefficient working capital management can:

1. Limit a company’s flexibility to take advantage of opportunities, including M&A, or weather financial downturns. Lack of available cash may prevent investments in growth initiatives or hinder the ability to respond to unexpected expenses.

2. Lead to higher interest expenses and borrowing costs, reducing profitability.

3. Delay payments to suppliers, which can lead to supply chain disruptions.

4. Face the risk of insolvency or bankruptcy, especially during economic downturns or periods of financial stress.

Overall, working capital optimization is crucial for maintaining financial health, ensuring operational efficiency, and supporting long-term sustainability and growth for businesses. Yet, optimizing working capital is not always as easy as it may sound and require cross-departmental collaboration to optimize working capital end-to-end. Companies need to be resilient to face risks and always look for driving efficiencies.

1. Having a reliable basis to track and forecast cash flow that allows continuous improvements. Advanced forecasting tools leverage machine learning algorithms and artificial intelligence techniques to analyze large datasets, identify patterns, and make predictions with greater accuracy. These tools can adapt to changing conditions.
2. Drive a cash flow-driven company culture which makes it a key priority to constantly improve cash flow and Identify cost-saving opportunities across all areas of the business, such as renegotiating contracts with vendors, optimizing energy usage, and eliminating unnecessary expenses. Lowering operating costs conserves cash and improves profitability.
3. Drive end-to-end working capital process improvements: This starts with eInvoicing, automating payment runs in ERP and also includes highly automated collections and dispute management processes. Having the right cloud solutions in place that can optimize working capital end-to-end is imperative in 2024, given its pivotal role in enhancing operational efficiency, reducing errors, and accelerating cash flow cycles. This strategic move is essential to stay competitive and agile in an era characterized by rapid technological advancements and evolving customer expectations.
4. Use Working Capital Financing as a strategic lever to improve working capital metrics and create higher resilience in uncertain times. Modern Financing platforms allow you to not only improve working capital targets but also provide flexibility to adjust between different strategies in an agile way to cater for changes in the economic environment without the need of long implementation and roll-out timelines. Moreover, they help to create financial resiliency along the value chain and thus provide benefits to suppliers as well as customers to make it a win-win-win.

Change is the only constant

While the last years will go into the history books with high inflation rates and recessionary signs in many regions, there are indications that global economies have seen the worst of inflation, and interest rates are expected to stabilise, leading to a fragile but optimistic view of economic growth. The outlook certainly remains uncertain and it is clear: modern working capital processes need to allow for agility and the ability to manage the needs very closely.

While cash and working capital is king, there are certainly additional priorities for CFOs in 2024. SAP has just released the e-book CFO Perspectives: Unlocking Insights Through Conversation – 2024 Challenges and Perspectives.

I recommend downloading it and getting valuable insights from top SAP and SAP Taulia professionals.

Curious to know more? My colleagues and I are sharing insights on:

• What are the top priorities for CFOs in 2024?
• Why should companies create an effective working capital strategy in 2024?
• How are ESG and working capital management connected? Why do CFOs need to outline strategies involving ESG and working capital management in 2024? What are the benefits of this unified strategy?

I love to hear from you what your 2024 priorities are. Let’s get ready for 2024 and beyond! Download the e-book here:

7 ways to strengthen your supply chain while driving growth

The results of our 2023/24 Supplier Survey delivered some key insights on how businesses are strengthening their supply chains to drive business growth in challenging circumstances.

Businesses continue to find a wide range of challenges in the current environment, from geopolitical uncertainty to higher interest rates and inflationary pressures. But while navigating these obstacles, they’re also focused on harnessing opportunities for growth.

Taulia’s recently published 2023/24 Supplier Survey provides a snapshot of how these challenges manifest in reality, including what specific problems they cause for businesses around the world. It also provides insights into the measures they are taking to overcome them.

Over 11,000 businesses took part in the survey, from SMEs to large corporations. And the results seem to indicate that to balance business resilience with ongoing growth, companies need to strengthen supply chains and ensure they’re as robust as possible.

With this in mind, the following seven strategies can help companies drive growth in a challenging economic environment while continually strengthening their supply chains.

1. Harness opportunities for growth

One of the key findings from our survey was that 85% of respondents viewed the business environment in the coming year with positivity, with almost half (48%) focusing on growth.

Companies wishing to target growth should prioritize areas where the business has a competitive advantage. This might mean concentrating on core products and developing adjacent areas of business, while scaling back on areas that may be less profitable. Companies can also target new and fast-growing markets without losing sight of the need to retain local market share.

At the same time, companies can position themselves for success by making efforts to cut costs (without sacrificing quality) and pivoting their activities where necessary.

2. Mitigate the effects of inflation

While targeting growth, companies also need to manage the effects of inflation on their businesses. Impacting profitability and cash flow, inflation can pose an existential threat to even the most established and successful of companies. And while inflation may have reduced since the record levels seen in 2022, it remains above target rates in markets such as the US and the UK.

By monitoring inflation and interest rate trends closely, and assessing their impact on costs, companies will be better placed to adjust their pricing and financing strategies. In some cases, companies may adopt inventory management solutions such as vendor managed inventory (VMI) to purchase goods at today’s prices that can be sold later. Other key steps include regularly reviewing inventory levels and streamlining accounts receivable processes.

Companies also need to be mindful of the impact of inflation on their suppliers. In an inflationary environment, extended payment terms can mean that when a supplier receives payment for an invoice, the total value has already been somewhat eroded.

This was reflected in Taulia’s survey, with 50% of respondents mentioning inflation as a top-of-mind issue. By offering early payments via programs such as supply chain finance, companies can mitigate the impact of inflation on their suppliers.

3. Optimize financial planning and cash flow management

When focusing on growth, it’s important for businesses to plan ahead – and this means reviewing present activities and future goals, as well as evaluating current and projected resource needs, particularly in an environment fraught with economic uncertainties.

Companies also need to have a comprehensive cash flow management strategy in place to monitor, manage, and maximize cash flow over time. This may include taking steps to shorten the cash conversion cycle (CCC) by offering early payment discounts or chasing overdue accounts more proactively.

Where payables are concerned, companies might choose to increase their days payable outstanding (DPO) by delaying payments – but this can have a negative impact on suppliers. Alternatively, solutions like supply chain finance can support both buyers and suppliers.

4. Digitize supply chain management

Companies with large or complex supply chains can find it difficult to oversee and manage their suppliers and maintain effective relationships. By deploying suitable digital supply chain management solutions, buyers will be better placed to source and onboard suppliers efficiently, negotiate contracts, and measure supplier performance against agreed KPIs.

Effective monitoring can mitigate any failures that could result in disruption to the company’s operations while ensuring that suppliers are paid on time for the goods and services supplied. Meanwhile, supplier self-service tools can help improve supplier relationships by minimizing mistakes and speeding up dispute resolution.

5. Minimize supply chain risk

Risk can come in many forms and, as recent events have demonstrated, supply chains can be vulnerable to external disruptions such as natural disasters, conflicts, and pandemics, with the possible impact of such disruptions ranging from product shortages to changes in customer behavior. Our survey found that 22% of respondents were concerned about supply chain disruption, while 20% cited geopolitical challenges.

Even without major disruptions, pressures on suppliers can lead to fluctuations in the cost of raw materials, products, and services. To address these challenges, organizations should focus on improving the resilience of their supply chains, gaining greater visibility across the supply chain, diversifying suppliers, and developing alternative sourcing options.

6. Address late payments

Between 2016 and 2019, our previous supplier surveys indicated that late payments were gradually declining – however, that trend has now reversed. According to this year’s survey, over half of suppliers are being paid late by their customers on average, with only 44% receiving payment either early or on time.

From the buyer’s perspective, the reasons for delaying payments may range from simple oversight to a tactical decision to extend DPO. However, delaying payment can have harmful consequences, both for suppliers and for buyers themselves. A company that pays suppliers late can damage supplier relationships and create an impression of being in financial difficulty. It may even lead to less favorable pricing in the future.

Smaller businesses are less equipped than larger organizations to withstand adverse economic circumstances and can be heavily reliant on receiving prompt payment. By paying suppliers in a timely fashion, buyers can strengthen their relationships with suppliers and improve their ability to negotiate better deals.

7. Leverage early payment solutions

With late payments looming large for suppliers, it is no surprise that interest in accessing early payments via Taulia’s platform continues to grow. The survey found that 25% of suppliers expressed an interest in taking early payments, every time and for every customer. Meanwhile, 61% said they were interested in taking early payments at least some of the time.

Buyers can meet their suppliers’ appetite for early payments by offering programs such as supply chain finance and dynamic discounting:

• Supply chain finance (SCF) allows suppliers to receive early payment on invoices and enables buyers to extend payment terms if necessary. Suppliers can access funding based on the credit rating of the buyer (rather than their own), and it is typically at a lower cost than other forms of financing.

• Dynamic discounting (DD) enables suppliers to receive early payment in exchange for a discount. The amount of the discount depends on how early an invoice is paid – the earlier the payment, the greater the discount. For buyers, these discounts mean a lower cost of goods, representing a risk-free return on their cash. For suppliers, early payment discounts speed up customer payments, improving cash flow and reducing days sales outstanding (DSO).

Crucially, companies may have different needs at different times due to factors such as seasonality or changes in their business strategy. A flexible early payment solution offers the ability to switch between self-funded dynamic discounting and third-party-funded supply chain finance – or even to run both programs simultaneously.

Working together

A strong and healthy supply chain is in the interests of both buyers and suppliers. Smaller businesses tend to be more flexible and better able to respond quickly to changing market conditions – but they can also be vulnerable to delays in the receipt of payments. Many have limited access to affordable credit, making it difficult to ride out adverse conditions or build reserves.

By working with suppliers to overcome these challenges, buyers can strengthen supply chain resilience and protect their own operations from the risk of disruption while facilitating growth. Treating suppliers like partners not only helps build strong relationships but is also vitally important to the health and success of the business.

To find out more, read Taulia’s 2023/24 Supplier Survey.

CFO challenges in 2024: from economic headwinds to global elections

Among the numerous challenges for CFOs around the world in 2024, there’s no doubt that macroeconomic factors will continue to loom large.

Research by Taulia found that 42% of finance leaders cited inflation as their greatest worry for 2023 – and although the threat of sky-high inflation may have abated in recent months, economic conditions look set to remain tough in the year ahead.

While the UK slipped into a technical recession in late 2023, the US could avoid following suit. That said, GDP growth is forecast to be “well below potential” due to the lagged impact of previous monetary tightening, according to the Q1 2024 US Economic Outlook by Capital Economics.

The EU economy, meanwhile, “entered 2024 on a weaker footing than previously expected,” according to the European Commission’s Winter 2024 Economic Forecast.

But while these concerns are not insignificant, CFOs are also facing other headwinds this year – not least of which is the prospect of political upheaval.

Over 64 elections are scheduled around the world in 2024, with a record 3-4 billion people – around 49% of the earth’s population – taking to the polls in a single year. The results of these elections will shape the political landscape for years to come.

Political decisions can significantly affect economic stability, with lasting effects on macroeconomic factors such as inflation (and its impact on purchasing power), as well as on interest rates, borrowing costs and market conditions. So where does all this leave the CFO?

Addressing economic challenges: the CFO’s role

The CFO has a vital role to play in helping firms navigate economic uncertainty. As well as overseeing financial planning and risk management activities, a CFO needs to be able to make well-informed strategic decisions and ensure that the company is equipped to mitigate any periods of disruption that may occur.

To do all this successfully, CFOs need to have the right tools and technology at their fingertips. Looking back to 2023, our research found that almost half (48%) of the CFOs surveyed were planning to invest more in IT infrastructure.

US companies were particularly focused on investment, with 53% of American CFOs expecting to invest in digital infrastructure, compared to 47% in the UK.

At the same time, most respondents said that working capital was important to their firms’ overall allocation strategy. As such, companies were taking steps to improve their working capital management practices across payables, receivables, and inventory.

At a global level, 55% had adopted inventory management solutions, while half had deployed early payment programs, and 41% were selling receivables.

In 2024, such solutions will continue to play a valuable role in helping companies improve relationships with key suppliers, unlock cash and secure access to the raw materials and goods they need to operate.

Shoring up supply chains

Navigating product shortages and periods of supply chain disruption has become an all-too-familiar challenge for companies over the last few years – and in the year ahead, CFOs will be alert to any new issues that might arise.

With 30% of CFOs identifying supply chain disruption as their greatest concern in 2023, it’s no surprise that financial leaders were also taking steps to shore up their supply chains.

Eighty four percent had revised their sourcing strategies in the last year, while 55% of respondents in the U.S. were looking at strategies such as reshoring and nearshoring. In Singapore, meanwhile, 35% of respondents were looking to change suppliers but remain in the same region.

A balancing act

In today’s landscape, it’s no surprise that CFOs are continuing to focus on the challenges presented by political instability and geopolitics. In the coming months, CFOs are likely to pay close attention to the evolving geopolitical environment, from the impact of world events on energy costs to fluctuations in supply and demand.

However, since world events of this type are outside the control of CFOs and business leaders, they can only plan to act in response to such events.

That’s not to say they can’t keep ahead of the curve in other ways. By making decisions such as investing in digital transformation, and gaining more visibility over their cash flows, finance leaders can make sure their companies are well positioned to navigate periods of volatility and adapt to supply chain disruptions.

There are two key trends unfolding that CFOs are paying attention to in order to ensure they’re operating at the cutting edge:

• Tech-assisted decision making: As businesses look ahead, technological investments will remain a big focus for CFOs. By adopting new technologies and harnessing digital innovation in the form of predictive analytics and data driven business management systems, finance leaders will be better able to gain a centralized view over their cash flows and make more effective decisions about their liquidity.

• Harnessing GenAI: Likewise, they are paying close attention to the arrival of generative AI (GenAI) and the opportunities this could bring for helping their businesses create efficiencies, speed up innovation and build a competitive advantage. According to Deloitte’s CFO Signals survey from Q3 2023, 42% of the North American CFOs polled said that their companies were experimenting with GenAI, while 15% were building it into their strategies. Nevertheless, two thirds added that less than 1% of their 2024 budget would be spent on the new technology.

Meanwhile, CFOs will also need to find an equilibrium between keeping costs under control and investing for growth. In a challenging business environment, businesses need to keep costs under control – but they also need to set their sights on harnessing growth opportunities, and balancing these priorities isn’t always straightforward.

According to the August 2023 PwC Pulse Survey, 89% of CFOs said that striking the right balance between cost-cutting and investing was a top challenge to transformation.

The year ahead

In summary, there will be no shortage of issues jostling for CFOs’ attention in the coming months. Upcoming global political activity could further contribute to existing economic challenges, while the risk of supply chain disruption will continue to loom large for companies that have weathered numerous unexpected events over the last few years.

In this environment, where CFOs face diverse challenges, it’s more important than ever that they use all the tools at their disposal to maximize financial health. That means using technology to increase visibility over their cash flows, optimize working capital and bolster supplier relationships.

To find out more, take a look at our recent report: Charting CFO paths: 2023-24 insights report

A guide to digital supply chain management

The emergence of tools and techniques that facilitate digital supply chain management has opened up brand new possibilities for companies looking to make the most of their supply chains. Here’s everything you need to know about it.

A company’s supply chain consists of the entire chain of activities involved in creating a product, from sourcing raw materials to delivering finished goods. Supply chain management (SCM) is integral to many of a company’s core operational functions, such as inventory and cash flow management. It’s also intrinsically connected with the overall performance and profitability of the business.

Improving your approach to supply chain management can, therefore, benefit your business as a whole, and adopting a digital supply chain management strategy can help you do that.

What is digital supply chain management?

Digital supply chain management involves the use of technology to gain real-time visibility over the health and efficiency of a supply chain. By using technology to monitor supplier performance, inventory levels, and customer spending patterns, businesses can make better use of resources, protect against disruption, and promote deeper, more collaborative supplier relationships.

Although traditional supply chain management may include the use of technology, it still largely relies on time-consuming and inefficient manual processes. Digital supply chains, in contrast, employ integrated systems that can work together seamlessly, increasing transparency and breaking down silos between different parts of the supply chain.

Traditional supply chains tend to be linear, static, and prone to human error. On the other hand, effectively digitalized supply chains are network-based, dynamic, and highly adaptive.

Key digital supply chain features

Virtually all aspects of supply chain management can be digitalized. That said, there are three areas that are most often prioritized in digitalization projects: supplier management, inventory management, and the accounts payable/receivable functions.

Digital supplier management

The primary goal of supplier or vendor management is to keep the supply chain operating smoothly by overseeing and nurturing supplier relationships and minimizing risks. This process can be digitalized by adopting a centralized solution that covers all aspects of supplier management and streamlines communication with suppliers.

By capturing and collating important data about their suppliers, businesses can speed up the onboarding process and monitor and analyze performance.

Companies can also harness supplier self-service and automated validation tools to minimize mistakes, build trust with suppliers, and avoid – or rapidly resolve – any disputes.

Digital supplier management solutions can also include digitalized procurement, whereby purchases are tracked from a central purchasing dashboard and measured against a variety of procurement KPIs.

End-to-end inventory management

Digital inventory management tools can provide end-to-end inventory visibility, allowing businesses to track goods and materials throughout the supply chain. By embracing end-to-end inventory management, companies can also use techniques like vendor-owned inventory, whereby suppliers retain ownership of their inventory while it is located at the buyer or retailer’s premises.

In other cases, long lead times can make it difficult to estimate future inventory levels against forecasted demand. One option is to adopt inventory management solutions that can take ownership of warehoused or in-transit goods to give businesses access to nearby safety stocks.

Supplier management features can also make it easier for companies to respond promptly to adverse circumstances, such as the failure of key suppliers, and rapidly reconfigure their supply chains by switching to backup suppliers.

Digitalized accounts payable/receivable

Companies can increase their visibility over upcoming cash inflows and outflows by digitalizing accounts payable (AP) and accounts receivable (AR). This, in turn, can lead to greater control over cash flow and a more accurate view of the company’s financial health. Companies can gain further cash flow benefits by taking advantage of solutions such as supply chain finance, dynamic discounting, and accounts receivable financing.

By reducing the need for human input, AP and AR automation can help companies reduce costs, increase accuracy, minimize accounting errors, and free up staff to perform more strategic tasks. AP and AR automation can also help to digitalize the cash flow forecasting process by reducing the need to obtain data manually from different sources. As such, it can result in more accurate and useful cash flow forecasts.

The benefits of digital supply chain management

Digital supply chain management can result in a number of benefits, including:

• Faster, more accurate fulfillment: Digital inventory and supplier management tools such as RFID (Radio Frequency Identification) and IoT (Internet of Things) sensors can track inventory levels in real time, ensuring that the business maintains the optimum level of stock. The more streamlined a company’s supply chain, the better placed it will be to absorb any supply chain disruptions and ensure that orders continue to be fulfilled.
• Increased flexibility/adaptability: In traditional supply chains, identifying potential issues can be laborious and time-consuming. With digital supply chain management, companies can anticipate problems quicker and respond in a more flexible way. As such, companies can adapt more rapidly to changes in the economic landscape and maintain their focus on core business goals.
• Improved supply chain efficiency: The automation involved in the digitalization of SCM can increase supply chain efficiency in two important ways. For one thing, automation results in more accurate information, which reduces the need for manual input as well as the risk of human error. In addition, digitalization can speed up activities such as supplier communication and dispute resolution. This results in less frequent disputes, and when they do occur, they are likely to be resolved faster and more satisfactorily.

Avoiding digital supply chain risks

Although digital SCM can directly benefit businesses by giving them much more control over their supply chains, there are associated risks to be aware of.

The most critical is that a digitalized supply chain naturally increases the risks presented by cyber threats, giving potential hackers access to more sensitive information. However, businesses can minimize this additional risk by choosing a reputable software provider, setting stringent access control limits, carrying out regular cyber risk assessments, and investing in cyber security training.

On another note, companies may need to address any potential reluctance from suppliers when it comes to being onboarded onto new systems. This can be achieved by communicating the change clearly and effectively to suppliers long before the switch actually happens to explain the benefits of their chosen systems, such as reduced manual processes and shorter cycle times.

While it’s important to be aware of these risks, they’re balanced against the significant potential benefits of digital supply chain management. Choosing a centralized, intelligent, and transparent platform such as Taulia can offer all the benefits of digital SCM while minimizing the risks.

Five trends and priorities for CFOs in 2024

From the Covid pandemic to geopolitical risk, it’s fair to say the last few years have brought more than their fair share of challenges for global businesses. So, which topics are top of mind for CFOs and finance leaders as 2024 begins? And how has this picture changed in the last 12 months?

From the risk of recession to the backlash against ESG, here are five key trends and priorities that CFOs will be focusing on in the year ahead:

1. Inflation and the macroeconomic landscape

Rene Ho, CFO of Taulia, identifies “Interest rates, political instability, potential recession” as three items that are currently top of mind for CFOs around the world – and these are all certainly themes that have characterized the business landscape for the last year.

In late 2022, Taulia surveyed 550 CFOs and financial decision-makers in the US, UK, Germany, and Singapore about their top concerns for 2023. Given the record inflation rates that had been seen months earlier in the UK and the US, it was no surprise that inflation was looming large, with 42% of respondents highlighting the issue as their biggest concern.

The survey also found that CFOs were taking a number of actions to mitigate the impact of a possible recession, including cost- cutting (39%), implementing automation technology (37%), and implementing supply chain management technology (37%).

In reality, inflation subsided somewhat as 2023 progressed, with the OECD predicting that inflation in the US will fall to 2.8% in 2024. But the risk of economic uncertainty and recession remains – and as Thomas Mehlkopf, General Manager and Head of Working Capital Management CoE at SAP, points out, “Given the recessionary environment, almost all companies have a huge pressure to improve the bottom line.”

2. Business opportunities

While managing costs is an important consideration in the current climate, CFOs are also setting their sights on growth. Our research found that 83% of CFOs were increasing their budgets for 2023, with almost half (48%) planning to invest more in IT infrastructure. Investment was also planned in areas such as employee training and development (39%) and data management technology (38%).

Fast forward to today, and CFOs are continuing to focus on investing in growth and digital transformation. While many are paying close attention to emerging technologies such as generative AI and machine learning, gaining more control over cash flows is a recurring theme.

As Mehlkopf points out: “There are quite a few companies that still don’t have a centralized view on their cash flow, or the ability to plan their liquidity. We see that due to current pressures, many companies are investing in tools to support transparency and planning.”

3. Supply chain disruption

For Simon Neville, former Group Treasurer of Reckitt Benckiser Group and Centrica, “security of global supply chains and supplier relationships” are among the key CFO priorities for 2024.

Supply chain challenges were a recurring theme during the pandemic, with the global chip shortage and the Russia-Ukraine conflict contributing to the disruptions experienced in recent years. Unsurprisingly , 30% of CFOs predicted supply chain disruption as their greatest business challenge for 2023.

Against this backdrop, it’s no surprise that companies have been focusing on reviewing their sourcing strategies and exploring options such as reshoring and nearshoring as a risk management strategy. In the US, our research found that over half of businesses were looking to reshore/nearshore in 2023.

For some companies, the threat of supply chain disruption has become less pressing in recent months: a report by Dun & Bradstreet found that only 16% of business leaders cited supply chain disruption as a major threat in the coming year.

Nevertheless, S&P Global warned in November that there are “significant risks” concerning the supply chain industry outlook for 2024 – and in the meantime, companies are continuing to step up their efforts to work with suppliers closer to their production sites.

4. Working capital management

Working capital management is a universal concern for CFOs, with almost all respondents to our 2022 survey reporting that working capital was important to their firm’s overall allocation strategy. Fifty- five percent of those surveyed said that they had adopted inventory management solutions, while half had deployed early payment programs.

The importance of working capital is unlikely to have abated in the last year: rising interest rates in 2023 increased the pressure for companies to free up cash, while the largest UK companies experienced worsening performance across working capital metrics, according to research by The Hackett Group.

“While working capital might not have been a focus for many companies during the recent years of very low interest rates, this has completely changed,” comments Mehlkopf. “Companies have had to pile up stocks again given recent supply chain shocks. Moreover, access to liquidity has become significantly more expensive.”

5. Sustainability/ESG

Where sustainability and ESG are concerned, companies are increasingly having to balance competing priorities. In our 2022 survey, 32% of respondents said improving ESG credentials was their greatest business opportunity in the coming year – but for 61%, the macroeconomic environment meant that ESG efforts were being deprioritized.

Over the last year, the conversation about ESG has become even more polarized. On the one hand, regulatory developments such as the European Commission’s Corporate Sustainability Reporting Directive (CSRD) are ramping up the pressure on companies to provide more scrutiny over their ESG disclosures.

But as a blog post by the Harvard Law School Forum on Corporate Governance noted, there has also been some evidence of a backlash against ESG practices, including the Supreme Court’s June 2023 ruling against the use of race in college admissions.

Nevertheless, ESG and sustainability continue to be a major focus for businesses. The August 2023 PwC Pulse Survey found that 37% of CFOs saw climate change as a serious or moderate risk for their companies – and research published by deVere Group found that 56% of investors were planning to increase their allocations to ESG investments in 2024.

To find out more, read the full report: Charting CFO paths: 2023-24 insights report

Navigating seasonality: How flexible funding can help your business

As we enter the new year, the busiest — read craziest — time of the retail season has ebbed away, ushering in the next phase of the retail year — the eventual post-holiday slowdown. Seasonality and financial stability are top of mind for many CFOs.

Now is a perfect time to reflect on the cyclical nature of consumer demand throughout the year, which can pose significant challenges, leaving many businesses grappling with cash flow issues and funding gaps.

In this blog, we’ll discuss the intricacies of seasonality and explore the role that Flexible Funding 2.0 could have in helping businesses weather seasonal cash flows, ensuring they maintain and optimize liquidity while also being able to support their suppliers and strengthen supply chains.

Understanding seasonality

The first crucial step in effectively managing seasonality is ensuring a deep understanding of how and when it will impact your business. Identifying peak and off-peak periods enables firms to strategize and plan for the inevitable highs and lows, whether adjusting inventory levels or managing receivables and payables. Staffing and marketing efforts can also be heavily impacted.

A clear grasp of seasonality empowers businesses to make informed decisions to manage and mitigate its effects actively. In particular, the retail (food, clothing, and household appliances), hospitality, and travel/airline sectors will often see massive swings in working capital and related cash flows.

Navigating the ups and downs of seasonal changes is essential for the function of every treasury department. Treasurers often have the difficult task of shaping a company’s strategies to embrace the highs and navigate the lows — a frequently thankless task, ignored when everything is running smoothly, and intensely interrogated when difficulties occur.

Whether tweaking the components of working capital, optimizing staffing levels, or refining marketing spend, a genuine understanding of seasonality empowers businesses to make well-informed and value-adding decisions. Significant shifts in working capital occur throughout the year for sectors like retail, hospitality, and travel, underscoring the importance of approaching these challenges with data to help develop and build on historical insights and trading patterns.

Funding challenges

Due to the inherent revenue and cash flow fluctuations, highly seasonal businesses can be particularly exposed to a short-term and relatively sudden liquidity squeeze that often requires careful planning and proactive management.

However, while reliable in stable conditions, traditional funding sources may prove inadequate or inflexible when faced with the erratic nature of seasonal demand patterns. These challenges can hinder growth opportunities, leaving businesses unable to capitalize on the peak seasons or struggling with liquidity following high-transaction periods.

Funding solutions

Short-term funding solutions help bridge funding gaps or better utilize cash surpluses that can often emerge during periods of seasonality or volatile cash flow periods. Whether it’s investing in additional inventory to meet peak demand, launching targeted marketing, supplier support campaigns, or covering operational expenses during a slow season, financial tools such as inventory and invoice financing or supply chain finance (SCF) can help businesses manage and optimize during short-term periods of cash volatility.

Traditional forms of short-term funding, such as receivables financing, cash advance payments, and SCF, have provided businesses with much-needed liquidity in times of need, but they are not without drawbacks. For instance, while receivables financing or cash advances may allow companies a quick way to access funds, they can also come with high costs and fees. They might also cause longer-term damage to your trading relationships, whether with your bank or your suppliers.

There are also scale issues when it comes to traditional SCF programs, which are limited by low uptake across the supplier base, making the benefits much harder to realize — especially at a moment’s notice.

This is where Taulia’s Flexible Funding 2.0 solution can be utilized.

Flexible Funding 2.0 allows companies to seamlessly shift between utilizing their own excess funds for early payments in Dynamic Discounting or accessing third-party funding through Supply Chain Finance. In Flexible Funding 2.0, the system automatically draws from the appropriate funding source for each invoice based on the customer’s predefined liquidity limits. An added advantage is the ability for a company to share its so-called “wallet” across a wider and more diverse group of funders.

Benefits of flexible funding

Flexible Funding 2.0 helps optimize cash management by aligning with organizations’ cyclical or seasonal demand for early payments. Taulia’s team collaborates with buyers to understand the trends in cash flow and build a tailored, Flexible Funding model that works to maximize returns while ensuring suppliers have their demand for cash flow met.

Recognizing both suppliers’ and buyers’ needs, it ensures efficient use of excess cash, preventing potential constraints on funding and safeguarding the organization’s liquidity by seamlessly transitioning to third-party funds when liquidity limits are reached.

Unlike many traditional short-term funding options, Flexible Funding 2.0 benefits both buyer and supplier. Flexible Funding 2.0 serves as a cash conservation tool for buyers, allowing corporate treasuries to adjust cash levels strategically or to optimize key financial metrics such as DPO.

Buyers deploy excess cash for self-funded early payments, a risk-free and win-win way to capitalize. The system ensures reliable liquidity, optimizing returns by maintaining supplier trust and offering financial optionality through configurable Liquidity Limits.

For suppliers, Flexible Funding 2.0 ensures reliable cash flow, eliminating concerns about interruptions in liquidity that might affect their ability to meet customer demand. Funding remains constant whether the buyer opts for self or third-party financing.

This consistent support fosters stronger buyer-supplier relationships, promoting collaboration and trust. Moreover, it enables growth by providing suppliers with a predictable stream of cash, allowing for confident planning and strategy implementation in uncertain business environments.

In creating this harmonious payment ecosystem, treasury can play a vital role in accomplishing broader business objectives across the organization. By providing stable cash flow into and out of the business, treasury builds a stable base for other functions within the company. For counterparts in Procurement, for instance, where supplier relationship management is essential to operations, smoothing transactional flows can increase productivity and contribute to making the business more competitive in its market.

In essence, with Flexible Funding 2.0, Treasury becomes a solution driver and business partner.

In the ever-changing landscape of business, seasonality will remain a challenge. Armed with accurate seasonality data and the strategic use of Flexible Funding, businesses can transform the challenges into opportunities for growth and greater success.

By understanding the nuances of seasonality and embracing solutions like Taulia’s Flexible Funding 2.0, businesses can ensure they are well-equipped to handle the inevitable peaks and troughs and support their supply chain. The benefits extend beyond financial support, offering improved cash flow management, reduced risk, and increased overall stability. In the end, businesses that leverage a Flexible Funding model can build more resilient and competitive supply chains.

Treasurer’s top of mind: Navigating the ESG landscape

In a world that’s increasingly conscious of environmental, social, and governance (ESG) issues, companies are finding themselves at the forefront of a transformation towards sustainability. ESG initiatives are no longer just buzzwords; they are becoming integral to a company’s success and reputation. In this blog, we’ll delve into the world of ESG, from its foundational principles to the future of ESG and treasury.

ESG initiatives: The starting point

ESG programs often begin with Sustainable Key Performance Indicators (KPIs). These KPIs drive ESG progress and are instrumental in guiding a company’s sustainability journey. In most companies, determining these KPIs and leading ESG transformations typically fall under the purview of the procurement division.

Leading ESG initiatives can often be challenging for treasurers, as they are often one step removed from the core business operations. Instead of direct involvement, a best practice is for treasurers to focus on developing financial structures that enable their companies to meet ESG KPI metrics.

The modern treasurer has several tools at their disposal to analyze and structure metrics. Focusing on success criteria is critical, given meeting defined metrics can lead to benefits while missing targets can often result in penalties. Various financing options are available to support ESG goals, including Supply Chain Finance (SCF), green bonds, ESG-linked securities, and ESG KPI-linked credit facilities.

However, a major concern in the ESG landscape is “greenwashing,” where financing is linked to ESG KPIs without substantial environmental impact. A best practice is to focus on clear, objective KPIs and to avoid overleveraging the same KPIs across multiple facilities.

Scope three emissions, which encompass emissions not produced by the company itself and are not the result of activities from assets owned or controlled by the company, pose a unique challenge. Often, they are difficult to quantify and verify, making third-party assessments or external audits essential for monitoring progress in this area.

Different stages of the ESG journey

Companies vary in ESG progress, with many still not having defined KPIs to those who have already implemented ESG-linked financing and bonds. However, for many companies, the journey to ESG success looks similar. The company will start with planning and assigning responsibilities, then will define its corporate KPIs, once these have been established, the final stages usually include ESG-linked financial instruments.

These financial instruments are often tied to scope one and two emissions (direct emissions), which the company has more control over; however, there is a growing focus on scope three emissions serviced by ESG-linked early payments. Every company will have unique ESG goals, ranging from eliminating coal exposure to promoting sustainable aviation fuels and reducing energy consumption, and the financial instrument chosen to support the initiative will have to align with the goals.

ESG pricing structures: Aligning incentives

ESG pricing structures are designed to incentivize positive ESG actions by connecting financial rewards to improvements in predefined KPIs and penalizing the opposite. These initiatives can attract funding from new investors, as seen with ESG bonds. However, the willingness of investors is often influenced by market conditions, and market volatility sometimes overshadows ESG considerations.

For supply chain pricing structures, programs often involve raising fees for non-compliant suppliers, lowering fees for compliant suppliers, maintaining lists of compliant and non-compliant supplier categories, and exploring joint ESG marketing opportunities with compliant suppliers. These mechanisms are essential for fostering ESG compliance throughout the supply chain but can be extremely labor-intensive without adequate technology solutions.

Targeting the right partners

For most companies, the majority of ESG improvement opportunities lie in their downstream supply chains. Decisions about which segment of suppliers to target for ESG improvements are central to a company’s ESG strategy. These segments may include suppliers impacting sustainability, such as those contributing to carbon emissions, or those focused on diversity, equity, and inclusion (DE&I).

However, supplier segmentation poses challenges in terms of identifying relevant suppliers and effectively allocating resources to track and reward smaller suppliers for ESG compliance – crucial elements for holistic sustainability. Pinpointing which suppliers are most pertinent requires a nuanced evaluation of factors like operational impact and alignment with ESG goals.

Resource allocation must strike a balance, ensuring sustainability initiatives reach both larger and smaller suppliers. Tracking compliance, especially for smaller suppliers, demands transparent reporting systems, while incentivizing adherence is key to fostering positive change.

To address these challenges, companies can implement advanced data analytics for supplier assessment, establish clear communication channels for reporting, and create incentive programs, such as preferential treatment or long-term partnerships, to reward and encourage ESG compliance across the supply chain.

Future of ESG and treasury

The current market sentiment strongly suggests that ESG and green transactions will become the norm. Companies that do not incorporate ESG requirements into their goals risk exclusion from partnerships with ESG-focused organizations. We increasingly expect banks and treasury teams to demand ESG compliance for most future business dealings.

ESG-linked financing solutions will soon be expected components of standard financing or structured financing offerings. Technology will play a vital role in tracking and monitoring ESG KPIs, particularly for sustainable supply chain finance, where thousands of suppliers need to be managed and reputable third-party rankings linked to companies.

ESG initiatives are no longer optional but necessary for companies aiming to thrive in an evolving business landscape. Understanding ESG principles, aligning incentives, and forging partnerships with the right suppliers are all critical steps on the path to sustainability and success. The future is ESG-focused, and companies must adapt to remain competitive and responsible global citizens.

Creating a more effective working capital strategy

The working capital strategy you choose – and how fine-tuned it is to meet your business objectives – can have a major impact on overall operational success.

With an effective working capital strategy, companies are better placed to meet their short-term operating costs and debt obligations, achieve important business objectives, and fund expansion. So, what should companies bear in mind when creating their working capital management strategies?

Understanding working capital

Defined as the sum of a company’s current assets minus its current liabilities, working capital plays a crucial role in enabling companies to fund their day-to-day activities.

With insufficient working capital, businesses can struggle to maintain standard day-to-day operations. This can result in them failing to meet obligations as they fall due, which may result in lost supplier discounts and adversely affect credit ratings.

On the other hand, a strong working capital position can help companies achieve specific business objectives and invest in future growth.

Objectives of working capital management strategies

Companies can adopt different working capital management strategies depending on their business goals. Using conservative working capital management techniques, for example, a business can build resilience. With a more liberal, aggressive approach, it can focus on fueling growth.

• Build resilience: A conservative working capital management strategy is one that focuses on building operational resilience by holding higher levels of short-term assets. This might involve, for example, maintaining higher inventory levels (or safety stock) to absorb sudden increases in demand. Greater resilience can protect the business from the impact of seasonal downturns, challenging markets, or difficult economic conditions.
• Fuel growth: A more aggressive working capital management strategy revolves around making the maximum use of available capital to fuel faster growth. It might involve prioritizing things like speeding up the collection of receivables or paring back inventory levels. With an aggressive strategy, the business can maximize its working capital to fund expansion, invest in R&D, or harness M&A opportunities.

Six working capital management strategies

There are lots of moving parts in working capital management, which means there are countless ways of adapting one to suit specific business needs. These six strategies can help businesses manage their working capital more effectively, whatever their overall objective is.

1. Improve cash flow forecasting capabilities

Cash flow forecasting allows businesses to understand upcoming inflows and outflows in greater detail by collecting and analyzing data. It can, therefore, help them to make better spending decisions, maximize the efficiency of their working capital, and minimize cash flow risks. In other words, it’s essential for effective cash flow management.

Cash flow forecasting software can help by taking data from purchase orders, accounts receivable, and accounts payable to provide businesses with near-real-time cash flow forecasts that factor in all departments and business units. Cash forecasting solutions may also use machine learning and artificial intelligence (AI) to increase the accuracy of their predictions over time.

2. Refine your procurement strategy

Procurement represents one of the largest areas of expenditure for most businesses. By aligning their procurement strategy with broader business aims, businesses will be better placed to acquire goods and services of the right quality, at the best price, and in a timely manner. This is an essential component in strengthening control over working capital.

Individual procurement techniques can include tightening purchasing processes, streamlining the supplier base to benefit from bulk discounts, and renegotiating payment terms when awarding contracts.

3. Review inventory management strategy

Inventory is often cited as the working capital component that is most difficult for companies to improve upon. For example, businesses can mitigate the risk of supply chain disruption and stock outages by holding more inventory – but this also has the effect of tying up working capital.

Nevertheless, by adopting a suitable inventory management strategy, companies can improve their ability to keep close track of stock levels, minimize waste, and increase efficiency. Companies may also be able to use modern inventory solutions to reduce the impact of long in-transit lead times and gain access to nearby safety stocks.

4. Streamline the accounts payable process

By automating the accounts payable process, companies can achieve efficiency gains and thereby reduce costs. With more visibility over supplier invoices, companies may also be able to speed up approval times and capture early payment discounts.

Slowing down the accounts payable process is one way of boosting working capital – but this approach can also damage the relationship between the business and its suppliers. For businesses with low-value, high-volume accounts payable flows, another option is to use virtual cards to hold onto cash for longer while unlocking rebates.

5. Improve debt management

Poorly managed long or short-term debt can lead to costly outflows and may have a significant impact on available working capital. By seeking better interest rates or ensuring that debt payments are made on time, companies may be able to lessen the burden on the business and free up working capital.

Alternatively, companies may seek to improve their debt management by opting for cheaper short term financing solutions, such as working capital funding.

6. Make use of working capital funding solutions

Working capital funding solutions such as supply chain finance and accounts receivable financing can also significantly speed up cash flow:

• Supply chain finance is set up by the buyer and allows suppliers to receive early payment on their invoices, typically at a more favorable cost of funding. Since the buyer pays the funder on the invoice due date, both buyers and suppliers can benefit from improvements to their working capital position.
• Accounts receivable financing works as a line of credit backed by outstanding debt due to be received from customers. As such, it allows companies to free up cash trapped in their unpaid invoices, boost working capital, and make better use of their assets.

Building a working capital management strategy step-by-step

To capture the full opportunity that an effective working capital management strategy offers in terms of boosting financial health, it’s important to take a systematic approach to building yours. Get started with these four steps:

1. Set your objectives: When creating a working capital management strategy, the first step is to decide on your objectives. These might include ensuring that the business has enough liquid assets to meet short-term obligations, including provision for unexpected costs. Additionally, your focus might be on growing the business or optimizing the use of capital.

2. Review current strategy: If your company has an existing working capital strategy, this should be reviewed on a regular basis to ensure that it continues to align with the current needs of the business – whether your focus is on meeting current obligations or funding future growth.

3. Find areas of improvement: By looking closely at all your working capital processes – including cash flow forecasting, procurement, inventory, accounts payable, debt, and working capital funding – you can identify areas where improvements can be made.

4. Implement and further review: Having identified areas for improvement, the next step is to choose the working capital solutions most suitable for your business goals and industry. Once implemented, these should be reviewed on a regular basis to ensure that your working capital goals continue to be met.

SAP and Taulia at AFP 2023, San Diego

Last week, Taulia had the pleasure of attending the AFP Conference 2023 in San Diego, California. In collaboration with SAP, our team presented Taulia’s state-of-the-art technology and extensive cash flow expertise and even added an element of fun with a blackjack table.

As part of the industry leaders speaking at AFP, Thomas Mehlkopf, Head of Working Capital Management at SAP & Taulia, presented on how SAP is utilizing the Taulia platform to optimize their working capital in “Managing Economic Challenges with a Strong Working Capital Management Strategy”.

In case you weren’t able to catch it in person, here’s a snapshot of what Thomas had to say:

Amidst a challenging macroeconomic landscape, SAP is taking a fresh and innovative approach to achieve its objectives and address pressing economic hurdles.

The company is working towards achieving an inspiring vision to empower organizations to become intelligent and sustainable. This forward-thinking perspective is shaping their transformation into a true cloud company.

In order to achieve this, SAP is focussing on its working capital management, including an increased focus on commercial model changes, its cash conversion cycle, and an investor focus on free cash flow.

Not only does improving working capital management help when managing a transformational period, but it will also help SAP when dealing with the wider economic hurdles that we’ve all experienced through the past few years, including:

• Inflation and increasing interest rates
• Supply chain resiliency (not hyper scalers but SMBs)
• Ensuring deal pipeline

In line with this, SAP has set an ambitious goal of increasing the conversion of operating profit into free cash flow, aiming to raise it from 54% in 2022 to an impressive 65% by 2025, ultimately reaching 7.5 billion EUR in free cash flow.

In order to achieve this, SAP has three working capital initiatives to improve cash flow:

1. Harmonized working capital strategy, including standardized payment terms of 90d* from an average payment term of approx. 35d (*where legally possible)
2. Offer standardized payment terms for customers and the option to use sales financing if longer payment terms are needed to reduce current DSO of approx. 71d
3. Provide optionality to conduct trade receivables sales to accelerate cash flow in Q4 (2022: 0.9bn EUR)

Taulia became a key pillar in SAP’s journey to achieve these working capital targets. With 69% of SAP’s total spend coming from suppliers that were already registered on the Taulia platform, it was easily adoptable and could scale quickly. Taulia’s platform has helped streamline SAP operations with the added benefit of increased automation through integration into SAP S/4 and SAP Business Network.

Taulia and SAP so far…

Since SAP adopted Taulia as its early payment program, they’ve achieved the following:

• $3.3m spend accelerated
• $14.7k in discounts earned
• 437 suppliers enrolled, thereof 103 suppliers ESG-rated
• 8 payment currencies

Finally, Thomas shared his key drivers for success

1. Working capital is a team sport:
   
   Cross-collaboration between Treasury, Procurement, Credit Services, IT, and Process Management is key; joint KPIs and CFO sponsorship are even better.
   
2. Realistic business case:
   
   Use AI/ML and benchmarking capabilities to create a realistic business case based on your working capital goals.
   
3. Realize first benefits fast:
   
   Win champions fast who can convince potential detractors about the working capital project; for SAP, Taulia was live within 3 months to offer early payments to suppliers.

Our participation at AFP alongside SAP was a fantastic opportunity to showcase the power of our integrated solution to a broader industry audience. It’s exciting to share Taulia’s ever-evolving platform, and we look forward to sharing further innovations and partnerships in the future.

Find out more about how our customers are optimizing their working capital management strategy in our recent webinar with Deloitte.

Here’s what our Taulia team shared about the event:

I always enjoy how the attendees of AFP come eager and open to connect – networking, learning more about other companies, discovering best practices, discussing relevant industry topics, etc.

• Craig Goodman

This was my first AFP, and I found it to be a very well-run event. Our Booth was in a great position, and having Taulia and SAP together, along with the blackjack table, kept the crowds coming.

• Sarah Price Probert

At the booth, I always enjoy talking with a variety of people, from clients to colleagues. It’s a great networking event and, for Taulia, a chance for better name recognition.

• Mike Lomax

If you missed out on speaking to a Taulian at the event and want more information on how we can help your business accelerate your cash contact us today.

Accounts receivable financing vs factoring

Accounts receivable financing and factoring are two receivables financing methods, both able to help companies optimize their working capital position. Here’s a guide to their differences and similarities.

Cash flow, or the movement of money into and out of a business, is a major determining factor in overall operational health. Businesses need sufficient cash flow to cover everything from payroll to inventory purchases. Positive cash flow also enables companies to invest in growth initiatives or build resilience by providing a buffer against unexpected financial challenges.

Increasing cash flow by speeding up capital inflows is, therefore, a priority for lots of businesses. Accounts receivable financing solutions can be a helpful tool in achieving that goal.

Accounts receivable (AR) represents the total value of a company’s outstanding invoices – in other words, money owed to the business for products or services sold but not yet paid for.

The average US business has 24% of its monthly revenue tied up in accounts receivable. The quicker these receivables can be realized as revenue, the quicker the business can use the money. Accounts receivable financing and factoring are two methods of expediting that process.

Here’s everything you need to know about AR factoring and AR financing, two of the most popular ways to optimize working capital and release liquidity locked away in unpaid invoices.

Accounts receivable financing explained

Accounts receivable financing (sometimes referred to as invoice financing) allows businesses to receive immediate funding based on their outstanding customer invoices. Some or all of the company’s AR is issued as collateral to secure a loan from a third-party financer or funder.

In an AR financing arrangement, the borrower can decide how many invoices it wants to secure financing against. Interest is charged on the amount lent, which is typically between 70% and 80% of the total value of the invoices.

The borrower retains ownership of the invoices they’ve raised funding against and, therefore, remains responsible for collecting payment. When the customer pays the invoice, the borrower repays the amount borrowed to the financer.

Since the borrower maintains ownership and responsibility for the collection, they have full control over the collections process and can keep their financing arrangement discreet if they choose to.

Accounts receivable factoring explained

Accounts receivable factoring (also known as invoice factoring) is a similar form of financing whereby, instead of using accounts receivable as collateral to secure

a loan, businesses can outright sell their unpaid invoices to a third-party financer, called the ‘factor’.

Typically, the business initially receives between 70% and 90% of the value of the invoices. The factor then sends the remaining amount (less factoring fees) when it collects payment from the business’s customers at the due date.

Since factoring involves selling accounts receivable outright, the business is no longer responsible for collections when the invoices fall due. That means accounts receivable factoring arrangements can’t be kept from customers, as the factor will communicate directly with them to collect the payment.

Why supplier diversity is important

The case for supplier diversity isn’t just an ideological one, though. Plenty of evidence supports the potential benefits of broadening the diversity in your supplier base.

According to a survey by PwC, for example, 91% of business leaders believe their company has a responsibility to act on ESG issues. And 86% of employees prefer to work for companies that care about the same issues they do.

In another study, McKinsey & Company found that 64% of millennials say they won’t work for companies that perform poorly on corporate social responsibility (CSR).

Both studies reinforce the idea that embracing supplier diversity doesn’t have to be a purely altruistic move. It can have a tangible, long-term impact on your business’s reputation, access to the labor market, and even the bottom line.

Benefits of supplier diversity

By adopting a supplier diversity program, businesses can enhance their CSR/ESG credentials, become more attractive to investors, enhance their status with potential employees, and increase their overall brand appeal.

And this doesn’t necessarily come with a downside, either. According to research from the Hackett Group, virtually all diversity suppliers meet or exceed expectations. The top corporate performers in supplier diversity experience no loss in efficiency and often see improved quality, increased market share, and access to new revenue opportunities.

But that’s not all. Other benefits of supplier diversity include:

Difference between factoring and accounts receivable financing

Accounts receivable financing and invoice factoring are both ways in which a business can generate available cash from the value locked up in its accounts receivable. The principal differences between the two include the nature of the financial arrangement between the business and the financer and the responsibilities of each party when it comes to collecting payment:

• With accounts receivable financing, a business uses unpaid invoices as collateral to secure what is essentially a loan. Factoring, on the other hand, involves selling the invoices outright, meaning that ownership passes to the factoring company.
• Where collections are concerned, a company using AR financing still has complete ownership of its invoices and retains responsibility for collecting payment. With factoring, on the other hand, it becomes the factor’s responsibility to collect payment when the invoices fall due.
• Another difference between the two arrangements is that with invoice factoring, the company is still exposed to the risk that invoices could turn into bad debt if they are not paid. This is not usually the case with a factoring arrangement.

Receivables financing vs factoring

	Accounts receivable factoring	Accounts receivable financing
Financing arrangement	Business sells unpaid invoices to factoring company at a discount	Business uses total value of unpaid invoices as collateral for loan
Invoice ownership	Ownership of invoices is transferred to the factor	Business retains ownership of their invoices
Collections responsibility	The factor is responsible for payment collection	Business remains responsible for payment collection
Payment receipt	Invoice payments are made directly to the factor	Invoice payments are made to the supplier business, as usual
Confidentiality	Financing arrangement can be kept confidential	Financing arrangement is disclosed to customers

How to choose the right form of receivables finance

Since both accounts receivable financing and factoring can be used to free up funds tied up in unpaid invoices via third-party financing, businesses have the freedom to choose between the two options. Some key factors to consider include the following:

• Accounts receivable financing and factoring have different fee structures. Since factoring includes collections as well, it tends to be more expensive and can typically involve several different fees, such as maintenance fees, monthly minimums, and termination fees.
• For some businesses, especially those with limited resources, the credit control and collection service included in a factoring arrangement can be attractive. For others, it is more important to manage the sales ledger and collections process in-house.
• When a third party collects invoices due, customers may interpret this in a negative way. When a company uses factoring as a legitimate method for increasing working capital to fund growth, it may be seen by its customers as a sign of financial difficulty.
• For many companies, the fact that the factoring company acts as an intermediary between them and their customers is a concern. For example, if the factor conducts credit checks and pursues unpaid invoices in an overly aggressive way, it can reflect badly on the business.

Beyond traditional AR financing

Taulia’s Accounts Receivable Financing solution (AR Financing) provides businesses with an off-balance sheet solution that enables businesses to optimize working capital through early payment on invoices while also providing collection services through automated operational processes on our Working Capital Management platform. What’s more, with Receivables, businesses can gain access to a diverse pool of liquidity from multiple funders.

Traditional receivables financing often lacks the required technology to scale effectively. Taulia’s ERP integration, in contrast, means that we can transmit all receivables invoices, accounting entries, and reconciliation information seamlessly to multiple funders – thereby simplifying the process, increasing efficiency, and reducing operational risk.

The case for supplier diversity

Supplier diversity offers businesses a chance to increase their resilience, boost their ESG performance, and improve their overall efficiency.

A strong supplier base is a prerequisite for an effective and efficient supply chain, but it’s also essential for overall business health. Supplier diversity is one way of reaching a point of strength in your supplier base.

And with ESG (Environmental, Social and Governance) criteria increasingly used to evaluate a business’s performance, supplier diversity is also important in meeting ESG goals.

Businesses that embrace supplier diversity can build a stronger and more resilient supply chain and benefit from a better reputation with the labor market and their customer base.

What is supplier diversity?

Supplier diversity is an approach to procurement and sourcing whereby organizations work to include a certain percentage of minority-owned businesses that otherwise might be underrepresented in their supplier base.

By intentionally broadening the diversity of their supplier base, organizations can improve their corporate reputation, gain competitive advantage, and invest in local communities.

Generally speaking, a diverse supplier is a business of any size, at least 51% owned and operated by a person or persons from a group that has traditionally been societally or economically disadvantaged or underserved.

Historically, the first supplier diversity efforts were aimed at businesses that were minority-owned and women-owned. Over time, these have grown to include veteran-owned, disabled-owned, and LGBTQIA+-owned enterprises.

The term ‘supplier diversity’ may also mean increasing the diversity of a company’s supplier group in terms of other factors, like suppliers’ size and geographical location. This approach can allow businesses to operate more flexibly, be innovative and creative, and even save costs.

What is supplier diversity?

So, how are you supposed to know whether a supplier is considered diverse? In the US, more than 15 categories are used to identify diverse businesses. They include:

• Disabled Owned – A business that is at least 51% owned, managed, and controlled by one or more individuals with a disability.
• LGBT Owned – A business that is at least 51% owned, operated, managed, and controlled by one or more LGBT persons.
• Minority Owned – A business that is at least 51% owned, managed, and controlled by one or more members of a socially and economically disadvantaged minority group.
• Women Owned – A business that is at least 51% owned, managed, and controlled by one or more women.
• Veteran Owned – A business that is at least 51% owned, managed, and controlled by one or more veterans.

Why supplier diversity is important

The case for supplier diversity isn’t just an ideological one, though. Plenty of evidence supports the potential benefits of broadening the diversity in your supplier base.

According to a survey by PwC, for example, 91% of business leaders believe their company has a responsibility to act on ESG issues. And 86% of employees prefer to work for companies that care about the same issues they do.

In another study, McKinsey & Company found that 64% of millennials say they won’t work for companies that perform poorly on corporate social responsibility (CSR).

Both studies reinforce the idea that embracing supplier diversity doesn’t have to be a purely altruistic move. It can have a tangible, long-term impact on your business’s reputation, access to the labor market, and even the bottom line.

Benefits of supplier diversity

By adopting a supplier diversity program, businesses can enhance their CSR/ESG credentials, become more attractive to investors, enhance their status with potential employees, and increase their overall brand appeal.

And this doesn’t necessarily come with a downside, either. According to research from the Hackett Group, virtually all diversity suppliers meet or exceed expectations. The top corporate performers in supplier diversity experience no loss in efficiency and often see improved quality, increased market share, and access to new revenue opportunities.

But that’s not all. Other benefits of supplier diversity include:

A broader choice of suppliers

Embracing supplier diversity allows a business to consider suppliers it might have previously overlooked. According to WEConnect International, a global network connecting women-owned businesses to buyers worldwide, a third of all privately owned businesses are owned by women – yet women-owned businesses earn less than 1% of large corporate and government spend with suppliers.

By adopting a supplier diversity program and having minority-owned and operated partners in the supply chain, businesses can not only gain a wider range of skills – they can also access different perspectives and experiences. By encouraging supplier competition, companies can foster innovation and drive down costs.

Increased supply chain resilience

A diversified supplier network that includes underrepresented groups reduces a company’s dependence on a limited pool of suppliers. By embracing supplier diversity, a business can increase supply chain resilience and reduce risk.

Rather than relying on a small number of suppliers or suppliers located in a specific region, companies with a diversified supplier base spread across different regions will be better placed to mitigate disruptions caused by regional instabilities and local crises.

Improved ESG performance

Although historically, diversity has been viewed as separate from a firm’s commitment to sustainability, diversity very much falls into the ‘S’ category of ESG. In other words, it is concerned with enabling a positive social impact.

A business can improve its ESG performance through a commitment to supplier diversity. This, in turn, can lead to an economic impact through top-line growth, cost reductions, reduced regulatory/legal interventions, productivity uplift, and investment and asset optimization.

Embrace supplier diversity for a stronger, more equitable supply chain

In order to achieve supplier diversity, a company needs its internal stakeholders to buy into the project. It’s also critical to make sure that onboarding procedures for new suppliers are as streamlined as possible.

As such, companies need a procurement model that helps rather than hinders the process. This may mean ensuring that preferred provider lists include diverse options, using diverse supplier databases or portals, or using specific onboarding processes for diverse suppliers. Supplier relationships can be strengthened over time using suitable supplier management software.

The resiliency of a supply chain is determined by its ability to avoid potential disruption and to mitigate those disruptions that do occur. A diverse supply chain should embrace both reliance and sustainability. By widening their pool of suppliers, companies will be better able to withstand economic and geopolitical shocks.

Last but not least, using diverse suppliers, which often have unique characteristics and far-reaching footprints, can result in better ESG outcomes and more innovative and cost-effective approaches to business challenges.

How to calculate working capital

Working capital is essential for the day-to-day operations of a company. It’s used by businesses for all sorts of things, from paying wages to investing in growth. But it’s also a key indicator of short-term financial and operational health.

Here’s everything you need to know about how to calculate working capital and why it’s so important to stay on top of it.

What is working capital?

Working capital represents the free capital that a business can access to pay for day-to-day operations or to fund development and growth. It’s a useful metric to measure the short-term financial health of a company.

Calculating working capital is straightforward. There are just two components to the calculation, and both are listed on a company’s balance sheet. In a nutshell, working capital is the value of the business’s current assets after current liabilities have been subtracted.

Assets are classed as current when their value is expected to be converted into cash within a year. Similarly, current liabilities are a company’s short-term financial obligations that are due to be settled during the same period.

Liquidity refers to a company’s ability to generate current assets, convert the assets into cash, and pay current liabilities. Solvency explains a firm’s ability to produce assets over the long-term, convert assets into cash, and pay long-term liabilities. Working capital measures liquidity.

Here’s a little more about the two components used in the working capital calculation:

Current assets

Current assets are liquid assets that are easily converted to cash; these include:

• Cash and cash equivalents: Includes certificates of deposit, money market funds, short-term government bonds, and treasury bills.
• Accounts receivable (AR): This represents the value of goods or services delivered but not yet paid for by customers.
• Inventory: This includes raw materials, components, work-in-process, finished products, and packaging.
• Prepaid expenses: These are recorded as assets because they represent a future benefit to the business. Examples include insurance premiums, prepaid rent, and retainers for legal services.

Current liabilities

Current liabilities are comprised of monetary sums owed as well as obligations to remit goods or services within the year. As such, they include:

• Accounts payable (AP): Money owed to vendors and suppliers for goods, raw materials, and other operating expenses
• Bank overdrafts, short-term loans, and short-term payments related to long-term debts. The current portion of a long-term debt is the total principal and interest payments due within 12 months.
• Employee wages payable
• Accrued tax payments owed within the next 12 months

Working capital formula

The formula to calculate working capital (or the working capital formula) is as follows:

Current assets – Current liabilities = Working capital

How to calculate working capital

Companies can use the working capital formula to calculate their current working capital position. In other words, the figure reached from the working capital formula represents how much capital they have to spend on day-to-day operations.

As their current assets and liabilities continue to change, so will the working capital of the business. When current assets exceed current liabilities, the working capital figure generated will be positive. When current liabilities exceed current assets, the business is described as having negative working capital.

Working capital formula – example

A company’s balance sheet records $10 million of current assets, while its current liabilities are shown as $8 million. Its working capital is, therefore, $2 million.

$10 million – $8 million = $2 million

The working capital ratio

An alternative way of looking at working capital is the working capital ratio
(or current ratio), which shows a business’s current assets as a proportion of its liabilities rather than as an integer. The working capital ratio is calculated by dividing all current assets by current liabilities. The formula is:

Current assets / Current liabilities = Working capital ratio

The business has net positive working capital if the ratio is 1 or above. If the ratio is below 1, the business has net negative working capital.

Working capital ratio formula – example

A company has $10 million of current assets, while its current liabilities are $8 million. Its working capital ratio is, therefore, 1.25.

$10 million / $8 million = 1.25

The quick ratio makes an adjustment to the working capital ratio. The inventory balance is subtracted from current assets. Assuming that $1 million of the current asset balance above is inventory, the quick ratio is:

$9 million / $8 million = 1.13

The lower current asset balance lowers the working capital ratio.

Positive vs. negative working capital

Whichever method a company uses when calculating working capital, the result will indicate whether the business’ working capital position is positive or negative.

• Positive working capital indicates that a business can theoretically pay off all its current liabilities with its current assets. The better a company’s working capital position, the more flexibility it has to expand its operations.
• When working capital is negative, the opposite is true. To cover all its liabilities, a business would need to find additional funds from elsewhere.

Generally, a higher working capital figure or ratio is seen as positive, while a lower one is seen as negative. However, in certain situations, negative working capital may not be problematic.

For example, businesses such as restaurants may have high volumes of cash sales, meaning that payment is received from customers straight away, while suppliers may not need to be paid until a later date.

In such cases, negative working capital may be an indication of efficiency rather than of financial distress.

How to improve working capital

The purpose of working capital management is to help companies make effective use of their current assets, optimize cash flow, and maximize operational efficiency.

By freeing up cash that would otherwise be trapped on balance sheets by effectively managing accounts payable, accounts receivable, inventory, and cash, companies can ensure they have sufficient fundsto cover planned and unexpected costs. They may also be able to reduce their borrowing needs, fund growth, and invest in R&D.

Companies can use the following methods and financial ratios to improve their working capital position:

Expedite accounts receivable collections:

Accounts receivable only become revenue upon payment. By improving the AR process through automation, companies can minimize delays and speed up settlement.

You can monitor how quickly your business collects receivables using two ratios:

Accounts receivable turnover ratio: Net credit sales / Average accounts receivable

Net credit sales refers to sales that are not paid immediately in cash, less any customer returns, allowances, or discounts. For each ratio, the term “average” is defined as the beginning balance for the period plus ending balance divided by two.

If net credit sales total $1 million and the average accounts receivable is $200,000, the ratio is:

$1 million / $200,000 = 5

The goal is to maximize credit sales while minimizing accounts receivable.

Days sales outstanding (DSO) computes the average number of days it takes to collect a receivable balance. The formula is:

Days sales outstanding = (Average accounts receivable / Total credit sales) x Number of days

Assume that the average receivable balance is $150,000 and credit sales total $900,000. The business is calculating DSO for a year, so the number of days is 365.

Here is the calculation:

($150,000 / $900,000) x 365 = 60.84 days

It takes nearly 61 days, on average, to collect a receivables balance.

Slow accounts payable outflows:

Through improvements to the accounts payable process, a business can improve visibility over outstanding bills and potentially optimize working capital by slowing down settlement. Companies may also be able to negotiate better payment terms by building stronger supplier relationships.

Days payable outstanding (DPO) measures the average number of days it takes to pay a supplier. The formula is:

Days payable outstanding = (Average accounts payable / Cost of goods sold) x Number of days

Assume that the accounts payable balance is $90,000 and the cost of goods sold balance $780,000. The business is calculating DPO for a year, so the number of days is 365. Here is the calculation:

($90,000 / $780,000) x 365 = 42.1 days

It takes 42 days, on average, to pay a supplier.

The company must weigh the need to conserve cash with the importance of maintaining supplier relationships. If a supplier believes that a customer consistently pays late, the supplier may not do business in the future.

Manage inventory more efficiently

A leaner approach to inventory management can preserve cash and maximize working capital. However, strategies such as just-in-time (JIT) inventory require reliable suppliers and can expose the business to greater risk.

You can monitor how quickly your company sells inventory using two ratios:

Inventory turnover ratio: Cost of goods sold / Average inventory

If the cost of goods sold is $600,000 and average inventory balance is $80,000, the ratio is:

$600,000 / $80,000 = 7.5

The goal is to maximize sales (which impacts the cost of goods sold) while minimizing the inventory balance you must carry to meet customer demand.

Days inventory outstanding (DIO) computes the average number of days a firm holds inventory before selling the item. The formula is:

Days inventory outstanding = (Average inventory / Cost of goods sold) x Number of days

Use the same numbers above, and assume that the business is calculating DIO for a year. Here is the calculation:

($80,000 / $600,000) x 365 = 48.7 days

It takes nearly 49 days, on average, to sell an item in inventory.

One final calculation pulls together sales, payables, and inventory:

Cash conversion cycle (CCC) = DSO + DPO + DIO

CCC determines how long it takes to convert the dollars invested in inventory into cash collections.

Make use of working capital solutions

Companies can use solutions such as supply chain finance and accounts receivable financing to improve their working capital:

Supply chain finance is set up by the buyer as a way of allowing suppliers to receive early payment of their invoices, typically at a favorable funding cost. With the buyer paying the funder on the invoice due date, both buyers and suppliers can benefit from working capital improvements.

Accounts receivable financing acts as a line of credit backed by outstanding debt due to be received from customers. Companies can use accounts receivable financing to free up cash trapped in unpaid invoices, thereby making better use of their assets and boosting working capital.

FAQ: Working capital

What is working capital?

Working capital represents the free capital that a business can access to pay for day-to-day operations or to fund development and growth. It’s a useful metric to measure the short-term financial health of a company.

How do you calculate working capital?

The formula is: Current assets – Current liabilities = Working capital

What is a good working capital ratio?

The working capital ratio is current assets divided by current liabilities.

A business has net positive working capital if the ratio is 1 or above. Businesses should strive to maintain a positive working capital ratio.

My sales journey so far

When I graduated college, I didn’t know what I wanted to do with my career, so I decided to work as a bartender in the hospitality field for a few years. I always knew that hospitality was not the be-all and end-all – and I always had a higher expectation with my life accomplishments than where I was in my mid-20s. I knew I needed a change – but did not have a tremendous amount of guidance on finding the right career fit once I was years past graduating college. The skills that I mastered in hospitality, which included primarily people and social skills, shaped my sales career’s early path. All I needed was a chance to prove myself and a culture to bring out the best of my talents early on in the SaaS field. The supplier sales team at Taulia turned out to be the perfect fit for me, and it was the best decision I have ever made career-wise.

Joining Taulia’s sales team

When I first joined Taulia, I joined the supplier sales team and my primary role was to enroll our customers’ suppliers to our platform so that both our customers and their suppliers can utilize our working capital solutions. After being in the supplier sales team for a few years, I was promoted and joined the direct sales team. Working at Taulia allows me to be the best version of myself every day by receiving trust and autonomy from my team. We are all individual revenue contributors in the direct sales team and primarily work from home, which allows me to have control over my schedule and workflow.

Breaking down my morning routine

A productive morning routine provides a healthy foundation for the rest of the day’s success. I start my day at around 6:00 a.m. and take my dog on a long walk so that she and I both get our morning exercise. This has been a vital mind-shift to my success, especially working from home. I get home around 7:00 a.m, make coffee and tidy up the apartment or read until 7:30 a.m, then work on any emails from the previous day. Afterwards, I spend the next few hours following up with key accounts and prospecting accounts I have yet to engage with. I spend most of the day on LinkedIn, leveraging these social touches as some of the most critical parts of the sales cycle. After work I love to do weight training, yoga, or jiujitsu to stay physically and mentally fit. I like to compare Sales to being an athlete. If you are not taking days off, not sleeping or eating well, or just not focusing on your overall health & wellness – you will never be a top performer in your field.

Preparation and maintaining my cool

Something I’ve learned during my sales career is the importance of being able to control your emotions in any situation. In sales, we must be able to handle objections in a cool, calm, and collective manner; which is absolutely essential to any sales role. To ensure that I’m always at the top of my game, I stay up to date on my product, competitor, and industry knowledge. This helps me to have the confidence to handle any objections or specific questions. Something else I’ve learned during my sales career is that consistency and dedication to the follow-up process is vital. I’ve learned that buyers want to buy, and they want to buy from sales reps they like. I believe mastering a solid rapport and providing solutions to blatant pain is essential, but following up and simply being a good person goes a long way just the same!

Podcasts and professional development

I am currently prioritizing my professional development, and I’ve learned I need to be constantly stimulated. For me, this starts with engaging with podcasts. I follow many inspirational sales leaders on podcast platforms and regularly listen to their episodes. Sometimes, I even connect with these leaders on LinkedIn. By connecting on LinkedIn, it creates a cascading effect of meeting new people in the community and listening to their recommendations on other podcasts and books that I can ingest to further my professional development. I also need to mention these podcasts and LinkedIn connections are free and open to anyone.

I firmly believe Taulia is where I belong in the immediate future – as it is a company with leadership that emphasizes career development and personal well-being. Those are two critical core values I have, and I am excited to see what is next for me at Taulia!

My top sales tips

If you’re looking to get into sales, here are some of my top sales tips that will help you to become inspired, successful, and reach the top of your game!

• Talk less. Listen more. You can’t learn anything while you are talking.
• Research. Be prepared. Do not ask questions that you can find the answer to on Google.
• Always be clear and confident when discussing the next steps with a prospect.
• Unplug. Take your vacation days, or you will burn out and not perform at your peak.

If you’re looking to join a fast-growing company and want to join the Taulia Sales team, please get in touch now.

11 supply chain management best practices

The supply chain encompasses the entire process of producing and distributing goods or services, from procuring raw materials to delivering finished goods to customers. Accordingly, by increasing supply chain efficiency, businesses can improve their ability to meet customer expectations, build resilience against supply chain risks, and enhance their working capital position.

Successful supply chain management (SCM) is one of the most effective ways to increase supply chain efficiency. It allows companies to refine and optimize their supply chains based on specific business objectives, tailoring each step in the process to contribute towards their overall goals.

There’s no one way to handle supply chain management, with different approaches suiting different objectives. But, by adopting the following 11 best practices for supply chain management, businesses can lay the groundwork for a successful strategy and build a supply chain that meets their needs:

1. Establish clear objectives

Start by setting clear objectives. By factoring in the requirements of different stakeholders – including shareholders, employees, suppliers, customers, and the wider community – companies can create clear and realistic objectives for their overall supply chain management strategies.

These objectives can include building resilience against external threats, meeting ESG goals, reducing costs, and ensuring that goods flow promptly through the supply chain.

2. Adopt supply chain management technology

As supply chains become increasingly complex, traditional, paper-based, or heavily manual approaches can prove inadequate. But by adopting supply chain management technology, businesses can gain access to tools that help them meet their supply chain objectives.

For example, a digital SCM platform can simplify supplier management and offer increased supply chain visibility while also offering centralized access to solutions like supply chain finance (SCF), which they can use to strengthen their working capital position.

3. Source suppliers strategically

Supply chains are ultimately made up of suppliers. So, choosing the right suppliers – a process known as strategic sourcing – is vital when it comes to establishing a strong and efficient supply chain that ensures business objectives are met.

While the cost and quality of goods and services are important, companies may consider other factors depending on their priorities. These can include suppliers’ minimum order requirements and overall capacity, ESG ratings, payment and credit terms, and overall financial health.

4. Build healthy supplier relationships

Establishing effective lines of communication with suppliers is one of the most important supply chain best practices, as it contributes to the efficient operation of the supply chain and reduces the likelihood of misunderstandings that cost time or money to resolve.

By using a robust and reliable supplier information management or supplier relationship management platform, companies can build better lines of communication with their suppliers and ensure that their needs and objectives are understood. This, in turn, can ensure that products received from suppliers are consistently of an appropriately high quality, procured at the right cost, and delivered on time.

Companies can also manage supplier relationships more efficiently by prioritizing the relationships that are most important to the business.

5. Choose the right inventory management approach

Different companies will opt for different approaches when it comes to inventory management. Some may focus on agility, adopting a just-in-time approach that minimizes waste. Others may prioritize resilience against external risks by maintaining safety stocks to mitigate future stock outages.

When implementing supply chain management best practices, companies need to choose the right inventory management approach to meet their objectives. They can also harness inventory management tools, such as inventory management solutions, that can monitor levels of stock for optimal output.

6. Plan for supply chain risks

Since supply chain disruption can have major consequences for a business, it’s important to carry out regular supply chain risk assessments. Companies can thereby identify, assess, and mitigate risks within the supply chain, including those posed by suppliers.

As well as taking steps to mitigate the most serious threats, companies should consider building resilience into their supply chain. For example, the PPRR approach – Prevention, Preparedness, Response, and Recovery – involves being proactive with preventive measures and ensuring that contingency plans are in place.

7. Consider ESG in your approach

Environmental, social and governance (ESG) strategies are no longer just about ethical choices but are increasingly connected to resilience and efficiency. What’s more, with customers increasingly preferring to buy from companies with good ESG credentials, ESG has become progressively more important in supply chain operations.

Companies can improve their SCM approach in several ways to meet ESG goals. These include boosting the use of energy from renewable sources, increasing low- or zero-emission transportation, and adopting recycling systems to source and dispose of materials.

8. Improve demand forecasting

Demand forecasting is a process that companies can use to estimate their customers’ future demand for a product or service. Without an accurate demand forecast, businesses may struggle to respond to changes in market trends and consumer behavior. This, in turn, can lead to stockouts and resulting missed revenue or excessive inventory carrying costs.

By increasing the accuracy and breadth of their demand forecasting capabilities, businesses can improve their ability to procure the correct raw materials or components in the required quantities, thereby increasing the efficiency of the supply chain.

9. Take advantage of supply chain finance opportunities

While a supply chain is, first and foremost, a logistical feature, ensuring the timely delivery of goods or materials, it’s also a value center. Companies will often have significant amounts of cash tied up in their supply chain, often mostly in the form of accounts receivable or outstanding money owed by customers.

Therefore, supply chain best practice also includes the use of solutions that can unlock this capital, such as supply chain finance (SCF) and dynamic discounting:

• SCF – a solution that enables suppliers to receive early payment on their invoices – can provide working capital benefits for both buyers and suppliers, thereby increasing the stability and resilience of the supply chain.

• Dynamic discounting – enables suppliers to receive early payment in exchange for a discount on their invoices. Suppliers can typically receive payment at any time between the invoice being approved and the agreed payment terms – the earlier the payment, the greater the discount received.

Companies looking to strengthen their working capital position should explore the financing options available and consider making use of the solution that best suits their needs.

10. Measure supply chain KPIs

A company can measure its approach to supply chain management against pre-set key performance indicators (KPIs). These metrics can help the company evaluate the efficiency and effectiveness of its supply chain processes and identify any shortcomings.

Which supply chain KPIs businesses choose will depend on their supply chain objectives. For example, metrics such as customer order cycle time, inventory turnover rate, and perfect order delivery rate are indicators of supply chain efficiency and performance. Days payable outstanding (DPO) and the cash conversion cycle, meanwhile, are indicators of working capital health.

11. Run regular reviews

Last but not least, companies should take a flexible approach to SCM. Through the regular review of supply chain management best practices and policies, procedures, and processes, the supply chain can be continually adjusted to ensure that it is operating efficiently.

Through biannual or annual reviews, companies can reevaluate their risk exposures and formulate mitigating responses. This can include aligning their strategies to a changing landscape, adapting to new customer needs, and responding positively to technological advances. Companies that align themselves with evolving trends and continue to develop their offerings will be better placed to maintain or enhance their market positions.

Treasurer’s top of mind: The future of B2B payments

In this article, we’ll share some key takeaways from the most recent Treasurer’s Top of Mind, our regular roundtable with prominent treasurers. The discussion focused on real-time payments and explored their potential impact on the future of B2B transactions.

Key takeaways included how the current landscape, technology, and legislation is affecting real-time payments, the consequent impact on businesses, and the role FinTechs have to play.

Real-time payments ecosystem considerations:

In today’s globalized industrial landscape, there is a growing need for seamless cross-border transactions. To fully realize a real-time payment revolution, it must be pan-regional and pan-global and provide a fix to many common problems faced by Treasurers today.

Current issues facing Treasurers

• Payment requirements : Different transaction limits and charges associated with various payment systems, e.g. SEPA, BACS, and CHAPS create manual processing delays
• Technology : Legacy ERPs are not equipped to handle multiple payment systems per currency or process diverse payment formats
• Payment formatting : Diverse payment formatting requirements of banks globally create operational bottlenecks
• Regional holidays : Delays caused by different operating times can severely hinder cross-border transactions and negatively impact relationships
• Legislation : Obtaining reliable master data, especially with data privacy policies like GDPR, can be time-consuming and tedious
• Sanctions : False positive sanction screening may hinder transactions, requiring additional time and resources to resolve the issues.
• Cybercrime : Need for enhanced transaction and operational security measures to combat rising threats

A comprehensive and globally connected real-time payment solution represents a cutting-edge technological response to these challenges. By seamlessly integrating automated processes across regions, this solution promises to diminish manual errors and enhance overall efficiency. Moreover, it takes on the crucial responsibility of delivering cutting-edge security measures and best practices, effectively addressing numerous issues currently confronting Treasurers.

The role of FinTechs:

FinTechs have emerged as key enablers of real-time payments, offering innovative solutions that address various pain points. Their tools and platforms not only facilitate quick and efficient identification of counterparties but also instill confidence in the payment process. Businesses can leverage these FinTech solutions to streamline payment processes, reducing manual efforts and the risk of incorrect data entries.

FinTech platforms that provide portals for suppliers to input payment data can significantly simplify payment processes, enhance accuracy, and reduce the burden on businesses. Additionally, FinTech solutions that address fraud concerns can improve payment security and protect businesses from financial losses.

However, despite the advantages of FinTech solutions, the upfront costs associated with their adoption may deter some businesses from fully embracing them. It will be essential for FinTech providers to demonstrate the long-term benefits and cost-effectiveness of their solutions to drive wider adoption.

Business impacts of real-time payments:

The benefits of real-time payments extend across various industries and business processes. For example, in large multimillion purchases and M&A negotiations,

faster payment processing times can have a significant impact. Businesses can experience improved cash flow management and build stronger partnerships by promptly settling transactions.

In the retail industry, real-time payments can optimize the checkout process, reducing the time spent by customers at the point of sale. This enhanced checkout experience can improve customer satisfaction and drive customer loyalty, ultimately benefiting businesses.

In regions where traditional check payments are prevalent, the adoption of real-time payments can incentivize suppliers to shift away from the cumbersome and time-consuming process of handling checks.

Furthermore, real-time payments enable businesses to meet contractual obligations more effectively. Specifying when funds will be received is often a requirement in certain contracts or regulatory frameworks. With real-time payments, businesses can ensure compliance with such requirements and maintain transparent relationships with their partners.

Supply chain disruptions and manufacturing delays caused by payment delays can be significantly reduced with real-time payments. By facilitating quicker and more efficient payments, businesses can maintain a steady flow of goods and services, ultimately enhancing their operational efficiency.

However, despite the clear benefits, the adoption of real-time payments has been slower than anticipated. Businesses tend to prioritize payment security and traceability over speed. Reconciliation issues arising from correspondent banks’ deductions from payments can create complications and hinder businesses’ enthusiasm for real-time payments. Striking a balance between payment speed and security remains a challenge that businesses must address.

Moreover, the conflicting incentives of market participants can affect the uptake of real-time payments. For instance, some business owners might prefer to use personal credit cards for transactions, creating friction in implementing more secure and efficient payment methods.

Treasurers’ perspectives on real-time payments:

Treasurers approach real-time payments with careful consideration of fees, risks, and cash flow incentives. While they value real-time payments for improved cash inflows, the motivation to expedite cash outflows might be limited due to cost considerations.

Treasurers are mindful of the potential downsides of speed, especially when processes fail, leading to manual workarounds and operational challenges. Striking the right balance between speed and security remains a key concern for treasurers.

Validating master data is crucial for smooth payment processes, regardless of the payment method. While achieving 100% confidence in master data may be aspirational, treasurers find value in curating and pre-validating a set of payment recipients. Leveraging AI and data analysis to identify unusual payments and validate vendor data can further enhance pre-validation options, reducing manual validation time.

Segregating accounts payable (AP) and accounts receivable (AR) duties is considered a best practice to facilitate reconciliation and maintain financial integrity. For treasurers, having built-in fraud detection capabilities outweighs the immediate benefits of real-time payments. Payment transparency, especially when payments are rejected, is highly valued, as it allows treasurers to understand the reasons behind rejections and make informed decisions.

An all-encompassing solution that includes pre-validation and post-validation of payment data, wire payment security, and cost-efficient ACH management aligns with treasurers’ expectations. Such a comprehensive solution would offer improved efficiency, enhanced security, and reduced risk for businesses.

Reshaping the landscape:

The real-time revolution in B2B payments promises a transformative impact on the business landscape. By streamlining processes, eliminating manual interventions, and enhancing security measures, real-time payments offer businesses an opportunity to operate more efficiently and effectively.

A key aspect of the real-time revolution is the development of comprehensive solutions that encompass various aspects of payment processing. Solutions that offer pre- and post-validation of payment data, wire payment security, and efficient ACH management will be essential to unlocking the full potential of real-time payments.

Technological advancements, especially in AI and data analytics, can further enhance real-time payment tools. Innovations in anomaly detection and vendor data validation can provide businesses with improved insights and decision-making capabilities.

The transformative potential of real-time payments and its ecosystem is immense. Businesses that fully embrace real-time payments will witness numerous benefits, including improved cash flow management, stronger relationships with suppliers and customers, and increased financial efficiency.

The real-time revolution is not just about faster payments; it empowers businesses to thrive in a rapidly evolving global marketplace. Embracing real-time payments and leveraging innovative technologies will be key to staying competitive and achieving success in the B2B landscape of the future.

Unlocking the value of accounts receivable

In today’s challenging business environment marked by supply chain disruptions, inflation, and economic uncertainties, companies face the need to mitigate the impact on their accounts receivable (AR).

The erosion of the value of credit sales due to inflation and delayed payments poses significant challenges. However, receivables financing presents an opportunity for businesses to unlock the trapped cash in their AR, enhance working capital, and effectively manage customer default risk.

However, traditional accounts receivable financing has its limitations and many companies now are looking for an alternative solution that offers agility, control, and other numerous benefits.

Counting the cost of inflation

Inflation affects businesses in various ways, including higher costs, rising interest rates, changes in customer behavior, increased Days Sales Outstanding (DSO), and reduced value of receivables. The impacts of inflationary pressures can significantly hamper a company’s financial stability and growth prospects. It becomes crucial for businesses to adapt to these challenges and explore solutions that allow them to navigate the inflationary environment effectively.

Agility and control in AR processes

To overcome the challenges posed by inflation, businesses need to improve the agility and control in their AR processes. Manual, paper-based processes are time-consuming and inefficient, leading to slower collections and invoice approval times. By adopting technology-driven solutions like e-invoicing, companies can streamline their AR processes, strengthen customer relationships, and gain a clear view of their overall working capital position.

Unlocking cash with AR financing

Accounts receivable financing, such as Taulia’s Receivables solution, offers a way for companies to access financing in exchange for a portion of their AR. This enables companies to receive cash earlier than the invoice payment due date, helping them free up working capital and achieve key performance metrics. A true sale, off-balance sheet AR finance solution only provides liquidity but also transfers customer default risk to the purchaser of the receivables.

The trouble with traditional AR financing

Traditional bank-led AR financing programs have limitations, including limited availability, resource-intensive implementation, dependency on relationship banks, and a lack of comprehensive working capital visibility. These shortcomings hinder companies from fully leveraging AR financing opportunities and optimizing their working capital management.

Introducing Taulia’s Receivables solution

Taulia Receivables stands apart from traditional AR financing programs by offering a technology-driven, flexible, and comprehensive approach. It provides access to multiple funders through a single technology platform and agreement, allowing companies to choose the most suitable receivables to sell and when to sell them. Taulia’s solution integrates with existing ERP systems, providing real-time visibility, AI-driven insights, and a panoramic view of all working capital levers.

Benefits of Taulia’s AR solution

Taulia’s solution offers multiple features to make your life easier, including accessing multiple financiers through a single agreement, utilizing a user-friendly technology platform, real-time visibility of your entire AR process, and a competitive pricing model for you to make the most out of your recievables.

Taulia’s solution also ensures that your AR financing program does not appear as debt on the balance sheet, offering further advantages for companies seeking financial flexibility and improved credit ratings.

How Taulia Receivables works

Taulia’s Receivables solution simplifies the process of accessing early payment for invoices. Through API-enabled integration, Taulia extracts invoice data, provides cash visibility, and offers the option for businesses to request early payment with a single click. Taulia’s live dashboard and AI-driven scenario planner enable businesses to benchmark against peers, strategize cash release, and make informed decisions.

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6 transformative supply chain technologies

These six technologies are changing the way supply chains work while, in the process, giving companies new opportunities to achieve efficiency and resilience.

Supply chains are trending in the direction of complexity. They’re becoming increasingly global and are constantly evolving to match consumers’ growing expectations regarding choice, customization, and speed of delivery.

While this shift has brought many benefits for companies, including the globalization of consumer demand, the increasing complexity of supply chains has also exposed new vulnerabilities. Managing complex supply chains is simply more difficult, and risks like unexpected delays or challenges meeting sudden surges in demand are important to overcome.

Accordingly, streamlining the supply chain management process and increasing supply chain visibility have become critical steps in achieving supply chain efficiency. This has led directly to the development of a new wave of supply chain technologies.

The following six supply chain technologies have the potential to be particularly effective in helping companies manage their supply chains more efficiently and effectively:

1. Automation

Automation is a generic term that refers to the use of various technologies to automate mundane or repetitive tasks. It allows companies to minimize or replace the need for human input in diverse processes, reducing costs and increasing efficiency. And it’s increasingly applicable throughout the supply chain.

In factories, industrial robots can work around the clock to perform repetitive tasks with high precision and speed, which enables companies to streamline operations and increase productivity.

Where software is concerned, plenty of platforms exist to help companies streamline time-consuming processes. Accounts payable automation software, for example, can be used to improve the management of invoicing and payment processing while reducing errors and processing costs.

2. AI and machine learning

Artificial intelligence (AI) is the branch of computer science designed to enable sophisticated real-world problem-solving. Rather than being programmed explicitly for every task, AI systems use machine learning to digest large amounts of data, which they can synthesize to respond to diverse queries.

AI technology is already being put to use in supply chain processes to create better tools for demand forecasting, cash flow forecasting, spend analysis, and working capital optimization.

By deploying AI systems that have been trained on vast amounts of data, companies can get unprecedented insights into the inefficiencies in their approach to both supply chain management and working capital management. And these insights are practically entirely automatic, which drives efficiency.

3. Internet of Things (IoT)

Seen by many as the cornerstone of Industry 4.0 – or the fourth industrial revolution – the Internet of Things (IoT) refers to the integration of digital connectivity in diverse objects. This is transforming manufacturing, inventory, logistics, retail, and more, impacting the entire supply chain.

IoT devices are fitted with sensors connected to the Internet, which can feed data to remote automated systems for processing and analysis. They enable businesses to monitor the condition of equipment, identify inefficiencies in processes, and improve reliability.

IoT tech applied in the supply chain allows companies to track inventory, gather data, and access detailed insights that can drive new supply chain initiatives. This, in turn, can help them improve operations, reduce costs, increase revenue, and identify other opportunities for supply chain optimization.

4. Blockchain

A blockchain is a distributed ledger of transactions upheld by multiple decentralized entities. The information stored is an accurate and complete record of transactions that cannot be deleted and is represented identically in each node across the blockchain.

Since blockchain represents a way of recording digital interactions in a transparent, secure, and auditable manner, it can ensure the traceability and reliability of information between different stakeholders in the supply chain.

Combining IoT with blockchain creates the means to store, authenticate and share data from connected devices on cryptographically secure digital ledgers that reliably prevent information from being corrupted or falsified.

By using this type of technology in supply chain processes, companies can reduce administrative costs and paperwork, increase traceability and improve visibility over production.

5. Digital payment channels

In recent years, cash and physical payment methods have given way to digital or electronic payments that offer greater visibility and lower processing costs. Digital payment channels are more environmentally friendly and provide a range of benefits, including greater security and access controls.

Virtual cards are an attractive option for businesses with high-volume, low-value transaction flows as they come with secure payment controls and provide rich remittance detail. Meanwhile, solutions such as supply chain finance (SCF) and dynamic discounting (DD) (which are easiest to apply through digital payment channels) can offer businesses access to avenues of working capital optimization.

As well as facilitating payments to suppliers and being used to offer lines of credit, digital payment channels can also be harnessed to incentivize supplier performance – for example, sustainable supply chain finance can offer preferential rates to suppliers that improve their ESG performance.

6. Supply chain management software

Last but not least, supply chain management (SCM) software can play a key role in helping manage a company’s supply chain processes by offering real-time visibility, detailed data, and insights into changing customer demand.

While no longer emerging, supply chain management technology continues to become more sophisticated. It typically integrates modules for inventory management, supply chain financing, accounts receivable management, and more.

Using up-to-date technology, supply chain management software can link all processes in the supply chain, from creating services and products to order fulfillment. As such, it enables visibility and tracking across suppliers, manufacturers, logistics, wholesalers, and retailers across the globe, while enabling businesses to respond to changes swiftly and efficiently.

Furthermore, a company can use SCM software to share information across the entire organization, leading to greater visibility and analytics. By moving from a reactive supply chain to a data-driven one, businesses can reduce costs, strengthen cash flows, drive ESG improvements, optimize working capital, and make their supply chains more resilient.

8 accounts receivable reports and how to use them

Accounts receivable is a critical business function, and running it efficiently can fuel your working capital position. These accounts receivable reporting tips will help you get the information you need to make improvements to the way you manage AR.

Listed on the balance sheet as a current asset, accounts receivable (AR) is the total value of invoices outstanding. In other words, it’s money owed to a business from its customers’ credit purchases.

The value locked up in these invoices turns from an asset into available cash when paid. But before then, their value isn’t typically accessible. And accounts receivable can represent a significant portion of a company’s total working capital.

Efficient payment collection enables companies to unlock this cash more quickly, improving their ability to build resilience, prevent bad debt, and foster growth in the short to medium term. But to improve the efficiency of your accounts receivable process, you need better visibility over it. Focusing on strengthening how you report on AR can streamline the process and identify potential weaknesses.

What is an AR report?

Accounts receivable reports (AR reports) are used to detail various aspects of a company’s accounts receivable position. AR reports offer visibility over invoices and customer payments, including invoices sent, amounts outstanding, payments received, credit levels, and refunds due. You can use this information to gauge the efficiency of your credit control and collections processes.

Types of AR reports

Like any process, AR can be reported on from diverse perspectives. There are a variety of common AR reports that can prove insightful, including:

Aging reports

One of the more commonly used AR reports, the aging report, shows how much revenue is outstanding and how long different invoices have been outstanding. Unpaid invoices can be categorized by time intervals, such as:

• Not yet due
• Up to 30 days past due
• 31-60 days past due
• 61-90 days past due
• Over 90 days past due

This approach allows you to determine which invoices need to be paid soonest. As such, aging AR reports are useful in identifying late-paying customers, highlighting working capital issues, overseeing customer credit quality, and setting credit policies.

Receivables by customer

Receivables by customer reports display outstanding balances by the customer rather than by invoice. This type of AR report can show invoices awaiting payment, paid invoices, and orders not yet invoiced. It may also provide detailed information on each customer, such as credit limits, discounts, currency preferences, and payment history.

You can use this type of AR report to identify the reliability of different customers. This can help you manage your customers more effectively and decide which ones should be offered, customized or bespoke arrangements.

Cash flow forecasting reports

Cash flow forecasting reports are integral to AR reporting and should be carried out consistently. Cash flow forecasting can be used to analyze the effectiveness of collections efforts by showing expected flows in and out of the business over a given period.

An accurate cash flow forecast statement offers insight into predicted cash balances and expected cash needs. You can use this information to minimize the need for cash buffers to cover unexpected expenses, meaning you can make better use of excess cash.

Customer credit reports

Customer credit reports provide detailed insights into customers’ creditworthiness, highlighting risks you should be aware of. They can help you make informed decisions about extending credit lines, limiting credit risk, and guiding your general customer management strategy.

Credit reports are most effective when carried out regularly to identify changes to a customer’s creditworthiness over time.

Transaction reports

Accounts receivable reporting can also include transaction reports, which are used to track the transaction history of customers’ invoices. Forming a crucial part of the accounts receivable audit trail, transaction reports typically include the billed amount, the current balance due, and all payments applied to the invoice.

Since they include any invoice adjustments that might be made, you can also scrutinize transaction reports to identify shortcomings in your invoicing processes and/or issues with product fulfillment.

Payment reports

These AR reports record the payment details for each customer, showing open invoices, invoices paid, and part payments. Invoices can be tracked by number and date range, as well as by currency and payment method.

Essential for accurate record keeping and tracking customer payments, this method of AR reporting allows you to stay on top of customer payments and maximize accounts receivable oversight. Payment reports can also highlight customers who pay promptly and persistent late payers.

Cash reconciliation reports

Cash reconciliation reports summarize payments received, refunds due, and credit remaining. They can be used to ensure that cash and revenue balances are reported accurately, that business operations are functioning properly, and that the company is collecting on all sales.

They also help you better understand your cash position, meaning you can make better-informed decisions.

Sales reports

Sales reports can identify your most profitable products and those with the highest number of complaints and returns. They can be used to track sales KPIs, such as the number of sales made and revenue generated, as well as customer lifetime value (CLV) – a measure of the average revenue and net profit generated through a customer relationship.

By providing insights into performance and market trends, sales reports enable businesses to improve their products and services and identify new opportunities.

How to optimize your accounts receivable reporting process

The diverse range of AR reports highlighted above can all add value to your AR reporting process. But you can optimize it further by taking the following steps:

Clear up data views

Generating relevant AR reports should be a top priority for any business – and that means collecting data that is both clear and easy to interpret. Companies can distribute data more effectively by making data available to all stakeholders on a centralized digital ERP platform and using appropriate permissions to control who can view data.

Choose the right AR reports

Companies should prioritize reports that align with their broader business KPIs and combine reports to gain further insights if necessary. For example, by combining the aging report with the sales report and receivables by customer, companies can identify their top customers in terms of revenue and their promptness when paying.

Automate where possible

Finally, automation can help companies reduce the need for manual input and increase the accuracy of data, as well as ensuring that AR reporting processes are carried out regularly. For example, companies can use enterprise resource planning (ERP) systems and digital AR systems to generate reports automatically, creating more visibility over data and facilitating deeper analysis.

Digitalizing AR management and reporting also often opens up opportunities to use AR financing tools. These allow you to free up cash from within accounts receivable for immediate use, improving your working capital position.

5 supply chain initiatives to combat ESG risks

Environmental, social, and governance (ESG) risks are a threat to both the operational health and reputation of diverse companies. But supply chain initiatives can help businesses mitigate these risks and improve their ESG performance in the meantime.

Investors and consumers are increasingly looking for companies that operate ethically and sustainably. A 2023 report by Glow and NIQ shows that half of surveyed consumers changed the food and grocery brands they purchase based on ESG considerations, for example. And that figure rises to 70% among millennials.

At the same time, ESG risks are a growing concern for businesses. A 2022 paper commissioned by Dun & Bradstreet found that companies failing to meet their ESG goals faced tangible challenges that can lead directly to increased operational and financial risk.

As the focal point for achieving potential ESG-related optimization, the supply chain is one important lever that can be used to increase a company’s resilience against ESG risk. And, as a natural by-product, companies that strive to build that resilience also have the chance to grow by attracting ESG-conscious customers.

What are ESG risks?

ESG risks can be defined as risks that relate to a company’s environmental, social, and governance activities. They can arise due to events or situations that could result in legal action, harm the organization’s reputation, or impact its value in the future.

Environmental risks

Environmental risks relate to a company’s potential to negatively impact the physical environment. Environmental risks can include:

• Use of natural resources, including water
• Land use, deforestation, and biodiversity
• Pollution and toxic products
• Waste prevention and recycling
• Climate change
• Greenhouse gas emissions
• Carbon footprint

To mitigate environmental risks, companies should aim to conserve natural resources, minimize waste, and reduce their carbon footprint throughout their entire supply chain.

Social risks

Social risks cover the possibility of communities or individuals being negatively impacted by business operations. This can include:

• Employee relations, including wage equality and diversity, equity, and inclusion
• Employee welfare and data privacy
• Workplace safety and training
• Supplier labor practices, including child labor and modern slavery
• Product safety and quality
• Customer privacy and data security

From a social standpoint, companies and their suppliers and partners are expected to treat workers fairly, respect human rights, and ensure that products are safe.

Governance risks

Governance risks refer to potential negative consequences due to misconduct by senior executives, employees, and the general poor running of a company. Specific risks may relate to the following areas:

• Board composition and diversity
• Executive remuneration
• Company integrity and business ethics, including political donations and lobbying
• Tax strategy, accounting methods, and ESG regulation compliance and disclosures
• Anticompetitive practices
• Bribery and corruption
• Illegal conduct and fraud

From a governance standpoint, companies – and their supply chains – are expected to operate ethically and transparently and be accountable to all stakeholders.

How ESG relates to supply chains

Up to 90% of an organization’s ESG footprint lies within its supply chain, meaning ESG risks can also be seen as supply chain risks. The disclosure of a single instance of ESG non-compliance, such as environmental damage, modern slavery, or child labor, can be disastrous for a business.

Conversely, the rewards can be considerable for businesses that launch ESG initiatives and take steps to mitigate ESG risks – and companies are paying attention. A 2022 survey by EY revealed that eight in ten supply chain executives are increasing their efforts toward sustainable supply chain operations.

ESG-friendly supply chain initiatives

Companies seeking to mitigate ESG risks and improve their ethical and sustainable performance can consider adopting the following ESG initiatives:

1. Build an ESG-compliant supplier base

To address ESG risks, companies need to put ESG at the forefront of how they do business – and that starts with the procurement process.

During supplier selection, companies should apply appropriate procedures and use suitable metrics to select suppliers that align with the company’s ESG policies and broader values. Suppliers’ ESG performance should also be monitored over time.

By choosing suppliers with proven ESG credentials, companies will be better placed to collaborate with those suppliers to minimize any reputational risks while maximizing the stability of the supply chain.

2. Track and report on ESG supply chain metrics

Before companies can improve their ESG performance, they first need to be able to measure their current performance to provide a benchmark.

Monitoring ESG supply chain metrics, which may range from greenhouse gas emissions and waste reduction to product safety and labor policies, is key when it comes to managing risk and evaluating the sustainability of a company’s supply chain.

By harnessing technology and adopting suitable ESG measurement and reporting systems, businesses will be better placed to manage risk, increase efficiency, and improve customer loyalty.

3. Adopt digital supply chain management (SCM) for real-time transparency

Managing large and complex global supply chains brings major challenges for businesses. To minimize risks, companies need systems that can help them ensure the smooth flow of materials and products, manage huge amounts of data, and interpret and understand the information gathered.

Adopting a digital supply chain management platform makes it easier for companies to gain oversight across the entire supply chain, track supply chain activities, measure performance against targets, and identify risks.

4. Rethink inventory management strategy

Sustainability and optimal inventory levels go hand in hand. Businesses that hold too much inventory needlessly use resources to source, produce, store, and transport items that might not even be sold.

By using an appropriate inventory system compliant with ESG principles – for example, by adopting a just-in-time approach to inventory management – businesses will be better placed to minimize excess inventory and avoid wasting resources.

However, businesses also need to consider the risks associated with this approach, such as being unable to meet an unexpected product demand surge. Digital SCM can play a role in mitigating this risk by tracking inventory and alerting businesses when stock levels are low.

5. Incentivize strong ESG supplier performance

Given that a significant portion of a company’s ESG risk lies in its supply chain, companies can also address ESG risks by incentivizing suppliers to adopt more ethical and sustainable practices.

Companies can benchmark their suppliers against recognized standards through sustainable supplier finance solutions and reward those who perform best.

This might involve using data from ESG ratings providers and/or company scorecard data to measure suppliers’ ESG performance. Suppliers can then be incentivized to improve that performance for preferential rates on early payments via supply chain finance (SCF) and dynamic discounting (DD) programs.

This way, companies can build more sustainable supply chains, demonstrate their ESG credentials, strengthen brand loyalty, and maintain or improve their competitive edge.

The supply chain process: Step by step

The supply chain process influences how effectively you manage costs, mitigate risks, and meet customer expectations. Learn how to optimize each stage here.

A guide to the supply chain process

An effective and efficient supply chain is vital to the success of any business. It contributes significantly to overall financial health, increases resilience against adverse conditions, and plays a vital role in ensuring products are delivered on time to customers.

By focusing on improving their supply chain processes, businesses can improve product quality, avoid inventory shortages or oversupply, increase customer satisfaction, protect against supply chain risks, and reduce costs.

Stages of the supply chain

A supply chain represents the flow of goods, materials, and services that underpin business operations, from sourcing raw materials to delivering finished goods. Each business has its own supply chain and is responsible for constructing and managing it to suit its unique objectives.

Involving suppliers, manufacturers, distributors, and customers, the supply chain process can be broken down into the following stages:

0. Establishing the supply chain

One of the most important steps in the supply chain process comes before it’s up and running. That step is planning and establishing a supply chain that is finely tuned to your specific business needs, the sector you operate in, and the market you serve.

During this step, you first need to decide on supply chain objectives and specify the metrics that will be used to monitor progress toward them. Then, move on to build your supply chain to suit those metrics. This includes supplier sourcing – the process of choosing suppliers to fulfil your need for goods and materials while also considering how well they serve your specific aims.

At this initial stage, you can also consider how to achieve visibility over inventory flowing through the supply chain, and determine how you’ll integrate other technological processes like cash flow and demand forecasting.

1. Purchasing materials/goods

With the sourcing of suppliers complete and the foundation of your supply chain well established, the supply chain process proper begins with purchasing raw materials and components.

The purchasing process formalizes the way in which a company buys goods and services, meaning that spending can be carefully managed and tracked. By having guidelines in place for every part of their purchasing process, from negotiating contracts to approving purchase requests, companies can ensure that their purchasing practices match their business objectives while increasing efficiency and minimizing risk.

2. Manufacturing and inventory management

The manufacturing process involves taking purchased raw materials and components and developing them into finished products. Although some manufacturing processes can be straightforward, modern manufacturing may include several steps that require products to pass through different facilities at various stages of completion.

At this stage, the priority is to make sure that the materials or components supplied meet the required standards. Rigorous measurement of supplier performance, in terms of order fulfillment rates, price accuracy, and quality of goods, act as metrics to assess them against. It’s also increasingly common to track the flow of goods and materials throughout these steps, to facilitate inventory visibility.

When complete, the final products must then be stored, so they’re ready for distribution to customers. Different options are available for this, each with their own pros and cons. The balance to be struck is between the cost of holding inventory and the speed with which you can fulfil orders.

Using inventory management techniques to oversee both raw materials and finished products, you can take steps to optimize stock levels and improve how well your inventory warehousing and product delivery process serves your business objectives.

3. Delivering products to customers

The distribution process involves the movement of finished products from storage to the end customer. Success here revolves around moving the right products, in the right quantity, on time, and to the correct location – all while managing costs.

Depending on your business goals and the market in which you operate, you can either deliver products directly to customers or distribute them indirectly through partners or third parties such as agents, wholesalers, or retailers.

Choices made at this stage of the supply chain process influence inventory cycle times and costs. Choosing the right distribution partners and tools can both drive efficiency and increase customer satisfaction levels.

4. Processing returns

Inevitably, there will be occasions when customers return products. When goods are returned, they need to be checked to see if they meet the criteria for returns and refunds. They are either repackaged for resale or disposed of, with the relevant data entered into an inventory system.

Refunds should be issued as quickly as possible, as customer relationships can be severely damaged if this process is mishandled. A smooth process, on the other hand, can strengthen customer relationships.

Optimizing your supply chain process

The supply chain process is a dynamic part of business operations, each stage of which can be optimized and refined to bring about efficiency. These are some of the most viable methods for improving the way your supply chain operates.

Choosing the right supply chain model

First and foremost, it’s essential that you adopt a supply chain model that fits both your unique objectives and the sector in which you operate.

The main dichotomy in supply chain models is between lean and resilient. Lean supply chains seek to eliminate unnecessary expenditure, turning raw materials into finished goods with minimal waste and loss. Resilient supply chains are designed to adapt quickly to unanticipated events by holding safety stock and having a degree of supplier redundancy built in. The former approach is geared to ‘just-in-time’ inventory practices, and the latter ‘just-in-case’.

The lean approach relies on all the supply chain steps functioning almost perfectly. Without safety stock, disruption from a single supplier could cause production to halt almost immediately. On the other hand, a resilient approach will come with greater storage costs and a greater risk of obsolescence while tying up more cash.

Refining your approach to supply chain management

Efficient and effective supply chain management should include all the different supply chain steps, including sourcing and selecting suppliers, procurement, supplier management, inventory tracking, and the delivery of finished products or goods.

Supply chain management (SCM) software can help in the planning, execution, and tracking of operations, thereby streamlining the entire process. SCM software can coordinate and consolidate these various supply chain steps by addressing the discrete stages of supply chain management, such as sourcing and development, ordering, production, inventory, financial management, and distribution.

By enabling different departments to work together and make better-informed decisions, SCM software can also help businesses reduce costs, increase profitability, and maximize their working capital.

Running regular risk assessments

The different stages of the supply chain present various risks, which can arise due to internal and external factors.

Internal risks include poorly planned processes, inadequate forecasting capabilities, disruptions such as staff shortages and software issues, and a lack of contingency planning. External supply chain risks, meanwhile, can include problems with suppliers, shortages of raw materials, demand volatility, and environmental and political disruption.

By establishing a thorough risk assessment procedure and analyzing supply chain risks regularly, a business can identify potential problems before they arise. Companies will therefore be better placed to mitigate any operational challenges – from major supply chain breakdowns to minor disruptions.

10 supply chain KPIs and metrics to track

We’ve listed the 10 top supply chain KPIs you can use to measure your supply chain performance and find opportunities for optimization.

10 supply chain KPIs for improved performance

Use these 10 supply chain KPIs to measure your supply chain performance and find opportunities for optimization.

The importance of a business’s supply chain to its overall operational health can’t be overstated. A poorly-run, non-strategic, or unoptimized supply chain can expose your business to various external risks. It can also negatively affect your working capital position, tying up cash in the form of excess inventory.

In short, failing to maximize supply chain operations performance can hinder business growth. Research by consulting group Kearney found that over half of consumer product companies risk missing out on growth opportunities due to inefficient supply chains.

By improving supply chain performance, you may be able to reduce operational costs, exceed customer expectations, and improve your bottom line. But before you can think about making supply chain improvements, you first need a system to measure the performance of your supply chain.

There’s a broad range of supply chain metrics to choose from. Still, the following list summarizes the most useful supply chain key performance indicators to track when it comes to improving performance:

1. Perfect order delivery rate

Perfect order delivery rate (POR) measures the percentage of orders placed that are fulfilled perfectly by your suppliers.

The simplest method to calculate POR is to take the total number of orders for a given period and calculate the fulfillment percentage against a set of chosen criteria that define a successful order. The product of these can then be expressed as the POR.

POR = (% delivered in full) x (% damage free) x (% accurate documentation) x (% delivered on time) x 100

You can use POR to measure your suppliers’ performance, individually or aggregated across your whole supplier base. You can also use it to measure your performance in delivering goods or services to customers.

2. Inventory carrying cost

Another of the KPIs in supply chain management, inventory carrying cost, measures the costs incurred due to holding your current inventory levels. These include storage costs and insurance, for example.

Inventory carrying cost can be expressed either as a monetary figure or as a percentage, which is calculated as follows:

Inventory carrying cost = (total carrying costs/total value of inventory) x 100

You can use this metric to identify opportunities for improvement in your inventory management strategy.

3. Order fill rate

Order fill rate measures the percentage of customer orders immediately fulfilled by available stock on hand. As such, it shows how well your business’s supply chain strategy is geared to meet customer demands.

Order fill rate = (total orders shipped / total orders placed) x 100

This KPI is also known as the demand satisfaction rate because the prompt fulfillment of orders is closely tied to customer satisfaction. A higher rate should result in stronger customer relationships, increased sales, and an enhanced brand reputation.

As well as giving an overview of total order fulfillment, order fill rate can be used to gain different insights into the performance of specific products.

4. Customer order cycle time

The customer order cycle time measures the average time taken to deliver an order after it has been received. It is calculated as follows:

Order cycle time = (delivery date – order date) / total number of orders shipped

Customer order cycle time is one of the supply chain KPIs that can be used to measure your performance in customer service. You can also use it to pinpoint bottlenecks in the order cycle, streamline the process and reduce average cycle time.

5. Inventory turnover rate

Inventory turnover rate shows how many times your business sells and replaces its inventory in a given period relative to the direct costs of producing the goods sold. You can calculate it with the following formula:

Inventory turnover rate = (cost of goods sold / average inventory)

A high ratio can indicate strong sales but could also result from insufficient inventory. Likewise, a low ratio could suggest weak sales or a sign that your business is carrying too much inventory and managing its inventory poorly.

6. Days inventory outstanding

Using the same data as inventory turnover rate, days inventory outstanding (DIO) measures the average number of days a company takes to turn inventory into sales. It’s calculated using the following formula:

DIO = (average inventory / cost of goods sold x number of days in period)

A large value indicates that a business is not converting inventory into sales quickly. In contrast, a small number may indicate that the business has a high turnover and is more efficient in selling inventory.

7. Days sales outstanding

Days sales outstanding (DSO) measures the average number of days your business takes to collect its accounts receivable. It’s calculated as follows:

DSO = accounts receivable x number of days / total credit sales

Generally speaking, the shorter your DSO, the faster your business collects payment from its customers. This metric is important in understanding how successful your supply chain strategy is to your working capital objectives.

8. Days payable outstanding

On the other hand, days payable outstanding (DPO) measures the average number of your business takes to settle its accounts payable.

DPO = accounts payable x number of days / cost of goods sold

The higher a company’s DPO, the longer the business takes to pay its bills. It serves the same rough purpose as DSO. You can understand how your accounts payable strategy impacts your working capital position by measuring DPO.

9. Cash conversion cycle

Unlike other KPIs in supply chain management, the cash conversion cycle (CCC) measures the full supply chain process across purchasing, inventory management, and sales. Calculated as follows, the CCC shows the number of days it takes your company to convert cash spent on inventory back into cash received through sales:

CCC = (days inventory outstanding + days sales outstanding – days payable outstanding)

CCC is one of the most widely used supply chain KPIs, a broad indicator of operational efficiency, liquidity risk, and overall financial health. It can be improved by addressing any or all of its three inputs, namely DIO, DSO, and DPO.

10. Supply chain finance utilization rate

Finally, supply chain finance utilization rate measures the percentage of orders that are paid for using supply chain finance rather than cash. By tracking this metric, you can identify whether your existing supply chain financing solutions – supply chain finance, dynamic discounting, and virtual cards – are fully utilized.

Improving supply chain KPI performance

Each of the above supply chain KPIs – and the many other existing supply chain metrics – can be used to measure distinct elements of your company’s overall supply chain performance. By establishing appropriate KPIs and regularly assessing performance against them, you can monitor the strengths and weaknesses of your supply chain and identify opportunities for improvement.

Supplier management software, for example, can be used to manage processes such as selecting suppliers, negotiating contracts, controlling costs, reducing risks, and ensuring service delivery. With inventory management software, meanwhile, businesses can track the movement of goods through their entire journey, from origination to their ultimate destination.

Finally, you can use payables solutions such as supply chain finance, dynamic discounting, virtual cards, and invoice automation to reduce costs, support your suppliers’ cash flow, and create a more resilient supply chain.

Seamless Integration of SAP and Taulia for Efficient Procure-to-Pay Processes

Discover how the integration of Taulia into the user experience of SAP streamlines the procure-to-pay process, providing a seamless transition and access to valuable analytics. Learn about the Cloud Integration Gateway (CIG) that simplifies integration with SAP and Taulia solutions, enabling faster deployments and optimized working capital.

We are pleased to announce a new update that will provide seamless integration of SAP and Taulia, ensuring a smooth experience for all users. By integrating Taulia into the user experience of SAP, every member of your team, from accounts payable to treasury and beyond, can now manage the entire procure-to-pay process through one unified solution. With a single login, an iframe within SAP displays Taulia, facilitating a seamless transition and providing immediate access to comprehensive analytics.

Analytics access

For buyers, this integration grants access to Taulia’s analytical information within SAP, eliminating the need for separate logins and searches. Gain enhanced visibility to benchmark against peers or track past performance, plan data-driven working capital strategies, deploy those strategies, and measure success – all within the SAP experience.

Streamline processes

On the supplier side, this integration streamlines their tasks, allowing them to access procurement and working capital management functions through a single login. They can seamlessly accept early payments within the Business Network while continuing their usual operations.

Overcome barriers

For buyers, the integration with Taulia simplifies the supplier experience even further. Overcoming previous barriers to adoption, suppliers can leverage their existing familiarity with Taulia, eliminating the need to learn and navigate new portals. With just one login, suppliers can effortlessly switch between SAP and Taulia without the hassle of managing multiple credentials. Moreover, minimal retraining or learning time is required since suppliers are already using SAP.

These exciting developments solidify the bond between SAP and Taulia, offering the best working capital solution on the world’s largest business network.

CIG – Taulia’s Cloud Integration Gateway

Introducing the Cloud Integration Gateway (CIG) by Taulia, a game-changing integration-as-a-service solution that revolutionizes how buyers, suppliers, and trading partners connect with SAP and Taulia solutions. CIG simplifies the integration process by providing a single gateway to connect your back-end ERP system with the SAP Business Network, SAP, Taulia solutions, or a B2B integration channel.

With the managed gateway, upgrades become simpler, bypassing lengthy change management processes and enabling faster deployments. This translates to a quicker realization of yield or optimized working capital. Additionally, the single integration gateway for all SAP and Taulia solutions helps customers reduce the total cost of ownership and achieve a faster return on investment (ROI). By leveraging Taulia, funding for other initiatives becomes available sooner, expediting the launch of other projects.

Key benefits of the Cloud Integration Gateway include:

• Standardization of business process integration
• Access to no-code integration tools for designing integration add-ons
• Single sign-on functionality, allowing users to access the managed gateway account from SAP solutions directly
• Time-saving tools for expediting the integration process, such as data transformation and validation
• Automated upgrades to leverage new cloud integration capabilities

Unlock the potential of seamless integration between SAP and Taulia through the Cloud Integration Gateway. Experience simplified workflows, optimized working capital, and reduced costs for a more efficient business environment.

To find out more about how SAP and Taulia can help your business, read more here.

Treasurer’s top of mind: A treasurer’s role in mergers, acquisitions & divestitures

In this article, we’ll share some key takeaways from the most recent Taulia Treasury roundtable on mergers, acquisitions, and divestitures.

The roundtable discussion opened with a description of the host’s experience in mergers and acquisitions (M&A). It was noted how treasurers play a crucial role in ensuring the success of these transactions. No two deals are alike, and it is easy to lose institutional knowledge over time. The lively discussion detailed the importance of treasury involvement and expertise when it comes to M&A.

No two deals are alike, be prepared and nimble

Each deal is unique and requires treasurers to be prepared and adaptable. It’s important for treasurers to be brought into the loop early on. A treasurer’s understanding of the impact that a merger, acquisition, or joint venture will have on the company’s debt and capital structure is valuable.

Knowledge and record keeping

Treasurers should have in-depth knowledge of the deal details, especially during the NDA period when very few people can know about the deal. Maintaining records, org charts, and financing model iterations as if preparing for due diligence is a best practice. The speed of a treasurer’s responses to information requests can often dictate how quickly a deal can move forwards.

Empower team members with information

Treasurers frequently become the data epicenter for deals. It’s important that treasurers empower their teams with information to support the transaction. Team members’ ability to identify and solve deal issues can only be leveraged if they have access to the relevant information.

Strong communication with tax teams

Tax teams typically know the legal entity organization chart and numbers that can both inform and complicate a treasurer’s role during a deal cycle. It is a best practice for treasurers to maintain strong communications with their tax teams during a deal cycle.

Deal financing

Treasurers’ knowledge of how a deal will be financed is critical. It is also crucial for treasurers to be aware of risks related to revolver, commercial paper, or other forms of short-term deal financing. Deal delays can happen. Having more permanent plans in place to finance a merger and acquisition is considered a best practice.

Deal integration

How companies will integrate their banking and supply chain structures can make or break a deal. Awareness of important dates, such as when Technical Services Agreements end, is key.

Until systems are integrated, infrastructure collaborations may be left unrealized. In every deal, there is a tradeoff between changing processes quickly and the risk of business disruption. Deal integration is a marathon rather than a sprint. Each company should develop strategies that achieve the balance they desire.

Similar to systems integration, changing bank structures takes time, and redirecting customers’ payments post-close is often challenging. Collections may need to stay with a certain bank for contractual purposes. Often, it can make sense to maintain separate bank accounts for several months post-close. Sweep structures can be a good option during this period. A good best practice is to isolate account activity related to an acquired business to be able to redirect it over time.

Use of proceeds and deal costs

The responsibility of treasurers typically includes internal communication of the restrictions and agreements surrounding the use of proceeds. Certain loan covenants, for example, may restrict what a company can and cannot do. Similarly, it is a treasurer’s responsibility to account for the impact on cash balances deal fees for consultants, banks, and bonus payouts will have.

Relationships rule

The relationship between counterparts makes deals happen quickly, and integrations succeed. The benefit of speaking to counterparts as specialists and discussing what the future will look like cannot be understated. Ultimately both treasury teams want each other to succeed.

The Taulia Treasurers’ Club is an exclusive forum for Taulia treasurer customers to network, have engaging conversations with like-minded peers on topics that are top of mind, challenge each other’s thinking and share best practices. The topics are driven by treasurers for treasurers. Sign-up for our treasure’s club to learn more.

The Fastest Growing Challenge of 2023 for CFOs

While CFOs have always had to deal with numerous challenges, the current environment is proving to be exceptionally complex. The global pandemic has disrupted supply chains, led to inflationary pressures, and forced businesses to adopt new ways of operating. These challenges have been further compounded by a range of global poly-crises.

Given this complex landscape, CFOs are under intense pressure to manage a wide range of priorities. They must balance the needs of their shareholders, employees, customers, and communities while navigating a rapidly changing environment. As a result, CFOs must be agile, flexible, and responsive, constantly adapting their strategies and plans to respond to changing circumstances.

In November, Taulia, in partnership with market research agency Opinium, conducted an extensive poll in four key regions (the UK, USA, Germany, and Singapore) to discover the biggest drivers and concerns for financial decision-makers for the year ahead.

The data collected showed that inflation was the highest concern, given the interest rate rises experienced during the end of 2022. With record-high interest rates and rising costs worldwide, businesses were in a precarious position going into 2023. As business expenses increased, financial decision-makers were under immense pressure to maintain existing profit margins.

Interestingly, supply chain disruption emerged as the second biggest concern for CFOs, with three in ten senior financial decision-makers citing a lack of inventory and supply chain disruption as their biggest challenge for 2023. This marks a notable shift from 2022 when supply chain disruption was the fourth biggest concern. It overtook COVID-19 and the implementation of ESG programs in the minds of financial decision-makers. This shift highlights the importance of businesses focusing on their supply chains to ensure operational resilience.

The report also highlights geographical variation, with labor shortages cited as a major concern for German businesses and preparing for new regulation as a key challenge for the UK and the US.

In response to these challenges, many CFOs are taking steps to better manage the unexpected. They are building resilience by developing effective working capital plans that enable them to weather the storm of inflation and supply chain disruptions while continuing to drive growth. This involves optimizing their cash flow, managing inventory levels, and developing strong relationships with suppliers and customers.

Despite the challenges, CFOs remain optimistic about the future. They recognize that the world is changing rapidly and that there are many opportunities for growth and innovation. With the right strategies and plans in place, they believe that they can navigate the current environment successfully, and emerge stronger and more resilient than ever before.

In summary, 2023 is presenting complex challenges for CFOs, and it is crucial that they remain agile and well-positioned to tackle future challenges. The ability to anticipate and manage risks, particularly in relation to supply chains, will be key to achieving resilience and growth.

For more insights, download Taulia’s Working Capital Revolution report.

A guide to accounts receivable management

A more sophisticated approach to accounts receivable management can free up working capital and drive efficiency. Here’s how to approach it.

In competitive markets or challenging economic conditions, businesses benefit from optimizing for working capital. Freeing up funds provides more financial ammunition that can be used to fuel growth or build operational resilience.

Accounts payable optimization is often the first target for businesses seeking a stronger working capital position, but it’s not the only option available. Accounts receivable optimization is another opportunity that’s well worth pursuing.

Businesses can focus on improving their approach to accounts receivable (AR) management, and in the process unlock more cash, reduce operational costs, and improve overall efficiency.

Let’s take a closer look at what the accounts receivable management process involves and how companies can manage their AR more effectively.

What is accounts receivable management?

Accounts receivable management refers to the approach taken to managing and collecting outstanding customer payments, which are collectively labeled accounts receivable. Listed as a current asset on the balance sheet, accounts receivable represents the value of all outstanding invoices.

It’s often a relatively significant figure in total but isn’t able to be deployed in operations until customers pay their invoices. Late payments can, therefore, be detrimental to the financial health of a business and its ability to capture opportunities.

The faster companies can collect payment from customers, the sooner they can use the resulting cash to cover operating costs, build resilience, generate returns from investment, or drive revenue growth.

In short, AR management is concerned with expediting the process of collecting outstanding customer payments. Done effectively, it can be just as valuable a lever as accounts payable when it comes to building a strong working capital position.

But it’s not without its challenges. Siloed or inaccessible AR data, difficulty tracking outstanding invoices, cumbersome customer communications, and time-consuming reconciliation processes can all make the AR collection process less efficient.

Fortunately, companies can address these and other challenges by practicing effective AR management. This not only improves the performance of the AR department in isolation but can also benefit the business as a whole.

The accounts receivable management process

Before moving on to methods of improving the AR process, it’s useful to first review the process itself. While the details may differ from company to company, the accounts receivable management process typically includes the following steps:

1. Establishing credit policies: The first step in AR management comes at the point of onboarding new suppliers. Establishing suitable policies that outline customer credit terms, including permissible levels of outstanding credit and favorable payment terms, makes sure that AR is primed for success.
   
   Credit policies should also detail penalty fees for late payments.If a customer has multiple late payments, consider changing your credit policy. Require the client to make a deposit before filling any future orders. In extreme cases, you may insist on full payment when the order is placed.
   
   
2. Invoicing customers: Invoicing is the first step in the accounts receivable process proper. Invoices should be accurate, clear, and easy to read, detailing the products supplied and/or work done. Invoices should also cite the agreed payment terms and due dates, as set out in the established policies. To avoid delays in payment, invoices should be sent out as soon as possible.
   
   
3. Tracking receivables: Companies should proactively track the status of their receivables in order to understand how much money is outstanding at any given time. With greater visibility, the most important payments can be prioritized. Centralized AR management systems can help to make this easier to handle.
   
   Track receivables using an accounts receivable aging schedule. The schedule groups receivable balances based on how long the invoice has been outstanding (30 days, 60 days, etc.). An aging schedule provides a snapshot of the total dollar amounts owed and how late payments are.
   
   
4. Managing disputes: When an invoice is disputed, companies need to have the right processes in place to achieve a rapid resolution. As well as helping to maintain healthy cash flow and reduce the number of due payments that get written off as bad debt, effective dispute resolution helps to strengthen relationships with customers.
   
   
5. Chasing payments: By sending reminders before an invoice is due, companies can encourage customers to pay on time. Invoices that become overdue need to be identified as soon as possible, and customers chased for payment.

How to improve accounts receivable management

The above mentioned process is full of sub-processes that can be optimized and improved to make accounts receivable management more efficient overall. There are several key ways to improve AR management, including:

Making payment terms clear

Arguably the most important part of an AR process, ensuring customers have a full understanding of payment terms and policies, can prevent issues from arising when it comes to actually settling invoices.

Payment terms should be spelled out explicitly to customers during the onboarding process, stating due dates, available early payment discounts, and any potential late fees or charges. By highlighting terms in initial agreements and ongoing correspondence – which can be referenced in the event of any dispute – companies can avoid future misunderstandings.

Using the right KPIs to measure performance

There are various key performance indicators (KPIs) companies can use to measure the general effectiveness of their approach to accounts receivable management, and to monitor the effects of optimization. Common AR metrics include:

• Days sales outstanding (DSO): DSO is widely used to measure the average number of days that a business takes to collect its accounts receivable. While standard payment terms can vary, the shorter the DSO, the faster the business collects payment from its customers.
• Accounts receivable turnover ratio (ART): The accounts receivable turnover ratio measures the average number of times that AR is turned into cash during a given period. The higher the turnover ratio, the more efficient the AR process. As such, the ratio can indicate whether invoices are being settled faster or more slowly over time.
• Collection effectiveness index (CEI): By comparing the amount collected during a period of time to the value of outstanding receivables during the period, the CEI shows how effectively a business’s AR management is converting credit sales into cash. The closer the CEI is to 100%, the greater the effectiveness of the company’s collections.
• Average days delinquent (ADD): ADD measures the average number of days that invoices are past due or delinquent at a given point in time. Unlike DSO, it is only used to evaluate invoices that have gone beyond their agreed settlement date.

Building strong channels of communication

Effective communication increases trust and the flow of information in buyer-supplier relationships, whereas ineffective communication limits it. Open communication channels allow businesses to build positive customer relationships, making it easier and simpler to chase payments and settle disputes.

Your business should have a formal collection policy that is consistently enforced. If you consistently enforce these policies, customers may pay invoices sooner to avoid your collection follow up.

Adopting a centralized digital AR management system

By implementing a centralized digital accounts receivable management system, businesses can gain more visibility over unpaid invoices and track customer performance more effectively over time. It’s important to ensure that any centralized system is accessible to all stakeholders, with appropriate controls.

Making payment simple for customers

Late payments aren’t always the buyer’s fault – the range of payment options the supplier offers can impact on-time payments too. Offering various payment options beyond simple paper-based invoicing, including solutions such as electronic invoicing and digital payment portals, makes it easier for customers to pay, thereby reducing delays.

Integrating automation

Businesses can also improve AR efficiency by streamlining the receivables management processes. Automating different parts of the process – enabling automatic invoice creation from purchase orders or sending automatic payment reminders, for example – is a quick way to improve inefficient manual processes, reduce costs, and minimize the potential for human error.

Accounts receivable financing as a working capital solution

Lastly, businesses can use accounts receivable financing to improve their accounts receivable management and support their broader working capital objectives. AR financing acts as a line of credit backed by outstanding monies owed by customers, generating working capital in return for a chosen portion of its accounts receivable.

Taulia Accounts Receivable Financing offers an efficient – and flexible – way to access cash and free up working capital without harming supplier relationships. With our innovative technology, businesses can connect with our platform, bypass the limits of traditional AR financing, and start accessing funding across the entire cash conversion cycle.

FAQs

What is accounts receivable management?

Accounts receivable management refers to the approach taken to managing and collecting outstanding customer payments, which are collectively labeled accounts receivable.

Why is accounts receivable management important?

When customers pay faster, you have more cash available to fund operations. You can avoid borrowing more money or raising equity to finance operations.

What are the key KPIs for accounts receivable management?

Days sales outstanding (DSO), accounts receivable turnover ratio (ART), collection effectiveness index (CEI), and average days delinquent (ADD) are the key metrics for account receivable management.

Choosing the right type of supply chain model

Companies operating in competitive markets need an edge. Choosing the right supply chain model can provide one. Here’s how to decide what model is right for your business.

The right approach to supply chain management can bring about significant operational advantages. Aside from the primary benefits, like ensuring customer orders are fulfilled on time, a well-managed supply chain can be the driving force behind operational efficiency and actively protect against supply chain risks.

There is a dichotomy between these two benefits. A more efficient supply chain reduces the cost of procurement, manufacturing, transportation, and other business operations, resulting in higher margins. Meanwhile, a more resilient supply chain can better respond to changing circumstances and recover more quickly from disruptions.

While efficiency and resilience are desirable traits in a supply chain, companies may prioritize one or the other of these goals depending on their business requirements. This is the fundamental process through which they decide which supply chain model is right for them.

Popular supply chain models

Supply chain models are essentially frameworks around which businesses formulate and develop a more sophisticated supply chain strategy. The choice of a particular model will be dictated by the aims of the business, the nature of the products they sell, and market trends/demands. There are plenty of models to choose from, but these are some of the most common:

Continuous flow

Continuous flow is one of the most traditional supply chain models designed to minimize waste and maximize efficiency. Focusing on the throughput of raw materials and goods requires seamless synchronization of all stages of the supply chain, from procurement to delivery. This model enables companies to hold less inventory and reduces the time taken for products to move through the chain.

Fast chain

Speed and agility are prioritized in the fast chain model. Highly adaptable, this approach is best suited for businesses selling products that change frequently or have short lifecycles. By harnessing automation and data analysis to enable real-time supply chain visibility and demand forecasting, companies can deliver products to market faster and respond rapidly to changes in demand or challenging market conditions.

Efficient chain

An efficient chain model seeks to streamline processes and use resources in the most effective way. By maximizing supply chain efficiency and minimizing waste or redundancy, businesses can reduce operational costs and increase overall profitability. With an emphasis on supplier management – selecting vendors, negotiating contracts, and controlling costs – companies using the efficient chain model will finetune their supplier base to meet their supply chain objectives.

Although not primarily designed for agility or resilience, this model helps businesses stay competitive in normal market conditions.

Agile

Prioritizing the ability to adapt rapidly to changes in demand, the agile model is suitable for businesses that deal in made-to-order products and specialty items or for businesses that operate in markets where demand is unpredictable. The agile approach minimizes the time frame between orders being placed and manufacturing being carried out.

Integrating real-time demand data and inventory visibility to enable high sensitivity to changing market factors, agile supply chains often have redundancy baked into the supply chain. This isn’t the most cost-effective approach, but it does increase supply chain resilience and is, therefore, suitable when market conditions are challenging or unpredictable.

Custom-configured

The custom-configured supply chain model is a bespoke approach that merges the principles of continuous flow and agile supply chain models.

As its name suggests, it facilitates custom configuration during a product’s production and assembly. This approach is, therefore, ideal for businesses selling products that can be personalized. Although materials for the non-customizable parts of the product will need to be supplied at a constant rate, those for the personalized elements may be supplied at variable rates.

A custom-configured model tends to involve a higher initial outlay for supply chain design and set-up. However, it can deliver efficiency over time – and since it offers a high degree of customizability, it may suit companies with particularly unique business objectives.

Flexible

With the potential to deliver the best of both worlds – efficiency, and agility – flexible supply chain models are suitable for businesses that experience periods of extremely high demand followed by periods of low demand.

Companies can dynamically adjust their procurement of materials and alter production levels by taking advantage of effective demand forecasting and real-time inventory tracking. As such, activity can be scaled up when demand is high and reduced when it is low. This model often involves a broad supplier base, with some suppliers chosen for speed and others for cost-efficiency.

How to choose the right supply chain model

There is no right or wrong supply chain model, but some models are better suited than others to achieve a particular business’s aims.

When it comes to supply chain modeling, businesses need first to develop a comprehensive understanding of the market they operate in, their customers’ needs, and the business’s operational objectives.

They can then evaluate the pros and cons of various supply chains and decide which approach best suits their specific aims. By combining different elements from various models, businesses may adopt a more bespoke supply chain strategy.

Whatever the chosen model, companies can further strengthen their supply chain management approach by deploying working capital solutions. These solutions allow for better working capital management, and a stronger working capital position means businesses can invest more in further optimizing their supply chain.

Supply chain finance and dynamic discounting are two of the most common working capital solutions, and they have key differences:

• Set up by the buyer, supply chain finance allows suppliers to receive early payment on their invoices by accessing finance at a cost based on the buyer’s credit rating. By enabling suppliers to source capital from a bank or other financial provider at a lower cost, buyers are in a stronger position to negotiate better terms.
• With dynamic discounting, a supplier receives payment for an invoice earlier than its due date in exchange for giving a discount. The earlier the payment is made, the greater the discount. This approach allows purchasers to take advantage of automated early payment discounts. Suppliers, meanwhile, can choose which invoices they want to accelerate and how early they wish to be paid.

 
A dedicated inventory management system is also a strong addition to a supply chain management strategy, allowing businesses to track and manage the flow of goods through their supply chain. This enables businesses to oversee inventory sourcing, storing, and selling more effectively, making it easier to understand and achieve optimum stock levels to fulfill demand while avoiding waste.

Some inventory management systems may offer further benefits. Taulia’s Inventory Management solution, for example, enables buyers to align the flow of goods with production demand. The solution can take ownership of goods-in-transit or at a nearby warehouse, improving balance sheets for both buyers and suppliers. Companies can therefore build up nearby safety stocks to mitigate the risk of outages and enjoy greater economies of scale by purchasing larger volumes while still receiving just-in-time deliveries.

Treasurer’s Top of Mind: A renaissance of working capital risk assessment

A Renaissance of Working Capital Risk Assessment – March 2023

The collapse of Silicon Valley Bank (SVB) sent shockwaves through the financial world, and Treasury experts have been analyzing what went wrong ever since. In this article, we’ll explore the insights and opinions expressed at a recent Taulia Treasury roundtable about how the SVB collapse is leading to a renaissance of working capital risk assessment.

SVB’s Collapse

The roundtable discussion opened with a brief about the SVB collapse. It was noted that SVB was the most respected and trusted institution in Silicon Valley, and poorly timed bond purchase decisions set in motion the events that led to its downfall. Poor downside scenario planning, communication mismanagement, and misguided incentives combined to the renown bank’s demise. SVB was the only bank of its kind and its demise had a significant impact across VC’s and tech startups.

Working Capital Management Blind Spots

Duration risk and the possibility of a run on bank deposits represented the two major blind spots in the company’s risk management approach. SVB did not account for how the fiduciary obligations of VC customers as well as the officers of the companies would force an immediate withdrawal of deposits. The company mistakenly assumed deposits they had would allow them to wait out losses and mitigate the impact of declining bond values. Finally and somewhat ironically SVB’s CEO’s attempts to assure customers had the opposite effect of drawing attention to the potential risk and exacerbating the exodus of SVB deposits. SVB may have been able to survive its fateful bond purchase decision in 2021. How communications were handled and customers’ reactions ultimately sealed their fate.

Mitigating Working Capital Risk

The lesson SVB highlights is that for a company’s treasury or CFO, diversification is the key to mitigating working capital risk. Having more than one bank and redundancies to maintain payments in a worst case scenario is crucial. The lesson for companies is to evaluate counterparty risk constantly rather than wait for a crisis to happen.

Taulia’s Risk Management Strategy

Taulia’s Chief Executive Officer, Cedric Bru, explained Taulia’s approach to working capital risk mitigation. Taulia maintains a diverse and deep network of US, Asian, and European banks, ensuring diversity in funding. At any time, Taulia has three times the funding capacity to fulfill the demand on its platform. These steps are taken to mitigate risks of customers that choose Taulia. This diversification in combination with operational capability to seamlessly switch funding sources provides a future proof solution companies can rely on. Last but not least, Taulia, with the backing of SAP high Investment Grade Credit Rating, gives customers the confidence they need to manage their working capital.

Lessons Learned

The SVB collapse highlighted the need for treasurers to be more proactive in evaluating counterparty risk. Diversification is the key to mitigating this risk. It’s also important to maintain redundancies for key elements that could jeopardize the business as a whole. Lastly, the historical data is just a data point, not a predictor, and treasurers need to look at current scenarios and anticipate future risks.

Conclusion

The collapse of Silicon Valley Bank was a wake-up call for the financial industry, especially for treasurers. It highlighted the need for working capital risk assessment and diversification to mitigate potential risks. Taulia’s strategy of funding diversity provides a model that other companies can use to protect themselves from working capital risks. By learning from this experience, treasurers can better prepare themselves for future challenges and build a more resilient financial system.
 
 
The Taulia Treasurers’ Club is an exclusive forum for Taulia treasurer customers to network, have engaging conversations with like-minded peers on topics that are top of mind, challenge each other’s thinking and share best practices. The topics are driven by treasurers for treasurers. Sign-up for our treasure’s club to learn more.

Harnessing the power of AI

When embarking upon any working capital optimization programme, buyers should know the answers to three key questions:

1. How much trapped cash can I unlock from my supply chain?
2. How much cash should I deploy into my supply chain?
3. And how will these actions impact my suppliers?

While the answers to these questions are fundamental to realizing the benefits of supply chain finance (SCF), in reality, few companies have this information available on-demand. Consequently, much of the global working capital opportunity remains untapped with as much as US$14 trillion currently trapped in supply chains around the world – according to research by the Supply Chain Finance Community and Windesheim University.

For buyers looking to unlock this cash and put it to work, there are many different tools and strategies available, from extending payment terms to securing financing for receivables. But in practice, many such initiatives fall short of their targets. Often this is due to poor visibility over the cash deployed across the enterprise, or a lack of internal consensus about which working capital strategies to pursue first. Companies may also lack tools sophisticated enough to adapt in line with evolving business objectives/ market conditions and can struggle to gauge the impact of working capital programmes on their suppliers.

Enter AI

This is already changing. At the cutting edge of development in this area, leading vendors are using technologies such as artificial intelligence (AI). By doing so, they are giving buyers a far more detailed understanding of the potential benefits of enterprise-wide working capital strategies, and of how different techniques can be deployed to achieve the company’s goals. In practice, this could mean predicting which invoices suppliers will choose to accelerate under a range of different conditions. Or it could mean leveraging the power of AI to extend the cash forecasting process all the way down to the purchase order level. As technology continues to evolve, buyers will be able to unlock working capital and deploy cash into their supply chains more effectively than ever before. So where are the most significant areas of opportunity and how can buyers take advantage of these developments?

Reaching a shared understanding

First and foremost, any successful working capital strategy needs to be based on a consistent set of facts. Historically, treasury and procurement professionals tended to have very different perspectives on the benefits and risks of different working capital initiatives. Exacerbated by key data being trapped in multiple ERP systems within a single organisation, these differences in opinion can make it difficult to get any working capital strategy off the ground.

The use of AI can help overcome these issues. Combining internal data with third party data not only provides visibility into the organisation’s metrics, but also gives the context needed to understand how the company compares to its peers in areas such as DPO.

Further value is added if the technology vendor’s network data is also incorporated into this shared understanding. If vendors are able to draw upon data from the millions of suppliers that interact with their platforms, buyers will be in a much better position to understand the scale of the working capital opportunity available to them, and the potential impact to their supply chain. They will also be better placed to communicate a single set of quantifiable facts across the organisation.

Pinpointing the best approach

Also significant is the way technology can be used to identify the optimum approach for suppliers. In recent years, the costs involved in machine learning have plummeted, giving rise to a new era of affordable prediction. Where SCF is concerned, one of the most exciting areas of development lies in running predictive scenarios and assessing whether suppliers will choose to accelerate payments under different conditions.

For example, vendors can feed data from the buyer’s ERP system (along with big data from external sources) into their machine learning to produce predictions about suppliers’ behaviours relative to individual invoices. They may also be able to bring in information about suppliers’ cost of capital and industry expectations regarding DSO. Vendors with strong networks may also be able to draw upon insights from those networks about how suppliers react to offers at varying payment terms, sizes, rates and tenors.

Based on this information, vendors can identify the most suitable payment terms for individual suppliers and determine the level of flexibility that buyers may need in managing those terms. This exercise should be conducted in lock-step with AI to determine the most appropriate APR to offer suppliers. For example, a buyer offering a self-funded dynamic discounting programme could find that there is a 20% likelihood that a specific supplier will opt to accelerate payments at 8% APR. At 6% APR, the probability might go up to 25%, but the net yield would be lower. Conversely, at 10% there might be only a 1% chance that the supplier will accept the offer.

Of course, the likelihood of supplier acceptance is only one part of the equation: the platform also needs to provide insights into the yield that the buyer can expect from early payments based on different APRs and the impact these early payment offers will have on their suppliers’ financial health. In this way, buyers can take advantage of prediction and network insights to find the APR that best balances supplier adoption levels against their required rate of return.

Realizing the opportunity

The ability to run ‘what if?’ analysis can also provide valuable insights into the scale of a buyer’s working capital opportunities. This includes enabling buyers to see the impact of injecting more cash into their dynamic discounting programmes, as well as spelling out how this would affect their rate of return.

Vendors drawing upon these developments will be better placed to help buyers realize the opportunities available. As above, data-driven insights could indicate that a different APR would provide better results – but equally, they could suggest that more suppliers should be enrolled on the programme, or that invoices should be approved faster to lengthen the acceleration window (the period between approving an invoice and its due date). In many cases, technology will simply illuminate straightforward operational improvements – albeit with higher precision and greater impact.

In other cases, the available data may suggest that a certain number of suppliers are unlikely to accept the buyer’s lowest available dynamic discounting rate. In such cases, there may be opportunities to switch those suppliers from dynamic discounting terms to the company’s SCF programme. In other words, a Fortune 500 company might not accept dynamic discounting at a 9% APR – but it might accept an SCF offer of LIBOR plus 80 basis points.

Whatever the recommendations, the insights and predictions delivered by technology need to be readily actionable if they are to provide real value. Again, technology can support companies in putting their insights into practice. This could involve automating a planned terms extension for small suppliers. It could also mean arming procurement staff with the knowledge of a given sector’s average payment terms or a supplier’s estimated carrying cost with and without early payments, ahead of payment term negotiations.

Impact on supplier health

Another way in which AI can boost SCF is by providing a clearer view over supplier health, and the impact that different actions could have on the company’s supply chain. As such, technology will increasingly enable buyers to track how the changes they make to their supplier payment terms and SCF programmes affect suppliers over time.

This might include looking at areas such as the supplier’s average payment terms in the market. For example, if a supplier’s market average is 84 days, it may be unreasonable to expect that supplier to move to 180 days payment terms – but 90 days may be a realistic goal. Having access to this type of information is highly likely to prove beneficial when negotiating a terms extension.

Likewise, supplier health metrics might consider the buyer’s own payment performance and whether the buyer is consistently paying suppliers on the agreed date, as well as tracking how frequently suppliers are taking advantage of early payments.

Forward planning

Beyond the working capital benefits of AI and machine learning, technology also has considerable potential when it comes to understanding the cash flow implications of an early payment strategy. For example, by combining the entire document stream with predictive analytics, technology can provide more clarity over not just the invoices that are due but also the probability that suppliers will choose to request early payment on specific invoices. This, in turn, leads to greater visibility over future cash flows:

• Planning for payment spikes. For one thing, companies can gain insights into the likelihood of payment spikes at specific times, such as month end or quarter end when suppliers may be more likely to choose early payment. Based on this data, buyers can act to ensure that enough cash is available to cover supplier demand for working capital.
• Predictions at the purchase order level. Also of interest, is the use of AI to figure future orders into the cash forecast at a much earlier point in the purchase-to-pay cycle. Currently, most cash forecasting is based on approved invoices – but predictive technology opens the door for companies to extend this to the purchase order level. Buyers may be able to predict with confidence that a purchase order will turn into an invoice in 82 days, the invoice will have payment terms of 90 days, but the supplier will likely select early payment on day 10.

In this way, technology can not only help companies unlock working capital benefits, but also support more effective forecasting and cash planning.

Bringing it all together

AI has the power to transform the approach and impact all parties involved in SCF. This transformation is already underway. Today many SCF providers are proactively bringing together the key tools of big data, AI, system integration and network insights gleaned from millions of connections on their platforms. In this way the buyers are empowered to address early payments and free up working capital in a far more strategic way than has previously been possible.

It is clear that the insights provided by AI and machine learning need to translate into action in order to realize cash benefits. Unlike one-off working capital initiatives, which become redundant once the goals of the programme have been met, next generation working capital strategies need to adapt in line with the buyer’s evolving needs in order to provide lasting value.

The possibilities are considerable. By supporting intelligent planning, next generation technology will empower treasury and procurement to pivot their strategies as often as needed, based on the current market environment and business goals. This might mean turning off dynamic discounting offers at certain times, or better yet moving suppliers from dynamic discounting to SCF terms in order to continue supporting suppliers working capital needs. Once buyers understand the different levers available to them, and the impact of pulling these levers to varying degrees, they will be able to gain far greater control over their programme.

Likewise, developments in technology will make it easier for companies to gauge the success of their working capital strategies. Increasingly, buyers will be able to assess their progress in meeting their working capital goals, with visibility over how much cash has been unlocked in different regions or even by different members of the procurement team. This will make it easier for companies to change course when needed, while continuing to make micro adjustments along the way. Greater visibility will also enable buyers to assess the impact of their decisions on supplier health over time.

Conclusion

Developments in AI and machine learning are already reshaping working capital, and further benefits will follow. In the next couple of years, cheaper predictive capabilities will increasingly enable buyers to understand the extent of their working capital opportunity and forecast which suppliers will choose to finance their invoices. At the same time, companies will be better positioned to understand the likely impact of different adjustments to their working capital strategies, whilst benefiting from greater visibility over their future cash flows.

In other words, technology will increasingly support buyers by providing detailed and timely answers to the questions that inform their approach to SCF: “How much trapped cash can I unlock from my supply chain? How much cash should I deploy into my supply chain? How will these actions impact my suppliers?”

Article originally published in BCR on 6 December 2019

Will inflation rage the longest in the UK?

We surveyed 550 senior stakeholders at companies with revenues of more than $750 million USD across the USA, UK, Germany, and Singapore. While none of these territories have been able to escape the present global economic adversity fully, the UK appeared a striking outlier in terms of the scale and severity of the challenges inflation poses to its business community.

In 2021, as the world emerged from the height of the COVID-19 pandemic, a combination of soaring demand after lockdowns eased and ongoing disruption to supply chains caused a sharp uptick in inflation¹.

Russia’s invasion of Ukraine compounded this difficult situation in early 2022. Energy prices immediately soared, with oil, coal, and gas shooting up 40%, 130%, and 180%, respectively, in the first two weeks of the war alone². Global inflation went on to hit 8.8% in 2022. Some countries found themselves, particularly in the firing line: inflation in the UK reached 9.3% in November 2022³.

Inflation is not just an abstraction represented in percentages: it can have real and lasting effects on both consumers and the businesses that serve them. Higher input costs, for example, raw materials and labor, increase the cost of producing and distributing goods and reduce profit margins.

Suppliers may face difficulties in meeting their commitments due to increased costs or shortages, resulting in – at best – delays. The more complex and wide-ranging the supply chain, the more vulnerable it can be.

Demand, meanwhile, can shift rapidly as consumers reprioritize their spending in response to rising prices, while inflation can also lead to unpredictable fluctuations in exchange rates, in turn adding to costs and making managing supply chains more difficult.

The outlying UK

In our survey of senior stakeholders, 87% of decision-makers at leading British firms reported anxieties around the impact of price disruption on their activities, and 48% said they expected these problems to worsen over the next year. Overall, 47% of British leaders said they expect inflationary conditions to last more than two years, compared with 34% in Germany and 28% in the US.

At the same time, 41% of respondents identified inflation as their key concern over the previous years, with 45% saying they expected it to remain their greatest concern over the next year.

Not only was the UK most concerned with the impact of inflation in the short term, but our sample also suggests that their financial decision-makers are the most pessimistic about the years ahead. While 47% of our survey’s respondents worldwide expect inflation to cool in the next 12 months, only 35% in the UK expect to undergo the same transition.

These ongoing cost pressures are likely to be passed on to the British consumer: 40% of UK businesses reported plans to increase prices, significantly ahead of the US 33%, Germany 29%, and Singapore 28%.

These business concerns are born out when we compare the UK’s inflation rate with its international peers: as measured by the CPI (a different measure to the one quoted above), inflation in the British economy was 10.5% in the year to December 2022, compared with 5.4% in December 2021. Euro area inflation reached 9.2% in December, with France recording 6.7%. Meanwhile, in December, the USA reported inflation at 6.5%⁴.

British challenges

The figures quoted above throw into relief the challenges inflation poses to the UK’s business leaders and policymakers. Why is the UK so acutely exposed?

Post-Ukraine energy prices are, of course, a key factor, with the UK a significant net importer of energy, and they no doubt played a role in sustaining inflation throughout 2022. However, inflation was already at 30-year highs at the beginning of 2022 – before the war began.

Global supply chain pressures took their toll as Asian manufacturing hubs struggled to keep up with demand from other markets that had emerged from lockdowns. At the same time, they remained affected by measures to contain the virus. This led to shortages in materials like plastic, concrete, steel, and timber, and in January 2022, it cost $17,000 USD to send a shipping container from Asia to Europe – compared to $1500 USD in January 2021⁵.

This comes after the UK consumer has been relatively flush thanks to lockdown savings. During 2020 and 2021, the UK’s savings ratio shot up to thirty-year highs⁶; this spare cash, coupled with supply chain issues, will have played a significant role in driving up inflation.

Concurrently, whether driven by older workers declining to return to work after lockdowns or a classic wage-price spiral, a tight post-Covid labor market has added to businesses’ costs. Annual growth in average earnings rose to 6.4% in the three months to November 2022 – below inflation but a historically high rate nonetheless.

It’s also important to consider the value of the pound as a key determinant in how the UK can manage inflation.

Most commodities, including oil and gas, have their wholesale prices quoted in US dollars; a weaker pound, therefore, leads to higher import prices. In September 2022, the pound fell against most major currencies. And while it has regained some ground, as of 19 December last year, it was still 5% weaker against a basket of key currencies compared to the beginning of 2022⁷.

A weaker pound means it costs more to import the same quantities, whether of finished goods or energy, raising business costs and contributing to the overall inflation rate. This can take effect in unpredictable ways, as many businesses set their prices in advance, and these contracts expire and must be renegotiated at times and in ways high-level data can find hard to capture.

Ongoing trade disruption from Brexit may also be a contributing factor, particularly around food prices, but it is difficult to distinguish its effects from the other factors driving up prices⁸.

An evolving picture

So, the UK in 2022 was particularly afflicted by inflation thanks to various interacting structural and contingent factors.

However, since we conducted our survey in November, the situation has developed, and there are green shoots that could serve as the basis for some optimism.

There are indications that global supply chain pressures are easing⁹, and wholesale gas and electricity prices have fallen far short of their Spring 2022 peaks¹⁰.

The Bank of England in February raised its base rate to 4%¹¹; given the lag inherent in the effects of monetary policy, it is likely that the cost of money, at the time of writing, its highest since before the 2008 financial crisis¹², will have a cooling effect on the British economy and in turn ease inflationary pressures. The Bank of England now expects inflation in the UK to fall to around 4% by the end of this year ¹²¹³, with a shallower fall in output predicted than in November of last year ¹⁴¹².

However, this policy response is not without cost, with the IMF now forecasting the UK economy to contract by 0.6% this year – the only major economy expected to shrink, with even sanctions-hit Russia expected to grow more¹⁵.

This relatively poor growth forecast is just one of the issues facing British policymakers: productivity has been stagnant in the UK since 2007¹⁶¹⁵, and business investment has been similarly static for more than half a decade. More recently, business investment in the UK has lagged its international peers since the height of the pandemic¹⁷¹⁶.

The outlook, then, is a forbidding one for business leaders in the UK. Officials at the Bank of England have stated that they don’t see growth of more than 1% as possible without causing inflation¹⁸¹⁷, indicating the scale of the challenges facing policymakers as they attempt to revitalize the British economy and bring inflation under control.

If and when this is achieved, decision-makers in the UK will be able to make decisions about how to manage their supply chains with greater confidence in an environment of greater stability and with a clearer picture of the landscape ahead.

New challenges

It will be interesting to see if the other challenges listed by the financial decision-makers we surveyed overtake inflation over the course of 2023.

Geopolitical issues are unlikely to subside, given the lack of an end in sight for the Ukraine war and growing concerns around the status of Taiwan.

However, as we’ve mentioned, lack of inventory and supply chain issues will likely retreat as priorities. Other candidates for the main challenges that companies face include managing cash flows to maintain positive cash positions, preparing for new regulations, and developing and deploying sustainability and ESG programs.

It’s fair to say, however, that while the UK’s prospects for the rest of the year are now looking more benign than they were towards the end of last year, it is fair to say that other advanced economies do not face nearly so steep a hill to climb.

Read more of our findings from across the globe and get first access to new releases here.
 
 
Sources:
1, https://www.statista.com/statistics/256598/global-inflation-rate-compared-to-previous-year/
2, https://www.ecb.europa.eu/pub/economic-bulletin/focus/2022/html/ecb.ebbox202204_01~68ef3c3dc6.en.html
3, https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/december2022
4, https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/december2022; https://www.bls.gov/news.release/cpi.nr0.htm
5, https://www.bbc.co.uk/news/business-59982702
6, https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/dgd8/ukea
7, https://www.bankofengland.co.uk/boeapps/database/fromshowcolumns.asp?Travel=NIxAZxSUx&FromSeries=1&ToSeries=50&DAT=RNG&FD=1&FM=Jan&FY=2017&TD=19&TM=Dec&TY=2022&FNY=Y&CSVF=TT&html.x=66&html.y=26&SeriesCodes=XUDLBK82&UsingCodes=Y&Filter=N&title=XUDLBK82&VPD=Y
8, https://ukandeu.ac.uk/wp-content/uploads/2022/04/UKICE-Supply-Chains-Report_Final.pdf

9, https://libertystreeteconomics.newyorkfed.org/2023/01/global-supply-chain-pressure-index-the-china-factor/
10, https://www.ofgem.gov.uk/energy-data-and-research/data-portal/wholesale-market-indicators
11, https://www.bankofengland.co.uk/-/media/boe/files/monetary-policy-summary-and-minutes/2023/monetary-policy-summary-and-minutes-february-2023.pdf
12, https://tradingeconomics.com/united-kingdom/interest-rate#
15, https://www.imf.org/en/Publications/WEO/Issues/2023/01/31/world-economic-outlook-update-january-2023
1615, https://commonslibrary.parliament.uk/research-briefings/sn06492/
1716, https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/businessinvestment/julytoseptember2022revisedresults#
1817, https://www.ft.com/content/d411a8eb-5fa4-4ae5-86aa-c856c57c6769

9 ways to improve working capital

Working capital is the lifeblood of a business. Here are nine of the best ways to improve your working capital position to fuel growth or build resilience.

Working capital – or current assets minus current liabilities – is an indicator of a business’s short-term liquidity. By improving working capital, businesses can ensure they’re able to meet financial obligations, maintain a steady flow of production, and generally keep operations running smoothly. Accordingly, strategies designed to improve a business’s working capital position can bolster operational health, enabling ongoing profitability, resilience, and competitiveness.

Effective working capital management – a process usually geared around improving working capital by freeing up cash trapped on the balance sheet or in inventory – is crucial in turbulent economic conditions. In EY’s CEO Outlook Pulse from January 2023, over half of the respondents said optimizing net working capital would be “very important” over the next six months.

As well as offering protection from external threats such as inflationary pressures or a state of global recession, working capital management can also allow businesses to prioritize investing in future growth. That makes it an undeniably important part of building a strong business.

Measuring working capital

Before discussing how to improve it, let’s first cover how to measure working capital. The standard calculation for working capital uses the following formula:

Working capital = current assets – current liabilities

Current assets include cash and cash equivalents, accounts receivable, and inventory. Current liabilities include short-term loans, bank overdrafts, and accounts payable.

How to improve working capital

There are a huge number of ways to improve working capital. Working capital improvement techniques that are widely adopted because of their effectiveness, include:

1. Expedite accounts receivable collections

Accounts receivable represents money owed to a business but has yet to be collected. Accounts receivable are not yet assets – outstanding invoices only become revenue upon payment. Optimizing and streamlining the accounts receivable process can help to make this happen more quickly, resulting in improved working capital and decreased accounts receivable.

Many AR process optimization methods revolve around automation, which can reduce human error, increase data accuracy, and ensure that payment reminders are sent promptly. However, it’s also possible to make simpler changes, such as clearly defining AR policies internally and ensuring easy access to customer data through a centralized supplier management dashboard. These improvements can expedite collections by lessening confusion, reducing unnecessary delays, and speeding up the resolution of any disputes.

2. Slow accounts payable outflows

Working capital can also be improved by slowing down the release of accounts payable to creditors and suppliers. This can be achieved with improvements to the AP processes. By integrating automation in the AP department, businesses can improve visibility over outstanding bills. Focusing on building stronger supplier relationships and establishing better lines of communication can also help, making negotiating advantageous payment terms more likely and reducing disputes.

On another note, payment solutions like virtual cards can maximize the payment window: suppliers receive payment immediately, with the buyer paying later in line with the agreed payment terms. The more sophisticated virtual card solutions, like Taulia’s, include payment controls, cash analytics, and value-added tools.

3. Make use of working capital solutions

Two working capital solutions in particular – supply chain finance and accounts receivable financing – offer other ways to build a stronger working capital position, providing working capital boosts on both the payables and receivables side of transactions:

• Supply chain finance: Set up by the buyer – and based on the buyer’s credit rating – supply chain finance allows suppliers to receive early payment of their invoices, typically at a favorable cost of funding. The buyer pays the funder on the invoice due date, meaning that both buyers and suppliers benefit from working capital improvements.
• Accounts receivable financing: A line of credit backed by outstanding debt due to be received from customers, AR financing enables companies to free up cash trapped in their unpaid invoices. They can thereby boost working capital and make better use of their assets.

4. Manage inventory more efficiently

Different inventory management techniques can impact working capital position, too. For example, holding higher levels of safety stock can protect against future stock outages, but it comes at the cost of more working capital being tied up in inventory.

Leaner approaches to inventory management that seek to shorten the cash conversion cycle and preserve cash can maximize working capital. The just-in-time (JIT) inventory system, which receives materials only when production is scheduled to begin, is a prime example of this. However, these strategies require sophisticated processes and reliable suppliers. Even then, they can open businesses up to external risks.

5. Be more selective with your customer base

Customers can present various risks to a business. Some of the most damaging include the risk that customers default on payments, which can harm your working capital position or create bad debt.

This risk can be mitigated in various ways. Better credit checks in the onboarding process can be used to identify the riskiest customers, who can then be offered payment terms with less generous credit limits or required to provide payment upfront.

6. Improve cash forecasting accuracy

Cash flow forecasting enables companies to predict, analyze and address the factors that will affect their working capital in the future. By understanding seasonal and cyclical variations and macroeconomic events, businesses can make better-informed decisions on activities such as funding, investments, and capital expenditure. As a result, they can maximize the efficiency of their working capital in the short term while minimizing long-term risks.

Cash forecasting solutions provide near-real-time cash flow forecasts based on data from purchase orders, accounts payables, and receivables. They can also harness the power of machine learning, meaning the more data they receive, the more accurate they can make future cash forecasts.

7. Integrate automation

Outside of its uses in AR and AP process optimization, automation can help improve working capital in other ways. Most importantly, it can improve the accuracy and efficiency of processes and reduce costs over the long term.

A supplier management system that leverages automation, for example, can simplify the processes of supplier selection, onboarding, risk assessment, and contract negotiation. With more control over supplier data and documentation, companies can ensure that the products they receive are delivered on time and meet quality standards.

8. Limit unnecessary expenditure

Cost reduction is one of the most obvious ways a business can improve its working capital position. Although cutting costs indiscriminately across the board carries the risk of harming business operations, trimming expenditure selectively can be rewarding.

Low-hanging opportunities include leasing expensive equipment instead of buying it outright, which can help companies reduce their capital outlays. By strengthening access controls to payment systems, companies can also reduce maverick spend, whereby employees make purchases without following correct procurement processes. This reduces the risk of inefficient purchases and ensures that the company takes advantage of discounts that have already been negotiated.

9. Reduce or repackage debts

Finally, poorly managed debt can significantly impact the working capital available to the business each month.

Better debt management – such as seeking better interest rates and making sure that obligations are met on time – can reduce the long-term impact of debt, which can free up more working capital in the short term. In some cases, a business might consider paying down debt to reduce the overall cost of borrowing – although this comes at the expense of present working capital.

How to develop a more strategic supply chain

Uncertain or challenging market conditions require more sophisticated approaches to how supply chains serve business needs. Here’s a guide to the principles of strategic supply chain management.

The tumultuousness of the modern macroeconomic and geopolitical environment exposes companies to various supply chain risks. Monetary inflation, rising commodity prices, economic turmoil, and fluctuations in demand all have the potential to put a strain on global supply chains.

Against these uncertain and unpredictable conditions, businesses have a greater incentive than ever to optimize their supply chains for resilience and stability. A stronger, more flexible supply chain can be a key component in helping a business achieve its aims, whether that’s growth, reliability, or any other business objective.

The first step in this optimization is acknowledging the importance of a more strategic approach to supply chain planning and management.

What is supply chain strategy?

A supply chain strategy defines a business’s approach to managing the flow of goods and services throughout its supply chain. It covers the full range of supply chain processes, from procuring raw materials to delivering the finished products to customers.

Supply chain strategy differs from supply chain management in that it’s more concerned with the ‘why’ than the ‘how’. A strategic approach to supply chain operations seeks to align the supply chain components to meet specific, predetermined business goals. These might include improving efficiency, reducing net costs, or minimizing order fulfillment time. In other words, strategic supply chains aim to align with broader business strategies.

Strategic supply chains differ from non-strategic supply chains. The latter is not necessarily planned and managed to achieve a specific outcome. Instead, it is handled with a light touch, often optimized only to the point where it works on a fundamental basis.

Strategic versus non-strategic supply chains

The following hypothetical example should help you better understand the difference between a strategic and a non-strategic supply chain:

Having recently acquired two new companies – the Zenith Precision Machining Organization and the Nadir Tool & Die Company – the Stellar Corporation has reviewed the different strategies of both companies regarding their supply chains.

• At Zenith Precision Machining, there is a policy of multi-sourcing suppliers, which are selected according to several criteria, including price, quality, reliability, and flexibility. A vendor portal is used to register and onboard the chosen suppliers. Assessments are regularly carried out to identify risks and their potential impact, together with the measures that should be taken to control or mitigate those risks. Inventory is tracked and controlled in real time with inventory management software.
• At Nadir Tool & Die, by comparison, there are no regular reviews, and the company’s supply chain has evolved over time. All supplier and customer contact details are held on a Rolodex, and it keeps track of purchases and sales on paper dockets – which are then entered monthly into a looseleaf ledger. The firm has a long-standing contract with an overseas company that supplies nearly all its raw materials. The procurement manager places the usual order with the supplier every quarter.

The contrast between these two extreme examples illustrates the differences between a carefully designed and planned supply chain strategy and a poorly planned and non-strategic one.

The implication of Zenith Precision Machining’s supply chain setup and approach to management implies a focus on resilience. They have a diverse supplier base of vendors who have been carefully chosen and are constantly assessed. They have a sophisticated inventory management process that helps them better monitor the supply chain’s risk.

Nadir Tool & Die, on the other hand, doesn’t appear at first glance to have a strategy. Their supply chain is organic and somewhat antiquated. It doesn’t serve any particular aim except to fuel manufacturing. The lack of strategy opens the company up to significant risk.

Types of supply chain strategy

Rather than attempting to adopt a ‘one-size-fits-all’ model, companies seeking better outcomes from their supply chain activity need a supply chain strategy that considers the factors unique to that business, including what sector it exists in or what unique aims it’s interested in achieving.

This requires a certain level of bespoke tailoring. No supply chain model perfectly suits a specific company ‘off-the-rack’. Instead, companies adopt a ‘template’, the outline of a supply chain strategy, and tweak it to suit their objectives.

There are plenty of choices regarding supply chain models, but there are two main basic templates.

Lean supply chains

A lean supply chain strategy aims to turn raw materials into finished goods or services with minimal waste and loss. In other words, it pursues maximum efficiency. This can be achieved by streamlining processes, eliminating unnecessary expenditures, and minimizing inventory and holding costs. For companies with readily-available raw materials or components, who can switch suppliers easily, this can remain an attractive option – even in uncertain times.

Resilient supply chains

A resilient supply chain is designed to survive in challenging conditions by adapting quickly to unanticipated events. It’s generally characterized by supplier redundancy and high levels of safety stock. Although this approach may lead to higher costs, it has clear benefits for companies, especially those vulnerable to supply chain disruption or whose components are particularly specialized. The more resilient the supply chain, the more the company is protected from major disruption.

Developing a supply chain strategy

A supply chain strategy affects how a business plans its supply chain and the approach taken to execute and manage that plan.

Planning a strategic supply chain

Planning is hugely important in pivoting towards a more strategic supply chain. The planning process involves the following steps:

• Setting objectives and key performance indicators (KPIs)
• Choosing suppliers and negotiating terms in accordance with the KPIs chosen
• Deciding on the right software and tech stack (the combination of technologies used to build and run an application or project)
• Planning the order fulfillment workflow and inventory visibility mechanism
• Creating internal awareness and bringing the team on board

Strategic supply chain management

The success of a strategic supply chain is also heavily influenced by how effectively it is deployed and managed. Businesses looking for better alignment between their supply chain activity and their specific business aims should ensure they’re doing the following:

• Strategic deployment of software to achieve the desired aims
• Regular reviews of supply chain risks as well as opportunities
• Supplier performance reviews and contract renegotiations
• Continuous visibility over inventory
• Continual improvement of cash forecasting and demand forecasting accuracy

The benefits of a more strategic supply chain

A more strategic supply chain can deliver a number of benefits, which are compelling in all circumstances but particularly important when market conditions turn challenging. They include:

Ensure consistency across departments

In order to work together and achieve the same goals, the internal teams of a business need a clear and consistent vision rather than vague objectives. With solid and well-defined supply chain strategies, businesses can ensure consistency across all departments and ensure their teams are working from the same playbook.

Meet business goals

By considering its supply chain strategy more deeply, a company can ensure that its supply chain activities – which make up a large part of overall business operation – are working towards the business’s aims, helping it achieve greater financial stability and stronger growth, and increased profitability.

Review performance more easily

Finally, when formulating a supply chain strategy, the business must decide what the supply chain needs to deliver, how these objectives will be achieved, and how performance should be measured against the chosen criteria. The business can then review performance more easily and adjust its strategy to drive greater efficiency and resilience.

8 ways to increase cash flow

Healthy cash flow helps businesses to avoid financial risks and make the most of their growth potential. Here are eight of the best ways to improve cash flow.

Cash flow measures the net balance of money flowing into and out of a business. In flows are generally made up of revenue from the sale of goods and income from investments, while outflows take the form of expenses and debt payments. Optimizing cash flow by taking a sophisticated approach to cash flow management is crucial to efficient business operation.

By improving cash flow, businesses can increase their access to cash that can be used to pay expenses and service debts. Better cash flow management also enables businesses to invest in future growth or increase their resilience to adverse market conditions.

Healthy cash flow is especially important in times of economic uncertainty, such as those brought about by high inflation or recession. It allows for the maintenance of a cash buffer, used to protect against unexpected financial challenges.

The following strategies and best practices can help you optimize your cash flow management, thereby increasing cash flow:

1. Optimize your accounts receivable process

Businesses tend to have large sums of money tied up in their accounts receivable – payments owed to them by customers with outstanding invoices. Accordingly, changes to accounts receivable processes that accelerate how quickly that money is received can help to improve cash flow. Accounts receivable strategies to speed up cash flow include:

• Ensuring AR processes are as streamlined as possible by integrating automation to send invoices promptly and using an e-invoicing solution.
• Reviewing relationships with buyers and rewarding companies that pay on time or early through early payment programs.
• Deploying solutions such as AR financing to speed up collections without harming supplier relationships, leveraging third-party financers.
• Maintaining clear communication channels with buyers to ensure that payment terms are mutually understood and resolve disputes as quickly as possible.

2. Rethink your inventory management strategy

A significant amount of cash can also be tied up in inventory, so inventory management is a key consideration for increasing cash flow. The greatest cash flow benefits are realized through strategies that ensure that inventory needs are met while minimizing carrying costs and maximizing the efficiency of working capital deployment.

Companies can lock in cost savings by working with suppliers offering more competitive pricing or early payment discounts. They can also adopt inventory management techniques, such as:

• Economic order quantity (EOQ): This involves looking at all costs related to purchasing and delivering goods and materials while factoring in demand for the product. Although it minimizes costs by attempting to ensure correct inventory levels, EOQ-based inventory management doesn’t account for fluctuations and assumes the immediate availability of new stock.
• Just-in-time (JIT): Designed to minimize waste by receiving goods only when production begins, JIT requires suppliers to be extremely reliable and production to be steady and problem-free.

It’s important to note here that when stock levels are kept to a minimum, the business is more vulnerable to supply crises and unexpected increases in demand. Other approaches to inventory management, such as bulk buying or maintaining high safety stock levels, mitigate these risks. However, they come with the cost of harming cash flow rather than accelerating it.

3. Hold on to accounts payable for longer

Although companies should avoid late payment fees – and reputational damage – by paying suppliers on time, there are several ways that accounts payable (AP) management can result in improved cash flow. Fundamentally, it can be leveraged to allow businesses to hold onto their working capital for longer.

In particular, solutions like dynamic discounting and supply chain finance can allow companies to secure risk-free discounts or preserve their working capital:

• Dynamic discounting is a self-funded solution, with suppliers receiving early payment in return for offering a discount on their invoices. The earlier the invoice is paid, the greater the discount the buyer receives.
• Supply chain finance also enables suppliers to receive early payment on their invoices. Set up by the buyer, supply chain finance is typically offered to suppliers at a cost based on the buyer’s credit rating, resulting in a more favorable cost of funding.

 
In addition to improving cash flow, the automation of AP processes – typically implemented through a dedicated software solution – can improve the consistency of accounts payable processes by automating each step of the accounts payable process, accelerating cash flow.

4. Maximize capital usage

To generate returns from otherwise idle cash, capital should be deployed efficiently. Options may include investing in infrastructure projects, ranging from land acquisition to the purchase of fixed assets such as machinery and equipment or in investment vehicles and interest-yielding savings.

Companies can choose suitable projects or products by assessing past rates of return on comparable assets. Whatever the chosen investment, it is important to balance getting a return on your capital with building resilience to protect against operational risks that may present themselves in the future.

5. Streamline operations for efficiency

Costs can also be reduced by seeking efficiencies in day-to-day operations. This, in turn, can result in improved cash flow.

For example, companies can harness automation – particularly in their supply chain operations – to maximize efficiency and minimize the need for monotonous tasks. Delegating tasks to automated software solutions can minimize the risk of human error, increase supply chain visibility, and improve customer satisfaction.

6. Prioritize strong supplier relationships

Strong supplier relationships are the foundation of a healthy supply chain, and prioritizing these relationships can positively affect the company’s resilience and growth. In the short term, it can lead to improvements in cash flow through better payment terms and the greater availability of discounts. In the longer term, stronger relationships can minimize delays, disputes, and quality issues.

Key to this approach is identifying the suppliers that are most important to the business. Using a centralized tool such as a supplier information management (SIM) system, a business can manage its suppliers and develop more productive relationships in a streamlined way.

7. Monitor cash flow KPIs

Monitoring cash flow KPIs can help companies better understand their cash flow performance and pinpoint any areas needing attention. As such, KPIs should be monitored using a consistent approach that provides regular updates on performance.

Deciding which KPIs to track comes down to the business’s specific objectives. These can include funding growth, limiting debt, increasing resilience – or just creating a buffer against unexpected expenditure.

8. Improve cash flow forecasting

A cash flow forecast shows your projected cash position based on income and expenses for a given period. Improving the accuracy of your cash flow forecasting can make it easier to predict future opportunities or threats. Although better forecasting may not directly increase cash flow, it is a crucial tool for capitalizing on future events and protecting against future risks.

Cash forecasting software can show companies how to increase cash flow by combining live and historical data while using time series machine learning techniques to predict future flows. The resulting predictive models can facilitate both deeper analysis and dynamic decision-making.

A combined approach to boost cash flow

Each of the above tips is a potentially powerful tool in accelerating cash flow and giving your business more money to spend on fueling growth or building resilience. However, the best effects occur when a holistic approach is taken to improving cash flow.

You can reap large rewards by focusing on several areas that each improve cash flow. As a result, your business will be in a better financial position, able to ride out the waves of challenging economic conditions and build towards a better future.

A guide to the accounts receivable turnover ratio

Effective accounts receivable management is crucial when it comes to maintaining healthy cash flow, building operational resilience, and fueling growth. By managing accounts receivable more effectively, you can enhance its performance. This offers a range of benefits, including the ability to put the money you’re owed to use more quickly.

Before you think about improving accounts receivable performance, you need a clear understanding of its current state. That makes it necessary to adopt key performance indicators (KPIs) or metrics designed specifically to measure accounts receivable performance. Accounts receivable turnover ratio is a particularly suitable metric in this respect.

What is accounts receivable turnover ratio?

The accounts receivable turnover ratio (also known as the receivables turnover ratio) is an accounting metric that quantifies how efficiently a company collects its receivables from customers or clients. Measuring the number of times that accounts receivables are turned into cash during a given period, the ratio is essentially a lens through which a company can gauge the effectiveness of its accounts receivable process. The higher the turnover ratio, the more efficient the process.

Accounts receivable turnover ratio is similar to another commonly used metric: days sales outstanding. Whereas DSO is calculated by dividing a business’s accounts receivable by its sales, the receivables turnover ratio is calculated by dividing a business’s total credit sales by its average accounts receivable. Another difference between the two metrics is that DSO is expressed in days rather than as a ratio.

Accounts receivable turnover ratio formula

The accounts receivable turnover ratio expresses the time taken to collect outstanding debt throughout the accounting period. The formula for working it out is as follows:

Accounts receivable turnover = Net credit sales / Average accounts receivable

• Net credit sales are the amount of revenue generated by goods and services by a business sold to customers on credit terms, excluding cash sales.
• Average accounts receivable is the amount of money tied up in accounts receivable (monies due to be paid).

How to calculate accounts receivable turnover ratio

You can calculate the accounts receivable turnover ratio by following these steps:

1. The accounts receivable turnover ratio relates to a particular timeframe, with inputs taken from a specific period. As such, the first step is to choose the timeframe you want to measure.
2. The next step is to work out the net credit sales figure, which involves removing discounts, sales returns, and allowances from the gross credit sales figure.

Net credit sales = Gross credit sales – Sales discounts – Sales returns – Sales allowances

3. You can then calculate the average accounts receivable by adding the opening accounts receivable balance and closing balance for the period and dividing the figure by two.

Average accounts receivable = (Opening balance + Closing balance) / 2

4. Finally, divide the total credit sales by the average accounts receivable to calculate the accounts receivable turnover ratio.

Accounts receivable turnover ratio example

During the period from January 1 to December 31, Company X had gross credit sales of $2.3 million. With sales discounts of $100,000, sales returns of $125,000, and sales allowances of $75,000, its net credit sales were $2 million.

$2,300,000 – $100,000 – $125,000 – $75,000 = $2,000,000

The company had an opening accounts receivable balance of $420,000 and a closing balance of $380,000, giving an average accounts receivable of $400,000.

$420,000 + $380,000 / 2 = $400,000

So, with net credit sales of $2,000,000 and average accounts receivable of $400,000, Company X’s receivables turnover ratio was 5.0.

$2,000,000 / $400,000 = 5.0

In other words, Company X collected its average accounts receivables five times during the one-year period.
 

Understanding your accounts receivable turnover ratio

A high accounts receivable turnover indicates that customers pay their invoices relatively quickly. This could be due to having a reliable customer base or the business’s efficient accounts receivable process.

However, it’s important to note that the receivables turnover ratio may be artificially high if the business is overly reliant on cash sales or if it has a restrictive credit policy. This could lead to depressed sales as customers seek firms willing to offer more generous credit terms.

By contrast, a low receivables turnover ratio may indicate an inefficient collection process, bad credit policies, or an unreliable customer base. It can also be influenced by factors such as slow deliveries or poor quality, leading to delayed or disputed invoice payments.

Using the accounts receivable turnover ratio

Like any metric, the receivables turnover ratio has its limitations. For example, businesses with seasonal or cyclical sales models will see large fluctuations at different times, making the ratio less accurate in measuring overall credit effectiveness.

Whereas DSO measures the average number of days taken to collect on receivables, the receivables turnover ratio measures how many times a business’s receivables are turned over in a given period. It can be a good way to determine whether a company’s collections policy is trending faster or slower over time. Because of this, the receivables turnover ratio is best used as a comparative metric.

It can also be used to compare the efficiency of a business’s AR process to others of a similar size operating in the same industry, providing that they use the same metrics and inputs.

How to improve the accounts receivable turnover ratio

Companies may be able to drive improvements to the receivables turnover ratio by taking the following steps:

• Streamline and automate processes: Ensuring that invoices are simple, correctly itemized, and sent quickly increases the likelihood of prompt payment. As such, process automation can result in clear benefits, from making it easier for businesses to create, send and track invoices to enabling customers to view and pay online.
• Use AR financing: AR financing is an arrangement that operates as a line of credit backed by outstanding debts. It allows a company to unlock working capital tied up in its accounts receivable and deploy otherwise unusable capital until the invoice is settled.
• Communicate effectively: With clear channels of communication and strong relationships, difficulties in the AR process can often be resolved more easily or avoided altogether. This may include working with customers to prevent problems from recurring.
• Offer early payment discounts: Offering early payment discounts on your invoices incentivizes customers to pay faster. Customers can benefit from a lower cost of goods while you speed up your collections process – thereby improving your accounts receivable turnover ratio.

How to overcome challenges in the accounts receivable process

A healthy, ongoing supply of working capital is essential to the success of any business, and an efficient accounts receivable process is one way of contributing to it. Here’s our guide to conquering the challenges in the accounts receivable process to ensure you collect your receivables on time and avoid risk.

When seeking to optimize working capital, companies often focus on managing inventory more efficiently or delaying the settlement of accounts payable. While these are all perfectly viable methods, the potential working capital benefits of improving accounts receivable processes shouldn’t be overlooked.

By providing goods and services on extended payment terms, sellers effectively extend their buyers’ loans or trade credit. In fact, U.S. firms alone are owed an estimated $3.1 trillion in accounts receivable on any given day, according to the Trade Credit Dilemma Report, a PYMNTS collaboration with Fundbox.

It’s clear that many companies are missing an opportunity to make better use of their capital. By learning how to improve accounts receivable processes, companies can free up the capital they have tied up in outstanding invoices and use it to build resilience, fund growth, or seek returns elsewhere.

However, a range of common accounts receivable challenges often stands in the way of that objective. Here’s our guide to how your AR team can overcome them.

Challenges in accounts receivable process

Companies can face a range of challenges in the accounts receivable process. Four of the most common are as follows:

High days sales outstanding

Days sales outstanding (DSO) is the working capital ratio which measures the average number of days a company takes to collect its accounts receivable. The shorter the DSO, the faster a company collects payment from its customers, and the sooner it can use that cash.

While typical DSO metrics vary between sectors, an above-average DSO may indicate that a company is taking longer than necessary to convert credit sales into cash. If the company’s cash is tied up in accounts receivable for too long, this can contribute to a weak working capital position and limit its ability to invest in growth.

In some cases, high DSO may indicate that the company’s credit terms are too generous, or that customer relationships are overly liberal.

Poor communication with customers

The importance of building strong customer relationships and maintaining clear communication channels cannot be overstated. Ineffective communication can result in unnecessary frustration, confusion, and delays.

Conversely, by communicating clearly with their customers, companies can speed up dispute resolution and improve the accuracy of their information transfers. The result: a productive and mutually beneficial relationship that encourages customer retention and loyalty, increases sales and reduces the risk that credit terms will be abused.

Suboptimal data management

A business with a decentralized sales ledger or a disorganized approach to accounts receivable operations risks creating internal confusion. Without smooth, streamlined, and centralized processes, companies may lack visibility over which receivables are outstanding, which customers owe the business money, and when outstanding payments are due.

In addition, unclear accounts receivable policies can result in a lack of consistency in terms of how credit terms are offered on sales, and how collections are approached. This doesn’t just have the potential to harm accounts receivable collections themselves, but also the supplier relationships that form the foundation of the supply chain.

Unmitigated customer risks

As well as considering supplier risks, companies also need to consider the risks that can arise from their customer relationships. These may include reputational risks, like disgruntled customers leaving negative reviews on social media, or legal risks, like customers suing the business over negligence.

In addition, a customer’s financial situation can pose a significant risk. For example, if customers face short-term financial troubles or bankruptcy, the company may be left with significant AR shortfalls or bad debt. If not managed correctly, all these risks can damage the operational health of the business.

How to improve accounts receivable

Companies can improve their accounts receivable processes, by overcoming the challenges listed above, in a few ways:

Adopt centralized digital accounts receivable management

By embracing centralized accounts receivable management using a digital platform, companies can significantly improve their ability to manage the accounts receivable process efficiently and avoid confusion. Centralized AR management can result in better internal visibility over outstanding accounts receivable, better customer data accuracy and communication channels, and smoother internal processes.

Implement an accounts receivable financing program

Accounts receivable (AR) financing transforms how a company handles its accounts receivable. Essentially a form of working capital funding, it enables companies to free up capital from outstanding AR without affecting the health of their customers’ businesses.

AR financing allows the company to receive financing capital in return for a chosen portion of its accounts receivable. Structures for AR financing include asset sales or a loan. Effectively operating as a line of credit backed by outstanding debt due to be received from customers, it allows the deployment of capital that would otherwise be unusable until the outstanding invoices are settled –facilitating faster cash flow and enabling the company to make full use of its assets.

Prioritize stronger customer relationships

Accounts receivable is a process that involves engaging with customers – and inefficiencies in these interactions can result in frustration, errors, and delays that can adversely affect DSO. Companies can take steps to improve their customer relationships by communicating with customers consistently and efficiently.

By using intuitive systems, and implementing accounts receivable automation processes where possible, resolving disputes is a simple and effective process. Improving this should positively impact the company’s working capital performance.

Build better accounts receivable processes and reap the benefits

With better AR processes, companies speed up their collections and free up working capital to be used more effectively – for example, by investing in innovation or growth.

Improving communication with suppliers and investing in a centralized digital accounts receivable management tool will help companies release tied-up cash. While also benefitting supplier relationships.

Taulia Accounts Receivable Financing (AR Financing) provides a way for companies to unlock their working capital. Leveraging multiple funders with different risk appetites, the solution is integrated with Taulia’s best-in-class working capital management platform, enabling companies to flexibly free up cash from their accounts receivable.

Demand forecasting as part of better supply chain management

Demand forecasting is crucial to any highly effective supply chain management strategy. Done right, it can bring about cost-savings, opportunities for growth, and more resilience in times of economic turmoil. Here’s everything you need to know to understand how to improve your demand forecasting capabilities.

Efficient supply chain management is an important factor in operational health at all times, but it’s especially critical in times of economic uncertainty. It can help businesses lower costs, boost profitability, and ensure that available working capital is used to optimum effect. But, perhaps most importantly, it can increase supply chain resilience – protecting against market risks and making it easier to adapt to changing conditions.

Supply chain management comprises parts including supplier management, sourcing, procurement, the accounts payable process, manufacturing, and the delivery of finished products. Fundamentally, it’s all about organizing supply chain activities to meet customer demand.

Finding ways to fine-tune your supply chain’s output to better align with demand is one of the most effective ways to bring about operational efficiency. With the ability to accurately forecast future demand, you can optimize supply chain activities for revenue, consistently meet customer expectations to drive loyalty, and avoid costly overproduction.

What is demand forecasting?

Demand forecasting is the process used by businesses to predict future demand for a product or service. With improved demand forecasting, businesses can estimate future demand more effectively. As a result, they can make better-informed decisions across procurement, manufacturing, inventory management, and more.

A systematic approach is needed to create accurate and relevant forecasts. As such, the process typically involves the following steps:

• Setting objectives
• Determining duration
• Selecting the method
• Collecting data
• Analyzing the results

 
There are various demand forecasting methods, but they invariably rely on data. This can take the form of historical sales data or insights gathered through proactive research. The more available data, the more likely it is that demand forecasting efforts will be accurate and valuable.

Why demand forecasting is important in supply chain management

Without effective demand forecasting as part of their supply chain management process, businesses lack the information they need to plan procurement and manufacturing optimally. This, in simple terms, exposes them to cash flow risks.

Accurate demand forecasting predicts the quantity of finished inventory required to meet market demand. This means businesses can optimize their inventory management strategy to avoid over or under-stocking, which can be costly, and minimize inventory carrying costs.

But demand forecasting also allows for improved decision-making in other areas of operation. Knowing how much you need to spend on inventory to meet demand means you can more confidently make the most of whatever working capital is left over.

It’s essential for businesses whose products feature fluctuating demand throughout the year, whether cyclical or seasonal factors affect them. In these cases, demand forecasting provides a much-needed insight into how to adjust supply chain activities strategically to ensure minimized costs during downtime and maximized order fulfillment when things are busy.

Types of demand forecasting in supply chain management

Supply chain demand forecasting can be approached in various ways. Four of the most popular forecasting models used in predicting demand are:

Trend projection

Trend projection is the most straightforward method of demand forecasting, involving projecting future demand based on historical sales data. However, since this method assumes that the factors responsible for past trends will continue in the future, historical anomalies need to be considered, and a degree of uncertainty is inherent.

Market research

Demand can be forecasted through surveying customers or conducting other types of primary research. This comes with the added benefit of providing insights into customer demographics, which can be leveraged in marketing. However, collecting and analyzing the information can be costly and time-consuming – and the results may also be skewed by respondents’ biases or small sample sizes.

Sales force composite

The sales force composite method leverages the expertise of internal sales teams – who are arguably closest to the market – to create a demand forecast. This approach can provide valuable insights and may be broken down into specific products and geographic locations. On the other hand, sales force composite forecasts are subjective, based on individual opinions, and they come with the risk of sales agents deliberately depressing projections in the hope that lower sales targets will be set.

Barometric forecasting

Barometric forecasting creates a rounded demand forecast using a combination of leading indicators (predicted future events), lagging indicators (historical data), and coincidental indicators (indicators that rise or fall in line with economic activity). However, this approach requires the indicators to be analyzed accurately. Variations may hinder the forecast accuracy in the lead time between different indicators.

How to forecast demand more accurately

There is a range of ways businesses can work towards improving the accuracy of their demand forecasting. They include striving to:

Understand the factors that influence demand

Demand can be impacted, sometimes significantly, by various external factors, including levels of employment, consumer confidence, seasonality, the rate of inflation, and interest rates. Demand can also be stimulated by increased market competition and the consequent lowering of prices. It is, therefore, essential that businesses understand these factors and account for them in their forecasts.

Make full use of available data sources

All available data should be leveraged in supply chain demand forecasting, including historical sales data, demand trends, market competition figures, and digital analytics. The more data plugged into forecasts, the more accurate they’ll be. Improving the accuracy of each individual data input can also help to improve the accuracy of the forecast.

Align forecasts with business plans

Existing business plans should also be integrated into demand forecasting. For example, businesses can generally expect demand to increase if a marketing push has been planned for a certain period. To properly understand the internal factors that will impact demand, businesses must proactively share information between sales, marketing, procurement, and finance.

Learn from the process

The accuracy of previous demand forecasts can inform future efforts. If a business has been consistently underestimating demand, a closer inspection of the data might provide clues as to the reasons why. The best demand forecasting programs are iterative – in other words, they are refined over time to ensure that the results become more accurate.

The benefits of better demand forecasting

Demand forecasting in supply chain management is essential for all businesses. For one thing, a better understanding of future demand can help businesses optimize their inventory levels. By ensuring that inventory is maintained at the correct levels, they can minimize carrying costs without adversely affecting the fulfillment of orders.

In addition, businesses can improve customer loyalty and satisfaction by accurately predicting upcoming demand spikes and uptrends or factoring in seasonal fluctuations to maximize timely order fulfillment. This, in turn, helps to maximize sales and revenue.

Finally, effective demand forecasting can also support better working capital management. With a more accurate prediction of future demand and expected inventory and manufacturing costs, companies will be better placed to put their working capital to the best use, from optimizing returns on excess cash to investing in growth.

How inflation impacts early payments

With inflation reaching levels not seen for many decades, businesses face significant challenges –making it more important than ever to manage cash flow effectively.

Several factors contributed to the high inflation currently experienced by major economies including the USA and the UK. The response to the global pandemic from March 2020 onwards required many people to stay at home, which not only prompted individuals to postpone spending decisions but also caused major logistical problems for businesses worldwide.

Following significant economic stimulus and the lifting of restrictions, the resulting surge in demand outstripped supply, while supply chains continued to be affected by bottlenecks. And in recent months, disruption caused by the war in Ukraine has led to further fuel and food shortages.

Governments have relatively few tools at their disposal when it comes to controlling inflation. The most significant is contractionary monetary policy – in other words, reducing the rate of monetary expansion by increasing interest rates, thereby encouraging people to save, and discouraging them from borrowing and spending. Central banks can also attempt to slow growth by offering government securities at rates likely to outperform the stock market.

Despite these levers, inflation is often relatively persistent. In the short term, at least, there’s little that can be done to reduce it. That means companies are forced to adapt, at least temporarily, to the changing economic landscape. Part of that adaptation is a renewed focus on resilience – aiming to ensure the survival of the business through a particularly challenging period.

Cash flow shortages are the most common reason why businesses fail – and as such, optimizing the rate at which money flows into and out of the business is key to mitigating the worst effects of inflation. Early payment programs are one method businesses can use to improve their cash flow management capabilities.

Here’s an overview of how inflation affects early payment programs, and their potential benefits.

What inflation means for early payment programs

Earning potential is one of the fundamental aspects of capital. Cash that’s held by a business has value because it can be used to capture interest, yield, or stock appreciation, or alternatively to fuel growth. This implicitly means that cash has greater value to a business today than if received at a future date. The sooner it’s able to be put to use in a working capital management strategy, the more it can return.

In times of high inflation, the potential value of cash is consistently eroded over time by its decreasing purchasing power. This means that the longer a business must wait for payment, and therefore to receive the capital they are due, the less it’s worth when they can use it.

As such, pre-existing payment agreements can present challenges in an inflationary environment. Lengthy payment terms can devalue transactions for both suppliers and buyers, depending on when payments are made. And the impact can be significant: losing even 2% on the value of a transaction over the payment term can be damaging when extrapolated to a large scale.

Early payment discounts offer both buyers and suppliers a way to benefit from the prompt or early settlement of invoices:

• For buyers, the opportunity to capture early payment discounts offered by their suppliers is likely to represent an attractive return on the company’s cash. Goods and services can be purchased at a lower cost, with the discount representing a risk-free return on investment.
• For suppliers, offering early payment discounts is a way to improve cash flow by accelerating payment from customers. During times of inflation, the benefits are even more significant, as cash can be deployed faster to decrease the negative impact of further inflation.

On another note, early payment programs can also strengthen the relationship between a buyer and supplier. In turn, stronger relationships improve the resilience of the entire supply chain. This is again particularly important in an economic environment characterized by uncertainty and the potential for disruption to supply or demand.

Supply chain solutions to combat inflation

In an inflationary environment, supply chain solutions can help companies increase or optimize their working capital without having to seek financing from banks. While different solutions work in different ways, they can all generally offset some of the most damaging inflationary pressures by giving businesses the ability to make better use of their cash. This is usually through the acceleration of payment or the capture of discounts.

Many supply chain solutions also leverage the higher creditworthiness of the larger company in the buyer-supplier relationship, giving smaller businesses access to funding at a lower cost than they would otherwise be able to secure themselves. This gives these businesses the opportunity to mitigate the effects of high-interest rates, a core element of the risk-averse lending environment inflation often triggers.

Supply chain solutions that can be used to improve cash flow in times of high inflation include:

Dynamic discounting

Dynamic discounting enables suppliers to receive payment for invoices earlier than the due date established through payment terms, in exchange for a variable discount. Generally speaking, the earlier the payment is received, the greater the discount offered.

Along with accelerating the collection of receivables for the supplier in the relationship, dynamic discounting also allows buyers to capture a risk-free discount on their invoices. This can represent the best use of their working capital, allowing them to reliably offset inflationary pressures by decreasing costs.

Supply chain finance

Supply chain finance – also known as supplier finance or reverse factoring – is another financing solution in which suppliers can receive early payment on outstanding invoices. However, unlike other solutions, supply chain finance programs are set up by the buyer rather than by the supplier.

Through supply chain finance, buyers access funding from a third-party finance provider to pay invoices early and capture any available discounts. Unlike self-funded dynamic discounting, this allows them to retain more of their own working capital which can also be put to good use. Suppliers in the arrangement also benefit by receiving payments more quickly, giving them the opportunity to deploy it to capture a return.

Accounts receivable finance

Accounts receivable (AR) financing is an arrangement whereby a supplier company receives funding from a third party in return for a portion of its accounts receivable. They essentially sell their invoices to this third party, giving them the chance to access the capital tied up in their receivables. This allows them to deploy that capital earlier, thereby improving their cash flow in the short term.

In general, businesses that meet the required criteria can find it easier to obtain funding from AR financing than from other types of capital financing. This is especially true for smaller businesses. In an inflationary environment, this can be a valuable tool for suppliers seeking to improve their cash flow.

Inventory management

Inventory management is the set of processes that businesses use to track and manage their inventory. Inventory in this context can mean raw materials, works-in-progress, and finished goods. Overseeing the journey that inventory takes – from the purchase of raw materials to the production, storage, and eventual sale of the finished product – inventory management allows companies to get a more accurate view of their supply chain.

This provides an immediate benefit, helping businesses mitigate the effects of inflation by identifying the shortfalls and shortages in the supply chain and seeking efficiency-driving improvements. Separate from that, inventory management software can also empower companies to better forecast inventory requirements, meaning they can make better purchasing decisions.

The most obvious of these is that they can purchase goods at today’s prices to fulfill immediate and expected demand, mitigating the depreciation of their capital. Many inventory management solutions also open up the benefits of Vendor Managed Inventory (VMI), empowering buyers to hold stock for later sale without significantly increasing their inventory-carrying costs.

Leverage supply chain solutions to combat inflationary pressures

High inflation is set to be the standard globally for the foreseeable future. Now is the best time for businesses to investigate alternative methods for managing their working capital. Dynamic discounting solutions, supply chain finance programs, accounts receivable financing programs, and inventory management software all offer potential working capital benefits. The choice is yours as to how you use them to optimize your cash flow and seek better returns from your capital.

If you’d like to discuss your options, contact us and one of our experts will be in touch.

10 supplier management best practices and strategies

Supplier management is the term used to describe the processes of selecting and managing suppliers or vendors. It’s a hugely important element of operations for most companies, having a significant impact on costs, manufacturing, and cash flow.

Getting the best performance from your suppliers, while also ensuring you’re contributing towards a stable long-term relationship, can pay off in meaningful ways. Knowing how to manage suppliers effectively is therefore of great importance.

Supplier management is a multi-step process. Each stage can be optimized to unlock efficiencies that not only improve supply chain performance, but also strengthen overall operational health. These steps can generally be defined as:

• Selection: Sourcing suitable suppliers using specific criteria
• Negotiation: Drawing up contracts beneficial to both parties
• Onboarding: Approving suppliers quickly and efficiently
• Evaluation: Measuring performance using key performance indicators (KPIs)
• Monitoring: Continually assessing supplier risk
• Payment: Ensuring agreed terms are adhered to

With poor supplier management processes, your business can face disruption due to late delivery, poor quality goods, inaccurate billing, data breaches, regulatory issues, and commercial and reputational risks. By adopting effective supplier management best practices, you can avoid these pitfalls and enjoy more robust relationships with suppliers. This can lead to greater supplier loyalty, better product quality, and lower costs.

The following supplier management best practices and strategies can help you optimize your supplier management processes and get closer to achieving your business goals:

1. Set strategic objectives and establish KPIs

Your supplier management objectives should be informed by business needs, with key considerations likely to include cost, supply chain efficiency and resilience. By using supplier key performance indicators (KPIs), you can gain valuable insights into how well your suppliers perform.

Common KPIs include:

• Defect rate: Degree to which products or services meet agreed quality guidelines
• Lead time: The time taken for orders to be fulfilled
• Order accuracy: Accuracy of orders in terms of items and amounts
• Competitiveness: Cost of goods provided by one supplier compared to its competitors
• Customer service:

2. Adopt a centralized supplier management database

A centralized and digitized supplier management tool is essential for businesses with complex and extensive supply chains. This can be facilitated by supplier information management (SIM) or supplier relationship management (SRM) solutions.

SIM is a system or a set of processes that companies can use to capture, store, and analyze supplier data, thereby reducing the administrative burden and increasing the accuracy of data capture. SRM encompasses the processes a business can use to manage its suppliers and develop more productive relationships.

3. Improve your supplier risk assessment process

Your supplier base can pose a range of significant risks to your business, such as the following:

• Financial risks include the possibility that suppliers will go bankrupt or be unable to handle increased volumes or sudden increases in costs.
• Legal risks include contractual non-compliance, misuse of intellectual property and civil lawsuits.
• Operational risks include quality control issues, as well as the risk of disruptions and delays to manufacturing.
• Reputational risks include safety issues relating to products, or the failure of suppliers to abide by agreed ESG principles.

As such, it’s vital to assess supplier risk carefully during the supplier selection process and on an ongoing basis. By employing a suitable risk assessment process – and carrying out risk assessments regularly – you can guard against the possibility of future harm.

4. Strengthen your supplier onboarding process

During supplier onboarding, it’s important that you obtain various information and documentation to complete all necessary compliance and risk assessments and register the supplier on internal systems.

The supplier onboarding process should be as seamless and efficient as possible, as a positive experience can lay the foundations for a strong future relationship. In practice, however, onboarding is often labor-intensive and time-consuming. Onboarding best practices include automating wherever possible, maintaining a consistent approach and ensuring that supplier data is secure against breaches.

5. Segment your suppliers

Placing suppliers into different segments or categories according to their importance to the business is one way you can improve your supplier management strategy. By identifying and prioritizing the most important suppliers, you’re able to focus on and strengthen those relationships that are most critical to the resilience of your supply chain. This has significant potential benefits for the overall success of your business in the long run.

6. Integrate automation and self-service

By using SIM and SRM software to drive automation, you can achieve a range of efficiencies and cost savings, such as managing contracts in a single location, automating the onboarding process, and monitoring supplier performance in an automated way.

Additionally, by offering suppliers self-service options, you may be able to delegate the task of inputting data – thereby reducing overheads and ensuring that supplier records are accurate, complete and up to date.

7. Streamline communication channels

Clear and open communication channels are vital to building strong and lasting relationships with suppliers and ensuring supply chain resilience.

You can take advantage of various tools to improve your communication with suppliers, including direct messaging and document-sharing tools. Taulia Collaborate, for example, allows suppliers to check on the status of invoices, with queries automatically associated with the relevant purchase order, invoice, or payment document. With conversations tracked in a systematic and centralized way, you can resolve issues with suppliers quickly and easily.

8. Assess supplier performance regularly

Your business is directly linked to the performance of its suppliers. As noted above, you can use KPIs to monitor supplier performance against specific criteria and identify any cases where suppliers may be failing to meet agreed standards.

If suppliers fall short of their performance targets, an assessment will need to be carried out. If the relationship is strong, it is more likely that poor performance can be tackled successfully. However, if suppliers continue to fall short of their performance targets, you may wish to renegotiate the contract or escalate the issue.

9. Prioritize strong supplier relationships

Poor supplier relationship management can lead to poor communication, the breakdown of mutual trust and a mismatch of priorities, which can lead to difficult negotiations, the risk of a communication breakdown, and possible supply issues.

Conversely, by prioritizing long-term supplier relationships – for example, by taking advantage of a sophisticated SRM system – you can improve operational efficiency and your supply chain resilience.

10. Formulate supplier management contingency plans

Even the best-laid supplier management strategies can fail – so it’s important to anticipate potential disruption by having effective contingency plans. This may include detailing contingency suppliers that could be called upon to protect your business from supplier failure, together with key contacts and possible lead times. With proactive planning, you’ll be better able to protect your business from the consequences of supplier failure.

7 cash flow KPIs and performance metrics

Cash flow management is integral to an effective and efficient business operation – playing a key role in fueling growth and building resiliency. Tracking these seven cash flow KPIs and metrics can make it a lot easier.

Healthy cash flow is vital to the overall resilience of a business, determining its ability to pay bills on time, cover unexpected costs, and fund future growth. However, CFOs can face obstacles when it comes to driving cash flow improvements. Ranging from difficulties in forecasting future cash flows to managing the cash flow challenges that come with rapid expansion.

By tracking cash flow KPIs, businesses can gain more visibility over their cash. This can create opportunities to reduce the cash buffer, minimize debt, and/or free up more funds for investment. The right metrics allow CFOs to more accurately track cash flow changes over time, helping them to make more informed decisions about all aspects of operations and take better advantage of their balance sheet.

While there are many different KPIs and cash flow metrics to consider, focusing on a selection such as the following can provide an opportunity to drive meaningful improvements:

1. Operating cash flow
2. Free cash flow
3. Working capital ratio
4. Days sales outstanding
5. Days payable outstanding
6. Cash conversion cycle
7. Sustainable growth rate

1. Operating cash flow

Operating cash flow (OCF) is often a prominent item on the cash flow statement. It tracks the cash flows of a business through revenue generation and payment of expenses, but tends to exclude interest and investment returns.

A company with a high operating cash flow may have a greater opportunity to invest in growth. In contrast, a company with a low or negative flow not only has less investment capacity, but may also be jeopardizing its existing operations.

OCF = Net income + Non-cash expenses +/– Changes in net working capital

DSO = Accounts receivable x Number of days in measurement period / Total credit sales.

Example

A company has a net income of $100 million, non-cash expenses of $10 million and a negative change in working capital of $50 million, giving an OCF of $60 million.

$60 million = $100 million + $10 million – $50 million

2. Free cash flow

Free cash flow (FCF) shows how much money remains after supporting business activities entailed in regular operations and deducting the cost of capital expenditure from operating cash flow. It shows a truer picture of a company’s actual cash flow position, revealing the surplus funds available to reduce debt, distribute dividends or invest in growth.

Free cash flow = Operating cash flow – Capital expenditures

Example

A manufacturing company has an operating cash flow of $60 million and a capital expenditure of $35 million, giving a free cash figure of $25 million.

$60 million – $35 million = $25 million

3. Working capital ratio

Working capital is the difference between a company’s current assets and its current liabilities. Dividing current assets by current liabilities gives the working capital ratio (WCR). This provides an indicator of the health of a company’s short-term finances and its general operational efficiency. It’s also a potential guiding light in working capital optimization strategy.

Typical working capital ratios vary depending on the sector. However, as a rule of thumb, a value of less than 1 may be seen as indicative of a business that cannot cover its debts with its current working capital. Although a value of between 1.2 and 2 is generally considered healthy, a ratio beyond 2 could indicate that a business is hoarding cash.

Working capital ratio = Current assets / Current liabilities

Example

A company has $10 million of current assets, while its current liabilities are $8 million. Its working capital ratio is therefore 1.25.

$10 million / $8 million = 1.25

4. Days sales outstanding

Days sales outstanding (DSO) measures the average number of days a business takes to collect its accounts receivable from its customers.

A short DSO indicates that the business collects its receivables quickly, providing capital to fuel operations and growth. A long DSO suggests a slow receivables collection process that may limit the availability of working capital and harm cash flow efficiency.

DSO = Accounts receivable x Number of days in measurement period / Total credit sales

Example

A company has accounts receivable of $10 million and net credit sales of $40 million. The measurement period is a year (365 days). Therefore, its DSO is 91.25 days.

$10 million x 365 / $40 million = 91.25 days

5. Days payable outstanding

Days payable outstanding (DPO) is the opposite metric of days sales outstanding and measures the average number of days a company takes to pay its suppliers and creditors.

A low DPO shows that a business is paying invoices quickly, which might indicate sub-optimal working capital management – but it could also indicate that the company is taking advantage of early payment discounts. A higher DPO means the company is taking longer to pay its bills, which is generally seen as favorable as it increases the company’s working capital availability.

DPO = Accounts payable x Number of days in measurement period / Cost of goods sold

Example

A company has accounts payable of $5 million and a cost of sales of $25 million. The measurement period is a year (365 days). Its DPO is therefore 73 days.

$5 million x 365 / $25 million = 73 days

6. Cash conversion cycle

The cash conversion cycle (CCC) shows the time a business takes to convert its cash into inventory, and that inventory back into cash. As such, it is an indication of the efficiency of the company’s entire working capital management strategy – factoring in purchasing, inventory management, and sales processes. The shorter a business’s CCC, the less time its cash is tied up in inventory and the more it can be used to fuel growth elsewhere.

CCC is calculated using DSO, DPO and days inventory outstanding (DIO, the average number of days that a company holds inventory before turning it into sales). Performance improvements to any of these three metrics can positively influence the CCC.

Cash conversion cycle = DIO + DSO – DPO

Example

In a one-year period, a company has inventory equaling $4 million and a cost of sales of $25 million, which gives a DIO of 58.4 days. It has a DSO of 91.25 days and DPO of 73 days. The CCC is therefore 76.65 days.

58.4 days + 91.25 days – 73 days = 76.65 days

7. Sustainable growth rate

The sustainable growth rate (SGR) is a cash flow metric that shows the rate of growth of an organization using its own revenues, without taking on additional debt. As such, it is a useful metric for determining the company’s future growth strategy.

SGR is calculated by multiplying the company’s retention ratio (the proportion of earnings kept back in the business) by return on equity (the measure of a company’s profitability, comparing net income to shareholder equity). Although a high SGR can indicate that a business is well set up for self-funded growth, this state is generally not sustainable over long periods.

SGR = Retention ratio (RR) x Return on equity (ROE)

Where retention ratio = (Net income – Dividends / Net income) and Return on equity = Net income / Average shareholders’ equity.

Example

A company with an annual net income of $25 million and shareholders’ equity of $100 million distributes $12.5 million as dividends. With a return on equity of 25% ($25 million / $100 million) and a retention ratio of 50% ($25 million – $12.5 million) / $25 million) its sustainable growth rate is 12.5%.

25% (Return on equity) x 50% (Retention ratio) = 12.5% (Sustainable growth rate)

Improve cash flow visibility and manage cash flow more effectively

Making use of the right cash flow KPIs and performance metrics for your unique business objectives makes the process of managing cash flow much smoother. Effective tracking of the above KPIs provides insights that help you to better understand how cash moves into and out of your business. This is invaluable when carrying out cash flow forecasting, improving your chances of making the right business decisions to maximize growth without damaging resiliency.

The case for a more agile supply chain

Recent years have seen global supply chains face growing challenges, placing them under unprecedented strain. Agile supply chains are how businesses can meet these challenges; here’s why.

Even a cursory look at the headlines we’ve seen since 2020 reveals a ‘perfect storm’ of challenges to global supply chains. The COVID-19 pandemic directly resulted in unpredictable shifts in demand, labor shortages, and bottlenecks in manufacturing and distribution.

More recently, the war in Ukraine and the sanctions on Russia have placed limitations on both the overland rail and air freight routes from China to Europe and increased the strain on Northern European ports that were already congested before the war.

All of this has created a challenging environment for any business whose supply chains span the globe, with average global shipping rates having more than quadrupled since 2019. And if that wasn’t enough, international businesses are faced with the enormous disruptive possibilities of both ongoing climate change and the strong likelihood of growing geopolitical competition between the US and China.

In the face of this complex series of interlocking threats, organizations must now put a premium on baking resilience into their supply chains. One of the best ways to achieve this is to build agile supply chains.

What is an agile supply chain?

Agile supply chain management prioritizes flexibility, adaptability and the ability to respond rapidly to changes in supply and demand in an unpredictably dynamic environment. It is based on principles that minimize vulnerability to external factors and reduce the likelihood of serious supply chain disruptions resulting from the proverbial ‘black swan’ (or ‘gray swan’) event.

Every agile strategy is unique, but they are all based on a small number of core practices. These include leveraging real-time data to both make the best decisions possible at any given moment and make forecasts of the future with as much confidence as possible, building a broad roster of contingency/backup vendors, and the inventive use of innovative inventory management solutions.

One important thing to bear in mind is that despite the fact lean and agile supply chain management strategies are often confused, the two ideas are distinct from each other.

Agile vs lean supply chain management

Lean supply chain management prioritizes efficiency over all other factors, both in terms of cost and service level. This can often come at the expense of resilience against external threats.

The classic strategies for achieving a lean supply chain include minimizing waste and redundancies through practices such as:

• Reducing contingency stockpiles
• Avoiding overproduction
• Keeping the supplier base small and avoiding duplication
• Streamlining supply chain and distribution processes

These are all clearly cost-effective strategies, but they come at the cost of a reduced ability to respond flexibly to changes in the market, whether long-term threats like climate change or short-term shocks like COVID-19. They can also result in decreased service levels due to stock-outs or delayed delivery, causing difficulties keeping up with evolving customer demands.

Resilient supply chain management is on the other end of the scale. It revolves around principles of risk-averseness and preparation but comes at an additional cost. Neither strategy is perfect, and both have strengths and weaknesses – some businesses may find that different areas of their activity require different approaches, which could lead them to develop hybrid strategies.

Agile supply chain management has a more significant overlap with resilient supply chain models than lean ones. Although agility implies lightness, which is more in line with lean principles, agile principles are more based on redundancy and forward planning.

Four components of an agile supply chain strategy

Demand forecasting

This is key to ensuring that an agile supply chain is always able to meet demand. Accurate forecasting is based on careful analysis of the various elements that affect a business’s supply chain functions, from simple variables like seasonal demand to more complex cash flow forecasting based on many variables. This allows stock to be managed in appropriate proportion to demand, capacity to be managed efficiently, and resources to be deployed where they are most needed.

Flexible inventory management

This is where inventory levels are managed in such a way that even when supply chains are under severe strain, they may bend but they do not break. In practice, this often means holding safety stocks as contingencies in case of abrupt shifts in demand like shortages of material or labor, or the severing of other links in the supply chain. Doing this successfully requires an analytical approach, combining prediction of demand and optimization of inventory distribution to ‘bake in’ flexibility.

Digital centralized workflows

To achieve flexible inventory management, it is critical to be able to communicate without friction between different nodes in the supply chain. Smooth gathering and sharing of data, surfaced via a user-friendly supply chain management platform, will enable stakeholders to better plan and monitor the transport of products and information between various points of the chain. Consolidating from internal, downstream and upstream sources can create a single source of truth that could prevent supply chain problems from becoming supply chain crises.

Robust supplier management strategy

This entails baking in ‘fail safes’ to supply chains in case of disruption – most notably by embracing back-up or redundancy manufacturing suppliers who will be able to take up the slack in case others are disrupted or otherwise cut off. This often involves full onboarding and treating each contingency supplier as a full participant, not as a ‘spare’ that would require extra work to onboard in case of a crisis.

What are the benefits of agile supply chains?

At this point, we hope the benefits of agile supply chains are becoming increasingly clear, but let’s close with a brief breakdown of the key benefits the agile strategy offers:

• Protection against supply chain disruption: Whether it’s the loss of a single supplier due to market forces or a catastrophic event affecting the entire chain, agile supply chains can adjust rapidly to accommodate any disruptions.
• Increased capacity to react to changes in supply and demand: If recent years have taught us anything, it’s that supply and demand are more than capable of radically shifting overnight in ways that are hard to predict and prepare for. Specific scenario planning for these shock events is difficult, but agile supply chains are flexible enough to respond dynamically to these challenges.
• Greater visibility over the entire supply chain: This is a benefit that does not just cover contingency planning; leveraging analytics data via a seamless and centralized digital platform enables businesses to achieve far greater visibility over their entire supply chains and as such make better decisions on how they allocate their resources.

To find out more about how you can take steps towards making your supply chain more agile to prepare for the future, contact a Taulia sales representative today

Virtual cards as part of your payables strategy

How a virtual card payment program can unlock efficiency savings, increase security, and help you put your working capital to work.

Over the last decade, there has been explosive growth in the range of digital working capital management solutions that are available. This has radically expanded the selection of options businesses have to manage and make better use of their capital.

The flexibility these solutions offer has empowered businesses, making it easier for them to build more resilient supply chains while retaining agility. This fundamental change in their operational opportunities acts as the bedrock for future growth – at its core is the popularization of digital payments.

Traditional payment methods carry enormous amounts of friction by the standards of today’s digitized economy. Paper checks are costly and resource intensive, keeping cards on file makes internal access control difficult, and ACH (automated clearing house) payments offer no opportunities for working capital management.

Alternative solutions, like supply chain finance (SCF) and dynamic discounting (DD), facilitated through digital payment processing platforms, open up new opportunities for companies. But they are primarily oriented towards and adopted by larger suppliers.

For those seeking a more nimble, small-scale solution that targets tail-end suppliers, virtual cards hold the answer.

Virtual cards is a digital payment method that features unique 16-digit numbers and CVV security codes, just like physical credit cards. The key difference they have with traditional cards is that they’re not physical. Instead, they are generated virtually for one-off transactions, with programmable value and expiry rules.

Thanks to their flexibility, ease of use, and suitability for high-volume, low-value transaction flows, they are particularly suited to the needs of businesses that may not yet have reached the scale where SCF and DD become most valuable. They offer a range of benefits for businesses that make them well-worth consideration as a new element to any accounts payable strategy.

Benefits of using virtual cards in accounts payable

Increased security

In any online payment solution, security is a top priority. JP Morgan found that 74% of organizations were subject to payment scams or fraud in 2020, and there is little reason to believe this tide will turn.

Paying with a traditional card exposes confidential information, which is often stored by the payee, creating the risk hackers or other malicious actors can access it. With limited lifespans – starting from as little as a single, specific transaction – virtual cards sidestep that risk, while pre-set virtual card value controls make overcharging impossible.

At the same time, the risk of internal fraud or maverick spending is significantly reduced by the improved internal access controls that virtual cards offer. And, finally, the lack of a physical representation of the card means that a virtual card cannot be lost or stolen.

Streamlined accounts payable process

Traditional accounts payable processes are labor-intensive in the extreme. Most companies in the US still conduct B2B transactions with check payments.

As with any process that involves physically moving paper from one location to another, this is inefficient and time-consuming – to say nothing of the time wasted settling the check or the opportunities for errors that creep into the process.

Virtual cards, by contrast, are near-universally accepted and enable built-in controls and approvals that can make reconciliation instantaneous. Categorization and receipt-matching can be automated, and remittance data can be embedded into transactions, freeing up finance teams for more important work while simultaneously granting them confidence in the process.

Improve your working capital position

Virtual credit cards also create opportunities to onboard smaller suppliers into working capital management programs. Unlike bulkier working capital management solutions, they are appropriate at all spend levels.

SCF and DD are generally not seen as one-size-fits-all solutions, and many providers have volume thresholds suppliers must cross to be onboarded. Electronic payment via virtual cards, however, circumvents some of the more taxing parts of the traditional onboarding process. This opens the door to extending working capital solutions to a greater proportion of your supply chain.

Using virtual cards for transactions with smaller suppliers grants you the benefits of digital credit-based payments where previously traditional payment options would be the only option. This means your accounts payable team can leverage virtual cards to hold on to working capital for longer – up to a full payment cycle.

Also, their flexibility means payment terms can be extended without engaging in lengthy negotiations.

Create rebate opportunities

Finally, virtual cards often create rebate capture opportunities, allowing you to turn a cost center (the financial and labor burden of traditional manual accounts payable) into a revenue center.

This is because they can offer cash-back rebates on every transaction when you pay your suppliers. These can be tiny in proportion to the sum of an individual transaction – but over time, they will add up.

Integrating Taulia’s Virtual Cards into your AP department

Taulia’s Virtual Card solution is the latest addition to our suite of working capital management solutions.

It offers a way to extend your working capital strategy across your entire supplier base, integrating tail-end suppliers who are characterized by low-value, high-volume transactions.

Taulia has the capability to manage the outreach and onboarding of your suppliers. Our Virtual Card solution can work in tandem with any SCF and DD programs you deploy for larger suppliers. The sophisticated cash analytics, utilizing the embedded remittance data, can also facilitate new approaches to measuring ROI, forecasting cash flows, and more. All while offering dramatic efficiency and cost-saving improvements through automated processing, and huge improvements in security and reliability.

Most of all, however, Taulia’s Virtual Cards dramatically increase a business’s options for working capital management, with a single partner assisting you in addressing the full spectrum of supplier spend.

To find out more about how virtual cards can be an integral part of your payments strategy, contact a Taulia sales representative today

Striving towards better cash flow management

Effective cash flow management is central to healthy business operations. This makes improving cash flow management one of the most promising strategies for businesses looking to grow or protect themselves from vulnerabilities.

The importance of cash flow to the health, resilience, and capabilities of any organization cannot be overstated. Cash flow is the net amount of cash that moves into and out of a company. It can be positive or negative and each state has implications on how effectively the company can operate.

A business that has positive cash flow has more money coming in than leaving, resulting in sufficient funds on hand to meet its liabilities. It is also likely to be more attractive to lenders and investors, and better able to adapt to fluctuating market conditions.

One with negative cash flow, on the other hand, has higher outflows than money coming in. In this condition, a business might be unable to pay costs or creditors without external funding and is vulnerable to sudden threats, such as changes in demand.

Cash flow health drives growth and ensures that bills are paid on time, building resilience against adverse market conditions. Which makes cash flow management one of the most fundamentally important practices in business.

What is cash flow management?

Cash flow management is the process by which a business keeps track of and optimizes the cash coming in and going out. It’s central in working capital management. With better cash flow management capabilities, businesses can control the inflows and outflows of capital more effectively. This allows them to make better use of their capital, giving them the ability to invest in growth or resilience with more confidence.

It’s also an essential component in forecasting. Helping businesses predict future revenue and expenses to identify the amount of cash needed to cover payroll, pay suppliers, and service debt.

Cash flow management involves overseeing and managing cash from all sources. These can generally be divided into three categories:

• Cash flows from operating activities represent the movement of money associated with the ordinary operations of a business – generating revenue and covering costs.
• Cash flows from investing activities include the revenue or spend arising from investments, such as the sale or purchase of long-term assets or securities.
• Cash flows from financing activities are the inflows associated with the funding of a company from external sources and the costs associated with that funding.

Measuring cash flow

The measurement of cash flow is key to efficient cash flow management. With an accurate view of their cash flow performance, businesses are better placed to make effective use of their cash and identify any risks or pain points. Key metrics for measuring cash flow include:

1. Operating cash flow:Calculated by starting with net income, adding back non-cash expenses such as depreciation, and adjusting for changes in working capital.

Operating Cash Flow = Net Income + Non-cash Expenses + Changes in Net Working Capital

2. Free cash flow (FCF): Shows the cash that a company can produce after deducting capital expenditure from its operating cash flow, thereby showing a truer picture of a company’s actual cash flow position.

Free cash flow = Operating cash flow – Capital expenditures

3. The cash conversion cycle (CCC): The time in days that it takes a firm to convert investment in inventory and other resource inputs into cash flows from sales.

CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) – Days Payable Outstanding (DPO)

4. Sustainable growth rate (SGR): The rate of growth that an organization can achieve using its own revenue without taking on additional equity or debt.

SGR = Return on equity (ROE) × Retention ratio (RR)

Common challenges in cash flow management

Several factors can hinder efforts to manage cash flow effectively. For businesses that operate with irregular revenue patterns, such as those that are affected by seasonal or cyclical demand, managing costs in low-revenue periods is a challenge.

Businesses that experience rapid growth can face different cash flow problems as they struggle to balance increasing expenditure – coming from hiring, ramped-up production, and increased inventory carrying costs – with additional revenue, which can take time to be collected.

Other businesses with poor cash flow forecasting capabilities can face challenges related to unpreparedness. Without an accurate projection of future cash flows, they can struggle to know how safely they can invest in growth. This means they can miss out on valuable opportunities, invest unwisely and find themselves vulnerable when market conditions change, or be required to fall back on a business loan, line of credit, or another form of external funding.

How to manage cash flow more effectively

The good news is that there are plenty of steps that can be taken to improve the way cash flow management is approached. These include:

Improving forecasting ability

By improving their ability to analyze current cash flows and forecast future cash flows, companies can greatly improve their overall cash flow management. Carrying out a scenario-based cash flow projection and analysis can help companies evaluate risk and examine the impact of possible events in a systematic way.

Technology can play a key role in driving a more accurate forecasting process. Taulia’s Cash Forecasting solution, for example, combines live data from each ERP instance with historical data, harnessing machine learning to predict future cash flows and drive better decision-making.

Shortening the cash conversion cycle

The shorter a business’s CCC, the less time cash spends tied up in inventory and accounts receivable. CCC is made up of three inputs, and it can be optimized (or shortened) by driving improvements to any one of its components:

• A company can increase its DPO simply by delaying payments. However, this approach can be detrimental to suppliers. Another option is to adopt a solution like supply chain finance that enables both the buyer and supplier to meet their working capital goals.
• Actions that can be taken to optimize DSO include offering early payment discounts and taking advantage of receivables financing solutions, as well as speeding up collections and automating the invoicing process.
• Strategies that companies can use to reduce DIO can include disposing of slow-selling inventory, optimizing stock levels, increasing demand through effective marketing, and adopting a sophisticated inventory management system.

Cutting costs where possible

In order to stay on top of recurring costs, companies should also conduct regular reviews to gauge the suitability of vendors and the value delivered by other expenses. By maintaining low costs, businesses can increase their resilience and improve their ability to withstand future cash flow changes.

Optimizing AP and AR processes

Last but not least, companies can improve cash flow management by driving improvements to their accounts payable (AP) and accounts receivable (AR) processes – thereby ensuring that cash stays in the business for longer.

Benefits of effective cash flow management

With more effective cash flow management, businesses will be more resilient and better prepared for whatever the future brings – whether that’s a changing economic landscape, disruptions to revenue, or unexpected rises in costs. Better cash flow management also makes it easier for companies to identify how they can invest in growth while minimizing the risks – all while ensuring they have the capital they need to fund that growth.

Mentoring in action

The Leadership Initiative for Taulia (LIFT) mentorship program continues to go from strength to strength. So what does LIFT have to offer, and how can participants get the most out of the program?

Mentoring is a powerful resource when it comes to professional development and career progression. By connecting with a supportive colleague, employees can expand their networks, gain new skills and develop their careers – as well as build lasting friendships. But finding a mentor organically isn’t always easy.

Enter the Leadership Initiative for Taulia (LIFT) program. Providing a space for employees of Taulia to develop mentoring relationships, LIFT helps Taulians network with colleagues, develop hard and soft skills, and gain exposure to different parts of Taulia. The program has been running since 2015 and has given many Taulians the opportunity to mentor – and be mentored – by others within the organization.

Building connections

Taulians can register to take part in the program as either mentors or mentees:

• Mentors are responsible for providing support and guidance to their mentees. This might include giving advice, acting as a sounding board about career choices, and identifying resources for personal development.
• Mentees communicate their goals for the program with mentors and work with them to identify resources, people, and information that might be helpful. They should be ready to accept constructive feedback and engage in self-reflection.

Mentors and mentees alike can benefit from the program in a myriad of ways. Jacob Fresneda – Commercial Market Sales Manager at Taulia, and the new head of the LIFT program – has been taking part in the program for almost six years. “The biggest thing I’ve gained from participating is exposure to the leadership of the organization,” he comments. “One of the things I’ve always loved about Taulia is the willingness of our leaders to spend time with employees.”

For others, LIFT has provided a valuable boost during various periods of their career. “When I arrived at Taulia, it was the start of the pandemic, which made it harder to create a personal network,” recalls Raphael Lentiez, Enterprise Business Development, and Vice-Chair of the LIFT committee. “Through this program, I was able to speak with people in different divisions in different countries. I also realized how important we are individually to the success of the company.”

Getting the most out of LIFT

Joining the LIFT program enables people to gain exposure to different parts of the organization and achieve their professional goals. So how can Taulians get the most out of the program?

A key feature of LIFT is its flexibility: the people taking part can decide which topics they want to focus on, and how often they would like to meet. As Justyna Hinz, Project Manager at Taulia and Secretary of the LIFT program, explains: “It’s an opportunity to talk to experienced people about whatever’s relevant to you, whether that’s developing leadership skills or learning how to negotiate better.”

Crucially, anyone who works for the company can participate, either as a mentor or as a mentee. “To be a mentor, you don’t have to have decades of experience – you can be a new joiner, or maybe just have been in your current position for a couple of months,” Hinz comments. “There will still be something you can teach someone else.”

As with any mentorship arrangement, participants should think carefully about what they want to gain from the program from the outset – whether that’s networking, developing skills, or simply getting an opportunity to spend some time with someone on the management team.

Next steps

Taulia never stands still – and naturally, plans are afoot to continue developing the program in the coming years. The current focus is on raising awareness of the program and continuing to enhance its value to everyone who takes part. Future developments could include bringing in more external mentors and experts alongside mentors from within the organization.

Types of inventory management

Choosing the right inventory management strategy can make all the difference in managing working capital. Here’s a rundown of some of the top techniques and their pros and cons.

For many companies, the production of finished goods from basic materials is key to operations. But those goods and materials, referred to collectively as inventory, can be difficult to manage efficiently – especially at scale.

Ineffective management of inventory can be extremely harmful to operational success. If a company finds itself with too little inventory, it may be unable to continue manufacturing or shipping products to match demand. Too much inventory and it will suffer from storage costs that are higher than necessary, reducing the amount able to be spent on fueling growth.

Getting this formula right – ensuring that inventory is always available when needed, but never a burden – is the central aim of inventory management. But, to complicate matters, there’s more than one inventory management strategy to choose from.

What is an inventory management strategy?

Inventory – generally consisting of finished goods, products still in the manufacturing process, and raw materials – needs to be managed appropriately for a company to fulfill orders on time, keep costs under control, and drive growth.

Inventory management is the process of doing just that. It’s a highly flexible operation that dictates how a company orders, stores, uses, and sells its goods and materials.

Making improvements in the way inventory is managed – in other words, having the right products and materials at the right time in the right place – can increase the resilience and efficiency of the supply chain, resulting in lower costs, optimized production, and faster sales.

More efficient inventory management can thereby accelerate the company’s growth, turning inventory into cash more quickly to increase working capital.

But there is a range of inventory management strategies and techniques that companies can make use of, and choosing the right one is a critical part of achieving success.

The goal of an inventory management strategy is to optimize the management of raw materials and finished products to meet the unique needs of the company. These needs may include ensuring that the company has enough product and materials to fulfill orders, fulfilling orders to a certain timeframe, or minimizing storage requirements.

With inventory management strategies, there is no ‘one size fits all’ approach. Different approaches are suited to different types of businesses, depending on their business model and their working capital goals.

Periodic vs perpetual

Before moving on to look at specific inventory management techniques, it’s first important to understand the different ways of carrying out inventory counts, or measuring inventory. There are two main accounting methods to consider: periodic and perpetual:

• With periodic inventory, a manual count of physical items is undertaken at set intervals, such as quarterly or annually. This can be more cost-effective, and as such may be appropriate for smaller businesses. However, it has the disadvantage of not providing any information for the intervening time periods.
• With perpetual inventory, the measurement of inventory is continually updated. With access to current information about their inventory levels, companies can drive more effective ordering strategies. As such, perpetual inventory provides the most value to larger businesses with greater inventory requirements.

Inventory management strategies

There are various inventory management strategies, and each one operates differently and has diverse pros and cons. Common inventory management techniques include the following:

1. Economic order quantity (EOQ)

Economic order quantity (EOQ) is a metric that looks at all costs related to the purchase and delivery of goods and materials, including discounts and warehousing, while at the same time factoring in demand for the product.

One popular formula for calculating the economic order quantity is:

EOQ = √ [2 * Annual demand in units * Average order cost / Holding costs per unit per year]

• Advantages: Reordering is triggered if inventory levels fall. As such, EOQ minimizes costs while ensuring correct inventory levels are maintained during periods of high or low demand.
• Disadvantages: EOQ does not account for seasonal or other fluctuations. It also assumes immediate availability of new stock, and assumes fixed costs of inventory units, ordering charges, and holding charges.

2. Bulk orders

Buying in bulk (also known as ‘just-in-case’ inventory purchasing) is where a business buys large quantities to supply a forecasted demand. This approach relies on the assumption that buying and receiving inventory in bulk is almost always cheaper.

• Advantages: Bulk orders take advantage of discounts, resulting in a lower cost per unit. Handling and shipping costs may also be lower. As a result, companies can increase their profit margins or drive more competitive pricing.
• Disadvantages: Storage costs are higher, and this approach lacks the flexibility to adapt to changes in demand. If forecasting is inaccurate, cash may be tied up in unnecessary stock with the possibility that obsolete stock will need to be written off.

3. Just-in-time (JIT)

The just-in-time (JIT) inventory system is an inventory management technique designed to minimize waste and increase efficiency by receiving goods only when production is scheduled to begin. For it to work, suppliers need to be extremely reliable, and production must be steady and problem free.

• Advantages: Holding costs are reduced as inventory is minimized, while working capital availability is increased.
• Disadvantages: With little margin for error, unexpected surges in demand can disrupt the system, while problems with suppliers can halt production. As such, there is a risk of stock levels dropping to uncomfortable lows or complete stock outages which can cause difficulties in fulfilling orders. Adopting the JIT strategy also means management and processes need to be highly sophisticated.

4. Safety stock

Safety stock is a method whereby companies deliberately order more inventory than they need. Some can then be set aside as safety stock in order to protect against future stock outages.

• Advantages: This approach mitigates the risk of future supply chain disruptions. As such it is highly resilient in an environment where demand is increasing rapidly, and/or disruption to future supply is likely.
• Disadvantages: Inventory holding costs are higher, while more working capital is tied up in inventory.

Safety stock comes at a cost. However, this can be mitigated with an inventory ownership service such as Taulia’s Inventory Management software solution, whereby Taulia can procure, own and hold safety stock near your destination.

5. ABC analysis

ABC (also known as selective inventory control) categorizes inventory into different classes – typically A, B, and C – according to their importance. Different inventory management strategies are then adopted for each class.

• Advantages: ABC is highly flexible. For example, safety stock can be secured for the most important inventory, with JIT delivery used for the least important. This approach also allows for greater oversight and control over high-cost items.
• Disadvantages: Without agreed-upon standards, categorization can be arbitrary or subjective. ABC may also be costly in terms of time and effort.

Improving approaches to inventory management

Choosing the right inventory management approach means understanding how inventory impacts your business: Can you measure inventory constantly or just occasionally? Are product demand and purchasing costs stable or fluctuating? Are a few key products produced, or does your company produce thousands?

Both shortages and excesses of inventory can have serious consequences for a business. As such, improving inventory management can bring multiple benefits, from minimizing costs to guarding against fluctuations in supply and demand.

Choosing an effective inventory management system is one step that can help companies drive positive change. A system that tracks and manages inventory as it moves through the supply chain can help companies improve visibility over the movement of goods and materials, pinpoint inefficiencies, and ensure that the chosen inventory management approach aligns with the company’s cash flow needs.

The accounts payable turnover ratio

Effective accounts payable management is essential when it comes to maintaining a favorable working capital position. It’s also an important consideration in the process of building strong supplier relationships.

But in order to improve the way in which accounts payable operates in an organization– and reap the subsequent benefits – you first need a clear understanding of how it currently performs.

This can be achieved by using accounts payable key performance indicators (KPIs). Measuring performance in key facets of accounts payable can provide you with valuable insights that point out what can be done to improve the process.

One such KPI, and a common way of measuring AP performance, is the metric known as the accounts payable turnover ratio.

What is the accounts payable turnover ratio?

When a buyer orders and receives goods and services, but has not yet paid for them, the invoice amount is recorded as a current liability on its balance sheet. These short-term liabilities are known as accounts payable.

The speed with which a business makes payments to the creditors and suppliers that have extended lines of credit and make up accounts payable is known as accounts payable turnover (AP turnover). Accounts payable turnover ratio (AP turnover ratio) is the metric that is used to measure AP turnover across a period of time, and one of several common financial ratios.

In a nutshell, the accounts payable turnover ratio measures how many times a business pays its creditors during a specified time period. This information, represented as a ratio, can be a key indicator of a business’s liquidity and how it is managing cash flow.

A higher AP turnover ratio is generally seen as favorable. The higher the AP turnover ratio, the faster creditors are being paid, and the less debt a business has on its books. As such, the optimum position is one in which an organization pays off its accounts payable in a timely manner, without compromising its ability to invest and reinvest.

Conversely, a low accounts payable turnover is typically regarded as unfavorable, as it indicates that a business might be struggling to pay suppliers on time.

The AP turnover ratio allows creditors and investors to determine whether a company is in good standing with its suppliers, as well as gauging the creditworthiness of the business and the risks that it may be taking.

Accounts receivable turnover ratio is the opposite metric, measuring how effectively a business manages to collect its accounts receivable.

Difference between accounts payable turnover ratio and days payable outstanding (DPO)

Another accounts payable metric, days payable outstanding (DPO) – also known as accounts payable days, or creditor days – shares some similarities with accounts payable turnover ratio.

As its name suggests, DPO measures the time taken for a company to pay its supplier invoices and expresses accounts payable turnover in days. For example, a DPO of 35 means that it takes an average of 35 days to pay suppliers. The formula for calculating DPO is as follows:

DPO = Accounts Payable/Cost of Goods Sold X Number of days

AP turnover ratio and days payable outstanding both measure how quickly bills are paid but using different units of measurement.

Together with days sales outstanding (DSO) and days inventory outstanding (DIO), DPO can also be used to calculate the cash conversion cycle (CCC), which expresses the time taken for a company to convert resources into cash flows from sales.

Accounts payable turnover ratio formula

AP turnover is calculated using the following formula:

Accounts payable turnover ratio = Total supplier credit purchases / (average accounts payable).

In the formula, total supplier credit purchases refers to the amount purchased from suppliers on credit (which should be net of any inventory returned).

Meanwhile, average accounts payable is the combined sum of the opening and closing balances of the accounts payable for the period, divided by two:

Average accounts payable = (Beginning accounts payable + ending accounts payable)/2

How to calculate accounts payable turnover ratio

The AP turnover ratio formula is relatively simple, but an explanation of how it’s used to calculate AP turnover ratio can make the metric even clearer.

AP turnover ratio is worked out by taking the total supplier purchases for the period and dividing this figure by the average accounts payable for the period. To find out the average accounts payable, the opening balance of accounts payable is added to the closing balance of accounts payable, and the result is divided by two.

It can theoretically be calculated for any accounting period, but it’s typically used as a quarterly or annual metric.

Accounts payable turnover example

To further elucidate how the calculation works, using a hypothetical example is helpful:

• A business has total supplier credit purchases for the year of $100 million.
• The opening balance of accounts payable for the year is $30 million.
• The closing balance of accounts payable for the year is $50 million.

The average accounts payable for the entire year is calculated as follows:

• Opening balance ($30 million) + closing balance ($50 million) = $80 million.
• Combined balances ($80 million) / 2 = $40 million.

The accounts payable turnover ratio is then calculated as follows:

• Total supplier credit purchases ($100 million) / average accounts payable ($40 million)
• ($100 million) / ($40 million) = 2.5

So in this example, the accounts payable turnover ratio is 2.5.

Understanding accounts payable turnover ratio

As a measure of short-term liquidity, the AP turnover ratio can be used as a barometer of a company’s financial condition.

A ratio that increases quarter on quarter, or year on year, shows that suppliers are being paid more quickly, which could indicate a cash surplus. As such, a rising AP turnover ratio is likely to be interpreted as the business managing its cash flow effectively and is often seen as an indicator of financial strength in the company.

If the ratio is decreasing over time, on the other hand, this could an indicator that the business is taking longer to pay its suppliers – which could mean that the company is in financial difficulties.

But it’s important to note that while the accounts payable turnover ratio does show how quickly invoices are being paid, it doesn’t show the reasons behind it.

In reality, a rising AP turnover ratio can result from any number of factors, such as simplified workflow practices, increased use of technology and AP automation, speeding up dispute procedures and their resolution, as well as renegotiating payment terms and taking advantage of discounts. On a different note, it might sometimes be an indication that the company is failing to reinvest in the business.

Conversely, while a decreasing turnover ratio might mean the company does not have the financial capacity to pay debts, it could also mean that the company is reinvesting in the business. Other factors such as increased disputes with suppliers, staffing and technical issues could lead to a decreasing AP turnover ratio.

Supplier management KPIs

Well-thought-out supplier KPIs are a cornerstone of any successful supplier management strategy. Build your understanding of their importance, and which KPIs you should be using to measure supplier performance, here.

The supply chain activities involved in the procurement process, from sourcing the right suppliers to taking delivery of materials and products, are vital to the overall health of any business. That makes the performance of suppliers in your supply chain a large factor in optimizing the effectiveness of your broader operational strategy.

Companies with an efficient and effective supplier management process are much better placed to obtain goods and materials of higher quality and at lower cost, in a more reliable and timely fashion, than those without.

For businesses in highly competitive environments, an optimized supplier management process that prioritizes supplier performance can mean the difference between success and failure. But how can supplier performance be measured?

The importance of supplier KPIs

Key performance indicators (KPIs) and supplier performance metrics can be used by businesses to evaluate the performance of their individual suppliers and by extension the effectiveness of their supply chain as a whole.

By quantifying the criteria against which supplier efficiency is judged through KPIs, businesses can facilitate strategic planning and better decision-making, provide targets, illustrate progress, and gain valuable insights into how well each of their suppliers performs.

Using supplier management software, supplier performance against these KPIs can be monitored over time. The data you get from this process can be instrumental in making decisions that will strengthen your overall supply chain performance.

With that in mind, let’s look at eight supplier KPI examples that can be used to measure how well your vendors are helping your business meet its commercial objectives.
 

1. Defect rate
2. Lead time
3. Availability
4. Order accuracy
5. Competitiveness
6. Customer service
7. Contract compliance
8. Risk factor

1. Defect rate

The products or services ordered should always meet the agreed quality guidelines outlined in your contract or the purchase order. Receiving substandard goods or materials can leave businesses vulnerable, impacting stock levels or requiring the expense of time and resources to rectify the order. By tracking each supplier’s defect rate, businesses can identify which suppliers consistently deliver goods or services that fall short of the specified quality standards.

Metric: The number of orders containing defective products divided by the total number of orders placed.

2. Lead time

Lead time is the interval between an order being placed and that order being delivered. If orders are not fulfilled in a timely fashion, your business processes can be delayed – potentially resulting in the loss of customers who are accustomed to fast turnarounds in today’s fast-paced world. Shortening delivery lead times can create operational efficiencies, leading to the faster fulfillment of customer orders and increased customer satisfaction.

Metric: The average number of days it takes a supplier to deliver the goods after an order is placed.

3. Availability

Availability can be thought of as the ongoing ability of a supplier to fulfill orders as and when called upon. Suppliers being capable of fulfilling orders consistently, and to the specified timescale, is a critical component in ensuring that your business can fulfill its own orders and keep up with customer demand. Measuring supplier availability to handle orders as a KPI can help you to identify suppliers who display a pattern of unavailability, and provide insights that make it easier to formulate backup plans or source replacement suppliers where needed.

Metric: The number of times a supplier was able to fulfill an order divided by the total number of orders placed with them.

4. Order accuracy

Order accuracy is a way of measuring how accurately suppliers deliver your orders – or, in other words, how often orders are delivered with errors. If an order contains incorrect items or incorrect amounts of items, your business processes can be significantly delayed. And a consistent lack of order accuracy can lead to disputes with suppliers, resulting in further complications with supply. Measuring each of your suppliers’ order accuracy performance will help you to identify those that consistently deliver inaccurately against what was ordered, again helping you to understand where you need to consider finding backup or replacement suppliers.

Metric: The number of orders delivered with 100% accuracy divided by the total number of orders.

5. Competitiveness

Minimizing costs while maintaining the standards of goods and materials improves the efficiency of procurement and increases return on investment in the department. Establishing competitiveness as a KPI attempts to measure the ability of a supplier to produce goods or services at a particular quality at the same or lower prices than rivals.

After identifying suppliers who charge above market rates, you can then negotiate with those suppliers to reduce their prices – or, alternatively, invite other suppliers to supply quotations. This may also provide an opportunity for businesses to consider the advantages of consolidating suppliers and building economies of scale.

Metric: Price of an order placed with one supplier compared to an alternative supplier.

6. Customer service

Suppliers that consistently provide poor customer service can result in a lot of wasted time resolving disputes about purchase orders, deliveries, and the accuracy of invoices, resulting in frustration and delays. In contrast, good customer service from a supplier can smooth the procurement process, making it more efficient and leading to a better working relationship between the two parties. Measuring suppliers’ customer service levels based on how many formal disputes arise in your relationship can highlight any that may be a weak link in the supply chain.

Metric: The number of disputes divided by the number of orders placed.

7. Contract compliance

Contract compliance is the extent to which contracted parties observe – or deviate from – the terms outlined in the contract. If a supplier falls short of your agreed contractual terms, the outcome can result in problems with any element of the relationship, from the timing of deliveries to the frequency of price increases. Suppliers that break the terms of their agreement may continue to present challenges in the future – so compliance with the agreed terms should be measured.

Metric: Different metrics can be used to measure contract compliance depending on the terms of the contract.

8. Risk factor

Supplier risks can come in lots of different forms. From commercial risks like substandard product quality to reputational risks like engagement in unethical business practices, they all pose a threat to your organization. By taking a more sophisticated approach to assessing the potential risks that each of your suppliers poses to your business, you can weigh up the likelihood of future harm.

Metric: Supplier risk can be measured using a variety of metrics depending on the types of risk under consideration.

What you can gain with an inventory management system

Sophisticated inventory management systems can revolutionize the efficiency of the flow of goods and materials through your supply chain.

Inventory management is the term used to describe the approach an organization takes to source, store, track, and sell inventory. It’s an important activity for businesses – and particularly for large organizations that handle significant amounts of inventory – because it influences the broader processes of procurement and sales.

For companies that have large volumes of inventory, it is usually advisable to use a dedicated system to manage inventory. While this type of solution might be overkill for small businesses with low order rates, it’s likely to be essential for larger businesses who have significant procurement needs.

Inventory management systems are designed to help these larger organizations manage their inventory control more effectively. But they vary considerably in their approach and functionality, so before adopting a new solution you should first take the time to understand the types available to you and the possible benefits they offer.

We’re here to provide an overview of inventory management systems, a summary of how exactly they work, and a guide to what you can gain from implementing one in your business.

What is an inventory management system?

Simply put, an inventory management system is a software solution or set of processes that businesses use to track their inventory as it moves through the supply chain. It typically covers the journey inventory takes, from the purchase of goods or raw materials to production and eventual sale.

An inventory management system can be used to manage all the different types of inventory that companies handle, including raw materials, unfinished goods, finished goods and packing material. For example, an inventory management system can be used to identify when raw materials need to be ordered, address issues such as surplus inventory, and speed up stock picking time.

Beyond helping to build visibility of the movement of goods and materials through the supply chain, inventory management can also be used to pinpoint inefficiencies in the process and help businesses align their approach to inventory with their cash flow needs.

Periodic vs perpetual inventory management

When talking about inventory management, it’s important to distinguish between the two different main approaches: periodic inventory systems and perpetual inventory systems:

• Periodic inventory systems enable companies to track their inventory at the beginning and end of an accounting period. This typically involves carrying out a physical stock check to measure inventory levels at regular intervals and is therefore a time-consuming approach that is usually only suitable for companies with smaller volumes of inventory.
• Perpetual inventory systems track changes to inventory and the flow of goods and materials through the supply chain on an ongoing basis. Stock levels are updated in real-time when products are sold, with inventory data managed through a central digital repository. Perpetual inventory is likely to be the most suitable approach for companies that handle a lot of inventory and need ongoing visibility of where inventory is up to in the supply chain.

How does an inventory management system work?

Inventory management systems can take a range of different forms and work in different ways, from manual paper-based systems to sophisticated partly automated digital solutions that can offer a wide range of functionality.

Digital solutions typically include full inventory tracking throughout the supply chain. Goods can be tracked at every stage of the process, from origination to the ultimate destination warehouse, always providing clear visibility over the status of inventory.

They will also often incorporate additional features that help businesses to adjust their approach to inventory management to suit their broader objectives. This can include ownership of goods-in-transit or at a nearby warehouse, offering the opportunity to improve supply chain elasticity and easily align the arrival of goods with demand.

In addition, some more sophisticated inventory management solutions (such as Taulia’s) provide an attractive alternative to Vendor Managed Inventory (VMI), enabling suppliers to take part in a buyer’s VMI program by outsourcing the requirements to the software provider.

Benefits of an inventory management system

Inventory management systems can provide numerous benefits that extend beyond the realm of inventory management itself, as the process inherently affects other parts of the business. Some of the most important benefits include:

Inventory visibility

An inventory management system can provide more visibility over the location and status of goods and materials at different points in the supply chain. This can help you to make better decisions, forecast future demand more effectively, and reduce the risk of overselling to maintain your ability to fulfill orders.

Supply chain efficiency

With more visibility over your goods and materials, you’re able to identify inefficiencies at various stages in the supply chain more effectively. These can then be ironed out by implementing inventory management process improvements resulting in benefits like reduced lead times and more effective preparation for future fluctuations in demand.

Lower costs/waste

By gaining perpetual insights into inventory levels, you can optimize the way that you approach inventory management. This, in turn, means you can reduce the amount of inventory you need to keep on-hand, reducing warehousing costs and limiting wastage. It also means you can improve your working capital position and free up cash to invest in growth.

Improved supplier relationships

Inventory management systems can help you achieve more reliable buying practices in a number of ways. They provide more clarity over where goods and materials are positioned within the supply chain and can provide you with simplified access to features like VMI and just-in-time delivery. What’s more, their ability to smooth out the flow of inventory through the supply chain can reduce the need to communicate with suppliers, minimize complaints, and lead to stronger overall supplier relationships.

How to implement an inventory management system

So far, so good – but how can you go about implementing an inventory management system? Naturally, it’s essential to choose the right system for the needs of your business, which will partly be determined by the company’s size and complexity. Taulia Inventory Management, for example, is a robust solution for enterprise level inventory management.

But that’s not all. It’s also important to get the implementation process right and build a strong foundation for your chosen solution – for example, by making sure you have a reliable process for accurate stock counts. This may also be a suitable opportunity to review your stock locations.

Once your new inventory management software is up and running, you’ll also need to provide training for all stakeholders. By making sure the relevant people are fully aware of how to use the system, you can minimize the likelihood of human error which could otherwise lead to inventory management problems.

Finally, establish a set of inventory management KPIs, such as average inventory, holding costs and lead times. By managing your KPIs, you’ll be able to monitor the performance of your new system on an ongoing basis and identify any inefficiencies that might arise in the future.

Six steps to more effective spend management

Spend management is an important part of financial management for businesses – and particularly for large companies that have significant and complex spend. Here’s what you need to know about how to improve your approach to this important process.

Spend management is the practice of managing supplier relationships and purchasing across an organization to minimize cost and risk. But, despite its importance, it’s not without its challenges. Manual processes, of which spend management is made up, can be both inefficient and create vulnerability to the risk of fraud and human error.

However, by taking a more robust, sophisticated, and technological approach to spend management, companies can address these challenges, drive greater visibility, and reap the benefits of automation, unlocking opportunities to improve spend practices across the organization. First, though, they need to have the right strategy in place.

Let’s look more closely at what procurement spend management is, the challenges companies may face in this area, and six steps organizations can take to boost the effectiveness of their approach.

What is spend management?

Spend management is a continuous process that involves managing, analyzing, and controlling the way money is spent across an organization. As such, it encompasses numerous procurement-related activities, such as budgeting, sourcing, negotiating supplier discounts, analyzing spend, managing supplier relationships and managing inventory.

The volume and complexity of spend varies considerably across organizations. For smaller companies, spend management may take the form of simple expense tracking, whereas large multinational manufacturers will need to keep tabs on high volumes of expenditure across the organization.

Different organizations will have different types of spend to manage. These may include the costs associated with:

• Raw materials for manufacturing
• Utilities
• Office supplies
• Software costs
• Travel expenses
• Employee salaries
• Marketing

For companies looking to gain more control over their expenditure, there are a number of strategies that can be deployed as part of the spend management process. For example, spend or procurement policies can be put in place, setting out which types of expenses employees can incur, details of relevant limits, and the processes that employees need to follow. Companies might also carry out employee training or adopt spend management or supply chain management software in order to automate processes and improve visibility over spend.

Common spend management problems

The spend management process is not always straightforward. The following challenges and problems can all be encountered when carrying out spend management:

• Human error and fraud. Human error is a factor to be aware of in any area that relies on manual processes. Errors can result in the wrong items being purchased or data being entered incorrectly into the spend management system, which can impact the effectiveness of decisions the company makes about its spend. Likewise, companies that lack robust and secure processes may be more at risk of fraudulent purchases.
• Inefficient processes. Manual processes are inherently inefficient, meaning that people may be spending more time than necessary on spend management processes. This means that less time can be spent on new initiatives in accounts payable and the procurement department that can bring about better ROI.
• Unclear policies or procedures. If staff are not fully aware of restrictions on spend, they will be less likely to comply with them. This, in turn, increases the risk of maverick spend, whereby staff make purchases that do not comply with the company’s current policy and processes – meaning that purchases may fail to take advantage of negotiated discounts. This can also have an adverse effect on relationships with approved suppliers.
• Poor or non-existent centralization. It can be difficult to manage spend effectively across an organization when different types of spend are managed by different departments – each of which may manage their data and records in different ways. Without a centralized spend management process, companies may struggle to track spending effectively or implement improvements.

Ways to improve spend management

So how can organizations improve their existing spend management processes? With the right strategy, it’s possible to overcome the challenges that spend management involves and drive greater efficiency and automation across the process. In particular, it’s worth considering the following steps:

Analyze current spend

Before any improvements can be made, it’s important to understand the current situation. Start by auditing and analyzing current business spend data – an exercise which includes looking at existing spending patterns, identifying anomalies and cost savings opportunities, and identifying which vendors are performing well and providing value for money.

Categorize spend

It’s also important to categorize different types of spend into different buckets, such as materials, utilities, employee expenses, and IT. By doing so, you can gain more visibility over spend and compare like with like, making it easier to understand existing bottlenecks and identify opportunities for improvement. Depending on the nature of your business, it’s also often appropriate to adopt different strategies for different categories of spend.

Adopt a centralized spend management platform

By centralizing spend management, you can gain more visibility over the process, which is particularly important if your spend is managed by a large team. This may involve adopting a dedicated software solution, which will also typically include other features that can help optimize spend. Alternatively, you may opt to create a bespoke solution in-house.

Embrace automation

Automation is key to achieving greater efficiency – and in the area of spend management, there are plenty of opportunities to automate processes. By adopting either all-in-one or dedicated spend management software solutions, you can streamline processes and achieve greater automation across activities such as supplier management, inventory management, and purchasing.

Renew policies and procedures

Policies and procedures are one of the most important factors when it comes to controlling spend. As such, it’s important to keep the relevant documents up to date so that they continue to be a good fit for your organization’s needs as the business evolves. Likewise, employees should be educated on best practices in order to keep their knowledge current and reinforce the importance of complying with your chosen spend practices.

Plan

Once the previous steps have been carried out, you’ll be in a better position to forecast future spend and choose more intelligent spend management strategies. You may also consider taking additional steps to further improve spend management activities, such as using prepaid virtual cards or taking advantage of AI-powered spend analysis.

Improving your purchase order management process

Having a robust purchase order management process in place is essential for organizations that wish to optimize procurement, build strong relationships with suppliers, and reduce the risk of harmful errors.

The purchase order management process makes up part of the larger procurement process, following on from identifying a need for goods or services and selecting a supplier and preceding making payment and taking delivery. It’s a central part of the procurement life cycle, meaning optimizing your approach to handling purchase order management can have benefits that extend throughout procurement and contribute to generating departmental efficiency.

We’re here to explain what exactly purchase order management is, how the process works, and what steps businesses can take in order to make the process more efficient and effective.

What is a purchase order?

A purchase order (PO) is a document created by the buyer and sent to the seller when placing an order for products or services. A PO includes details of the items the buyer intends to purchase, together with the relevant prices and quantities. As such, it precedes the issuance of an invoice in the procurement process and forms the basis of a commercial relationship between buyer and seller.

What is purchase order management?

Purchase order management (or PO management) is the term used to describe the set of internal processes and policies that companies use to manage their purchase orders, including creating, reviewing, and issuing purchase orders. PO management is important because it is used to ensure that the company’s purchases are necessary and justified, as well as optimizing the process and eliminating any inefficiencies.

Not all PO management processes are equal, however. Traditionally, purchase order management has involved a host of manual, paper-based processes which can be fraught with inefficiencies. Manual processes can also result in an increased chance of human error, which may cause knock-on delays in the purchasing process.

In contrast, the modern approach to PO management often revolves around utilizing a digital solution for partial or full automation, speeding up the process and reducing the risk of errors. Effective purchase order management can also lead to stronger supplier relationships and the ability to negotiate better prices.

The purchase order process

Different organizations will approach purchase order management in different ways – however, the process will usually include the following core steps:

1. Creation of purchase order. A purchasing need is identified, and a purchase order is created, outlining the purchasing need. The PO should include details of the required goods, raw materials, or services, together with information about the quantity required and the price. The purchase order will need to be approved internally.
2. Vendor approval. The PO is sent to the vendor, who approves its contents and confirms that they are able to deliver the order at the requested price. Alternatively, the vendor may request amendments to the purchase order, which will need to be resubmitted once the amendments have been made. In some cases, the PO may be used as the basis for a request for proposal (RfP) exercise, in which case the PO will be sent to the chosen supplier once the selection process is complete.
3. Purchase recorded. After approval by the vendor, the purchaser can record the PO as accepted in their system and await delivery of the products or services.
4. Delivery, approval, and payment. Once the goods or services have been provided, they will need to be checked by the purchaser to ensure that the terms of the PO have been fulfilled. The supplier’s invoice is then filed with accounts payable, where the accounts payable process starts.

Purchase order process example

Company A is setting up a new office and needs to purchase several desks. The office manager creates a purchase order specifying the number of desks needed.  The PO is then sent to the company’s preferred supplier, who approves the PO and delivers the desks by the agreed date. After the order has been received, the number and quality of the desks is checked, and the PO is recorded as accepted. The supplier’s invoice is then passed to accounts payable for payment.

Improving purchase order management

The purchase order management process can often be unnecessarily time-consuming and manual, resulting in inefficiencies and delays that can have a knock-on effect on the company’s purchases. Fortunately, there are a number of steps that companies can take to improve the PO management process, such as the following:

Make use of automation

For companies with manual PO processes, purchase order automation can generate multiple benefits. As well as providing PO templates that speed up the process, an effective purchase order management system may be able to automate the PO workflow by automatically sending documents to the relevant people for approval.

Automation can also be harnessed to benefit suppliers during the invoicing process: Taulia’s electronic invoicing solution, for example, offers an eFlip tool which enables suppliers to turn a purchase order into an invoice automatically and submit it using the supplier portal.

Centralize information

With a centralized, digital system for purchase order information, companies will be better placed to generate purchase orders quickly and make sure they are readily accessible for the relevant people with minimal organizational friction.

Create robust policies

Having a clear and robust policy in place is essential when it comes to making sure people follow the right procedures for purchase order management. By documenting the company’s purchase order policies and procedures, and keeping everything up-to-date, companies can keep all stakeholders informed about what is expected and drive a consistent approach.

Maintain key vendor information

Businesses should maintain accurate and up-to-date information about their vendors. As well as minimizing the risk of errors and ensuring that POs can be produced easily when needed, this also enables companies to compare different vendors’ pricing quickly and easily. The information should be made readily available to the people who need to access it, which can be achieved with ease by using a vendor management system.

Build strong vendor relationships-

Last but not least, companies should take the time to build and maintain strong relationships with their chosen vendors. Communication with suppliers is an important part of the PO management process, both during the selection process and when sending the PO to the vendor for approval – so organizations should make sure that their supplier communications are both streamlined and effective.

No Borders for the Talent Team: United Globally

Boryana Ivanova (Sofia, Bulgaria) and Lauren Stevens (Austin, Texas) joined Taulia as Talent Acquisition Specialists one week and 6,158 miles apart in December 2021. From the beginning, they formed a cross-continental bond that epitomized the importance of unity, belonging and teamwork.

Shortly after joining the talent team, Lauren and Boryana found they had a lot in common, despite working in different time zones and coming from different industries. Both shared challenges as women working in HR, faced FOMO (fear of missing out) and battled imposter syndrome. Despite their challenges, they were filled with excitement and anticipation while joining the global Taulian family, working side by side with colleagues from Europe, APAC and the US.

In a few short weeks of chatting through Slack and video conferencing, they found that despite their differences they had many similarities connecting their experiences. From their love of books to their pursuit of continuous learning. In fact they even took important exams the same week in March – Lauren received her PMP® certification while Boryana completed her Master’s Degree in Labor Markets and HR Management! In time, they began to recognize and appreciate the differences in the worlds they lived in while leveraging their similar experiences in the workplace.

Within the talent team their unique experiences brought them closer together as they shared past lessons, brainstormed recruitment strategies and aligned their focus on building out streamlined processes and developing a robust talent pipeline. The bond between them is truly a testament to the third core value at Taulia– Diversity is How We Grow.

Even across continents, we have the opportunity and ability to build something phenomenal by promoting a culture as strong as our bonds and friendship within the organization.

“Taulia’s culture is something we are very proud of – here we find amazing
colleagues, with diverse backgrounds and experience, with whom we work together
as a team, but we also find friends!” – Boryana Ivanova

Our culture is our people, and our people make the culture. As a team, we brainstorm together to face challenges in the best way and we share new ideas, while having the amazing opportunity to have diverse viewpoints. We also take the opportunity to share about ourselves, our lives, exciting changes, and even our favorite movies and activities, because we know we’ll be met with acceptance, positivity and support.

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This year, we are expanding our program to have guest speakers for the entire company, not just the women. I can’t wait to bring in more leaders to share their thoughts on leadership, share their personal story on their career development, and share lessons learned along their professional journey.

How SCF addresses the global financing gap for SMEs

Learn how industry innovations are working to level the playing field for access to cash, though historical inequities continue to persist.

Much has been researched and written about the global trade finance gap. In 2018, Taulia estimated that $14 trillion in working capital was locked up in global supply chains. In a post-pandemic world, this figure may approach an amount that is three times higher.

Small-to-medium enterprises (SMEs) particularly feel the impact of the trade finance gap. Lack of access to capital means these smaller businesses face recurring cash shortages that limit their ability to meet demand or even threaten ongoing viability. To counter tight credit access in the supply chain, large corporate buyers have sought out innovative fintech solutions for supply chain finance (SCF) to provide a reliable, cost-effective source of cash to SMEs.

But before we can appreciate how SCF helps SMEs, we need to understand why the gap in trade finance has not only persisted but also ballooned over time:

Risk appetite

Prior to lending, financing entities like banks need to assess the risk of an arrangement by finding answers to questions like the following:

• What is being financed?
• How will the borrower pay back the money?
• What recourse is available if the borrower fails to pay in full?

Without the relevant responses to these and other questions, financiers are locked out. And since the data for making financing decisions must be current and reliable, SMEs in emerging markets where data of this caliber tends to be scarce are especially vulnerable.

“It all comes down to accurate information,” said Ali Ansari, Managing Director and Product Lead for Taulia’s payables solutions. “If that’s not available or if it doesn’t meet certain standards, the risk appetite of the financing entity dramatically decreases.”

Capital consideration

Since capital is limited, financiers have to consider which assets are worthy of their investment. Ansari, who spent 12 years managing trade and supply chain finance on behalf of banks, said financing entities prioritize their investment decisions on the expected return from the assets. It’s no surprise that higher-performing assets also get the lion’s share of the capital. This is especially true in a stressful economic environment when capital flies toward higher-quality assets. At the other end of the spectrum, SMEs require greater capital consideration because they carry a higher financial risk. On a global level, SMEs end up fighting for the scraps.

“Poor financial infrastructure or governance maturity of some regions makes the cost of acquiring and servicing SME customers prohibitive,” Ansari says. “When you take everything into account, lending only happens at high rates and with terms that are too hard to stomach for a lot of SMEs.”

Domestic liquidity

Even when risk appetite and capital considerations are not blockers, SMEs can face problems borrowing due to domestic liquidity constraints. These constraints develop whenever a local currency is under pressure, especially when a significant, negative trade balance in an emerging market exists (such as when Egypt had to devalue its currency by 48% to meet the demands of a $12 billion International Monetary Fund loan).

The mismatch between liquidity pools for domestic and cross-border trade, which is mainly denominated by a few foreign currencies, can be a major blocker for SME access to credit. Cross-border financing for SMEs requires the additional consideration of financial exchange movements, payment controls, and reliance on financial institutions located in a handful of international markets.

SCF frees SMEs from the credit crunch

Now that we’ve seen how SMEs on the global stage face practically insurmountable challenges in obtaining traditional financing, let’s turn our attention to how SCF brings in capital and liquidity at attractive rates for SME financing:

Technology that sources credibility

Financing through SCF relies on information provided by a larger buyer, which is generally considered to be an independent and credible source by financing entities like banks. The provisioning of this information from a buyer’s ERP, for example, validates the financier’s business case and reduces risk.

What’s more, because the program is underpinned by the buyer’s obligation to pay, SMEs are not required to sign any complex collateral documentation — which also benefits the lender because the contract with the buyer is easier to enforce.

“Innovative SCF solutions have the added benefit of technology that makes the repayment flows transparent and easier to control for the financier,” said Ansari.

Capital that’s used optimally

Since better risk profiles require less capital overall, SMEs can receive optimized financing through SCF. You see, the risk of repaying the financier is tethered to large corporate buyers, which provide confirmation of payment on a set due date.

One of the reasons this arrangement works so well, according to Ansari, is because funding to SMEs through SCF can come at attractive rates without negatively impacting the capital return requirements of the financing entity. The effectiveness of SCF in pumping up supply chain liquidity is the major reason the U.S. and U.K. governments encouraged some of the large enterprises in their respective countries to launch SCF programs as opposed to more traditional financing through banks during the downturn of the Great Recession.

“On one hand, these governments were asking the banks to reinforce their own balance sheets, but they also wanted more lending directed towards SMEs,” said Ansari.

Cash flow without borders

SCF allows for financing of cross-border transactions to SMEs of emerging markets without difficulty. The local cross-border payment controls that could pose problems in such economies is blunted by the way in which SCF programs can leverage the repayment by foreign buyers, based in a financial hub or a more developed market versus getting money back from suppliers in emerging markets.

Ansari says SCF does more than provide a hedge against these cross-border challenges: “It actually unlocks more liquidity for SMEs,” he said.

The future of unrestrained cash flow

Though SCF is making substantial progress in removing barriers to shrinking the credit gap for SMEs, Ansari points out that more could be done in the public sector to support the effort. “Governments need to recognize that technology is the great socio-economic equalizer of this century,” he said. “Investments in infrastructure have changed the landscape of financing in many markets, but that needs to continue.”

Policymakers have taken some steps in the form of digital business registries for more transparency into capital needs or requirements for SME financing. As governments team up with innovators, Ansari hopes finance can become truly digital by addressing information access, risk management, and our ability to pair liquidity with the right needs.

“We need to make finance available in places where trade happens, embedded within the ecosystems of buyers and sellers,” Ansari said. “SCF has made great progress in doing that; there’s still a long way to go.”

Sustainable Supplier Finance

Up to 90% of a company’s environmental footprint lies in its supply chain – meaning that the supply chain represents a major opportunity for companies to further their environmental, social and governance (ESG) objectives. So far, so good – but how can you incentivize suppliers to adopt more ethical or sustainable practices?

Taulia’s new Sustainable Supplier Finance solution makes it easy for companies to do just that. With our solution, you can easily track your suppliers’ ESG performance and incentivize suppliers to improve their ESG performance by offering financial incentives.

If you are already intrigued by this possibility, then get in touch here. Otherwise, let’s take a closer look at this exciting new solution and how it works.

What is Sustainable Supplier Finance?

In a nutshell, Taulia’s Sustainable Supplier Finance solution helps businesses identify, monitor, and track their suppliers’ ESG performance across the entire supply chain. It also creates financial incentives that encourage suppliers to improve their ESG performance.

Companies can make their publicly stated ESG visions a reality by using Sustainable Supplier Finance to define, set, roll out and scale their ESG programs to the entire supplier base. Using the solution, you can:

• Benchmark against recognized standards. Taulia can ingest and display the data inputs from any ESG ratings provider, the suppliers themselves, or your company scorecard data as suppliers’ ESG qualifications are shared. Armed with a cumulative progress report on supplier ESG alignment, executive teams have the information they need to meet board scrutiny on this important topic.
• Identify, monitor, and track suppliers’ ESG performance. With the information they need at their fingertips, companies can identify and mitigate supplier risk and put in place a mechanism to implement a more ethical approach to sourcing.
• Harness financial incentives. By connecting ESG qualifications with financial incentives like early payment discounts, businesses can encourage suppliers to get rated and continuously improve their ESG performance over time – no matter where they are in their sustainability journey.

How does Sustainable Supplier Finance work?

Taulia’s Sustainable Supplier Finance solution is powered by an organization’s ESG vision. Taulia works step-by-step with businesses to create measurable objectives around their ESG goals and scale them to the entire supply chain. What’s more, the solution is built for multiple data sources, including ESG provider ratings from partners like EcoVadis, supplier attestation and any data the company provides. This means you can get a comprehensive view of your suppliers’ progress and compare this to your specific goals.

Suppliers can access a low financing rate with their ESG qualifications, providing an incentive for suppliers not only to participate, but also to make operational enhancements that improve their ESG standing. By moving the needle on your ESG agenda as you engage with the entire supply chain, Sustainable Supplier Finance helps you avoid ‘greenwashing’ claims from potential detractors.

Features include:

• Supplier Liquidity Segments. Companies can establish specific financing rates for a group of suppliers that meet performance objectives or certain criteria – such as minority- or women-owned businesses.
• ESG Performance Dashboard. The solution’s ESG Performance Dashboard serves up an interactive data visualization that can be drawn from multiple scoring sources, providing a comprehensive view of supply chain performance that can be shared across the organization.
• Supplier Self-Service. Self-service functionality means suppliers can enroll quickly and easily to record and share their ESG scores.
• Flexible Funding. When it comes to allocating funding, you can configure rules so they update dynamically based on your liquidity goals – or you can change things up on the fly if you want to build in a new component of your ESG initiative.
• Step-by-Step Guidance. We provide complete support throughout implementation, including with funder selection, ESG discount tiers and supplier outreach.

Benefits of Sustainable Supplier Finance

You may have a public-facing ESG vision and targets, but do you have a plan for realizing that vision and achieving your goals? Are you keeping up with pressure to demonstrate progress on ESG to the board? Are you confident that you’re able to pinpoint supplier risk within your supplier base – and equally, that you’re able to identify and support minority- or women-owned businesses?

While the apparent complexity of rolling out an ESG program to suppliers can seem daunting, help is at hand. With Sustainable Supplier Finance, you can put in place a reward structure for your supply chain, based on your specific ESG objectives. You can track and report cumulative progress towards ESG objectives to the board – and you can also offer suppliers an economic ‘carrot’ for participating in the program and achieving their ESG targets. There may also be opportunities to unlock more sources of financing for your suppliers, for example through purpose-driven funds.

The result: you can source more responsibly, build a more sustainable supply chain, and create meaningful social change – all while boosting your brand equity and improving your reputation among stakeholders and current and prospective employees.

Using Sustainable Supplier Finance

It’s easy to use Sustainable Supplier Finance. To get started, you need to choose your ESG data source and decide which discount tiers you want to use for early payments. You can then invite your suppliers to enroll in the program and start accepting ESG discounted rates.

You can incorporate diverse data sets – including company scorecards and supplier attestations – with the supplier scores from any ESG ratings provider, tapping into a comprehensive dashboard that maps to your company’s unique goals and objectives.

Our Sustainable Supply Chain Finance solution is built on the back of our industry-leading supply chain finance (SCF) and dynamic discounting (DD) programs, which typically capture 88% of qualified supplier spend. We get deeper into the supply chain than any other provider, which allows you to disburse funds more equitably – a key feature of a truly inclusive ESG solution.

As Taulia’s CEO Cedric Bru commented: “We’ve always believed in creating a world where all businesses can thrive by liberating cash trapped in their supply chains. Now, we can take one step further and help our customers activate their ESG initiatives on a truly global scale.”

Get in touch if you’d like to find out more.

How to overcome supply chain disruptions

Supply chain disruption is a major concern for companies around the world. As the last couple of years have demonstrated, even the most optimized supply chains are not immune to the risk presented by possible disruption – and this, in turn, can make it difficult for companies to meet orders on time. But while it may not be possible to eliminate supply chain risk entirely, there are plenty of actions that companies can take to minimize the impact of any disruption that might occur.

So which types of disruption should you be aware of? Read on to learn more about potential risks and find out how to overcome supply chain disruptions.

What is supply chain disruption?

A supply chain can be described as the sequence of steps taken by a company and its suppliers to produce a product. As such, supply chain disruption includes any internal or external factor that might hinder the usual flow of materials or goods through that supply chain.

Supply chains are often highly complex in today’s globalized environment. In some cases, creating a finished product involves sourcing numerous different items from different locations – all of which have to be aligned if the process is to work smoothly. The supply chain typically spans a number of steps as items move between the supplier, manufacturer, distributor, retailer and consumer. Any disruption that occurs along the supply chain can affect one or more of these moving parts – resulting in a domino effect that can throw the entire supply chain into disarray.

Types of supply chain disruptions

Supply chain disruption can come in many different forms – although some are more likely to come to pass than others. Likewise, the impact on the supply chain can vary considerably between different types of disruption.

Some types of disruption to bear in mind include:

Natural disasters

From earthquakes and tornadoes to wildfires and floods, natural disasters can cause major disruption to suppliers’ operations – and they can also wreak havoc with the transportation of goods between different players in the supply chain.

Some locations experience more large-scale natural disasters than others. But while countries such as the UK or the US may be less at risk of such events, companies in those countries can nevertheless experience disruption to their supply chains as a result of natural disasters in other countries.

For example, the 2011 earthquake and subsequent tsunami in Fukushima, Japan had a  disproportionate impact on the supply chains of automotive companies around the world, due to their reliance on parts manufactured in that region.

Geopolitical events

War and civil unrest can also cause major disruption to supply chains, as can developments such as export tariff hikes. Depending on the type of disruption, geopolitical events can lead to price rises, delays that extend lead times – or even cut suppliers off from a supply chain completely.

One study revealed that more than two-thirds of survey respondents in the US had been impacted by the US-China trade war, and that almost half of businesses in the most affected industries had no contingency plan.

More recently, Russia’s invasion of Ukraine has implications for everything from semiconductor chips to food supplies and energy prices.

Pandemics

The arrival of the COVID-19 pandemic in 2020 highlighted just how disruptive a viral pandemic can be to global supply chains – not only because of factory shutdowns and logistical challenges, but also because of abrupt changes to consumer behavior.

While the events of the pandemic were highly unusual, it has been hypothesized that pandemics may become more frequent in the future due to the prevalence of global travel, ongoing climate change, and increasing urbanization.

Material shortages

Fluctuations in demand for certain products or materials can also have a significant effect on supply chains. As well as finding it difficult to access the components needed for manufacturing, companies may also find that prices rise beyond a viable level during shortages.

Driven in part by increased household and industry demand, the semiconductor shortage has demonstrated just how wide ranging the impact of such a shortage can be, affecting everything from the automotive industry to games consoles, microwaves and refrigerators.

Supplier risks

Finally, supply chains can be disrupted by risks intrinsic to suppliers themselves, such as poor financial health, reputational issues and legal problems. This type of disruption can be particularly challenging for buyers that are reliant on a single supplier for a particular material or product.

Potential impact of disruptions on the supply chain

From natural disasters and pandemics to shortages and geopolitical developments, it’s clear that supply chains can be affected by many types of disruption. While different events will affect supply chains in different ways, the possible impact can include soaring costs of materials of goods, shortages of materials and labor, and delays that may result in longer delivery or manufacturing lead times.

As such, companies should consider how they can avoid these risks, and/or mitigate the impact and duration of any disruption that might occur.

How to avoid supply chain disruptions

There are a number of ways that you can prepare for different types of disruption before they arise – both by increasing the resilience of your supply chain, and by reducing the impact of any future disruptions. These include:

• Carry out regular supply chain risk assessments to identify the most likely disruptions before they arise.
• Review your approach to inventory management to ensure you have appropriate safety stock levels.
• Make sure you have contingency suppliers available so there is a back-up option when disruption strikes.
• Improve visibility over your supply chain by using an inventory management solution that enables you to spot disruptions quicker.

How to overcome supply chain disruptions

While the steps detailed above can help you avoid disruption to your supply chain, it’s impossible to avoid all instances of supply chain disruption. As such, it’s also important to have a plan in place that enables you to overcome issues and resume normal operations as quickly as possible when the need arises.

In the event of a disruption, you should consider the following points:

• Communicate with customers. Sometimes delays are inevitable – but being transparent with your customers can make a big difference when it comes to maintaining strong relationships even in times of difficulty.
• Audit your inventory. Assess your inventory levels to gauge the level of operational risk your business is facing.
• Optimize production and distribution plans. Make the most of the elements of your supply chain that have not been disrupted. This is the time to activate any contingency suppliers you may have available.
• Evaluate the cash flow impact. It’s essential to determine what impact the disruption will have on your company’s bottom line. If required, take appropriate steps to free up working capital.
• Support your suppliers. Last but not least, supporting your suppliers through times of difficulty can keep the whole supply chain moving – so consider speeding up customer payments using solutions such as supply chain finance.

Understanding Supply Chain Due Diligence

A company’s supply chain extends the footprint, scope and sphere of influence of an organization, exposing it to factors that are outside the control of internal policies. As such, it’s essential to understand how relationships with other companies within your supply chain can affect your own business – from potential supplier risks to ESG concerns – and make the right decisions about which organizations to partner with.

Supply chain due diligence is an important step in this process. What’s more, it’s increasingly becoming a legislative issue as well. So what is supply chain due diligence, what does it involve, and how is regulation around this topic evolving?

What is supply chain due diligence?

Supply chain due diligence is a process in which a company researches and investigates potential suppliers to identify any risks associated with those businesses. Typically these risks will range from legislative and governance issues to ethical and environmental concerns. For example, companies may need to ensure that the suppliers they work with are not involved in practices such as money laundering, child labor, human trafficking, corruption and bribery, and environmental damage.

By implementing a supply chain due diligence policy, companies can identify any risks that could arise from working with different suppliers. Increasingly, supply chain due diligence is used to ascertain whether proposed suppliers align with the company’s ESG goals and requirements. As a result of this due diligence, companies can then decide whether to work with specific suppliers, and whether suppliers should be asked to take any corrective action before carrying out work for the company.

Different companies will approach the due diligence process differently. In some cases, the main priority of the process may be to ensure that suppliers represent a good relationship fit. For other companies, the overriding goal may be to check whether suppliers are able to fulfill specific supply chain objectives, such as a short order fulfillment time.

Supply chain due diligence legislation

With expectations growing that companies will perform sufficient due diligence on their suppliers, this topic is increasingly becoming a legislative matter in some territories, particularly in Europe. As such, this could be an indication of the direction that US legislation could take in the future.

One significant development is a proposal published by the European Commission (EC) for a Corporate Sustainability Due Diligence Directive. In March 2021, the European Parliament voted to move forward with a proposal for a new piece of legislation that would introduce far-reaching mandatory due diligence obligations. Then, in February 2022, the EC adopted the proposal for a directive on corporate sustainability due diligence.

The proposed directive would require larger EU companies and non-EU companies active in the EU – as well as other companies in high impact sectors – to identify, prevent, end or mitigate adverse impacts of their activities on human rights and on the environment. Under the proposed directive, corporate directors would have a duty to integrate due diligence into their corporate policies, among other actions. The proposed directive would also enable victims to take legal action against damages that could have been avoided with the right due diligence measures.

After being presented to the European Parliament and Council for approval, Member States will have two years to transpose the Directive into national law.

German Supply Chain Due Diligence Act

Separately, in June 2021 the German parliament passed its own Supply Chain Due Diligence Act (previously called the Supply Chain Act). The new law requires large companies in the country to apply due diligence measures to their supply chain activities, and was prompted by a government-commissioned study that found only 13-17% of companies to be in compliance with due diligence obligations on a voluntary basis.

The Act will come into effect on 1 January 2023, and will initially apply to companies with more than 3,000 employees. In 2024, the remit will expand to include companies with more than 1,000 employees. Companies will be required to set up processes to identify and prevent or mitigate environmental and human rights risks in their supply chains. They will also need to publish an annual report outlining the steps they take.

Companies that are found to have breached the act will be subject to fines of up to €800,000, or up to 2% of their average annual global turnover. They will also be excluded from winning public contracts in Germany for three years.

Preparing for a focus on due diligence

With regulators increasingly focusing on the importance of supply chain due diligence, how should companies be preparing for the possibility of further legislation in the future? The following steps can help companies work towards a more effective supply chain due diligence process:

• Review internal policies. Assess your current supplier selection process and identify any changes that should be made to ensure the process is compliant with your environmental, ethical, and operational goals.
• Outline supplier risk matrix. Create a risk matrix to assess how different types of supplier risk could affect your business, looking both at the likelihood of disruption and at the impact of any disruption. This should differentiate between risks that need to be avoided completely, and risks that can be mitigated.
• Create a supply chain due diligence checklist. Put together a formal checklist that potential suppliers will be screened against, both by sending suppliers questionnaires to complete and by carrying out appropriate research. In this way, you can ensure that suppliers are compliant both with your own policies, and with current or impending legislative obligations. This could include:
  • General company information, including ownership of the company
  • Financial and insurance information
  • Reputational risk – e.g. litigation history, negative news, watchlist and politically exposed persons (PEP) screening
  • Operational risk – e.g. employee turnover, business continuity and disaster recovery plans
  • Cybersecurity and information security policies
  • Hiring practices
  • ESG credentials

This process may also include gauging the due diligence conducted on the potential vendor’s own suppliers. While it is important to ensure all key areas are covered, make sure that suppliers are only screened against relevant measures. While all suppliers should be subject to some level of due diligence, companies may choose to conduct a more detailed due diligence process on certain suppliers, depending on the level of risk associated with different relationships.

Carrying out an accounts payable risk assessment

The accounts payable department in any business can be particularly vulnerable to risk. But implementing a formal risk assessment process can help to mitigate any potential negative outcomes, while also improving overall efficiency.

Accounts payable (AP) is the department within an organization that is responsible for engaging with suppliers and processing and managing payments to third parties. As such, it has an important role to play in ensuring the smooth operation of the business.

However, it is also a function that tends to be ripe for improvement. AP processes are often inefficient, time-consuming and manual – and optimizing those processes can provide a significant opportunity to increase the return on investment (ROI) for procurement, as well as strengthening supplier relationships and accessing deeper insights into the company’s future cash flows. It’s also important to bear in mind that the AP department can be vulnerable to internal or external fraud, a risk it’s always worth protecting against.

While there are challenges to overcome, there are also plenty of steps that companies can take to optimize AP. By maximizing the efficiency of accounts payable, companies can transform the department into a well-oiled machine, both by improving the efficiency of processes and by minimizing the risk of error or fraud. With that in mind, one area that can yield significant improvements is the process used to assess the risks that can affect AP performance.

What is an accounts payable risk assessment?

An accounts payable risk assessment is an exercise which involves reviewing the AP process and internal payment controls in order to identify any shortcomings, reduce inaccuracies and minimize the risk of fraud. This is not to be confused with an accounts payable audit. An AP risk assessment should be regarded as part of the broader AP audit, which also typically involves verifying the accuracy of AP data.

Common accounts payable risks

An accounts payable risk assessment aims to identify risks that can harm the efficacy of the company’s AP processes. As such, it is important to understand which risks the risk assessment should focus on. These may include:

Internal fraud

The risk of fraud carried out by internal staff is a significant concern for AP teams. Without proper controls in place, there is a risk that staff with access to AP systems could steal money from the organization. This might involve changing an existing supplier’s banking information, or making payments to fictitious suppliers.

Maverick spend

Another area of concern is maverick spend – in other words, purchases that fall outside of compliance with the company’s established procurement policy and processes. Examples of maverick spend include transactions made by unauthorized individuals, purchases made without the necessary PO or approval process, and purchases from vendors other than the company’s preferred vendors. As such, there is a risk that maverick spend can have an adverse impact on cash flow, as well as damaging relationships with existing suppliers.

Maverick spend can also prevent the company from taking advantage of the cost savings negotiated with existing suppliers. Last but not least, there is a risk that unauthorized purchases may result in substandard goods.

External fraud/social engineering

Fraud can also be initiated from outside the organization. For example, fraudsters may use social engineering or phishing techniques to target unsuspecting staff. This might involve masquerading as an existing vendor and submitting an invoice with different bank account details. In other cases, internal members of staff may collude with external parties to defraud the organization. External fraud can also be perpetrated by suppliers, for example by double billing for goods or services.

Manual, error-prone processes

Also of concern is the risk presented by inefficient, unreliable or inaccurate AP processes. For example, manual processes can result in human error, meaning that suppliers are not paid correctly or overpayments are made. Late payments, meanwhile, may have an adverse impact on your relationships with key suppliers. Another consideration is that inefficient processes may lead to delays in invoice approvals – and that, in turn, could limit suppliers’ ability to take advantage of any early payment solutions that might be on offer, such as dynamic discounting and supply chain finance.

Running an accounts payable risk assessment

When it comes to carrying out an AP risk assessment, it’s important to note that different companies will approach the exercise in different ways. However, a good starting point is to consider the following aspects of the accounts payable process. In each case, the goal should be to identify any potential risks or points of failure associated with the existing processes:

1. Invoice arrival

Consider how your AP department receives invoices from the company’s suppliers – are they received via email, uploaded to a platform, or do your suppliers send paper invoices in the post? Paper-based invoices are associated with numerous risks: they can go missing, be subject to delays or even be intercepted. Look for ways to mitigate these risk by digitizing the invoicing process used by your suppliers – for example, by providing a supplier self-service invoicing solution, or by adopting system-to-system integrated invoicing.

2. Invoice data capture

You should also consider how data from invoices is captured and communicated within the organization, as manual data entry leaves the company at risk of human error. The good news is that if you automate this element of the accounts payable process, you can minimize the risk that your invoice data will be captured incorrectly – as well as improving the efficiency of your processes.

3. Accounts payable access

When it comes to minimizing the risk of fraudulent payments and maverick spend, it’s important to ensure proper controls are in place. As such, the accounts payable risk assessment should review which employees have access to the accounts payable platform, and who within the organization can authorize purchases. In order to improve controls and mitigate the risks, secure access to the relevant systems should be given exclusively to authorized AP and procurement team members.

4. Accounts payable visibility

Finally, the risk assessment should consider how much visibility the company has over key data points in accounts payable. If visibility over accounts payable data is limited, there is a risk that payments can be missed or that duplicate invoices may not be identified. By adopting a single, centralized accounts payable platform and integrating AP automation features, you can improve visibility over your AP data and thereby reduce the risks.

Mentorships: Building the journey together

A little while back, I reflected on what I enjoy doing at work and how I could incorporate more of that into my career. I found I like connecting with people on a deep level, and consequently discovered the power of mentorship. I made this a focus of mine and it has become something I’m very passionate about, because I enjoy seeing people grow and develop.

I believe that being a mentor has also helped me grow on both the personal and professional side of things, so no matter where you are in your career, you should consider making yourself available for mentorship.

The benefits of mentorship

A mentor helps mentees achieve their objectives by providing guidance and support in a non-judgemental and open environment. This helps individuals harness their core skills and work through real-life situations and problems to see things from a new perspective.

Mentorship can be mutually beneficial. It enables mentors to impart their experience and develop coaching skills, while mentees benefit from having an experienced individual available to them that can provide support and guidance to help get that promotion, secure that bonus, execute that project, or learn those key skills.

Mentorships also enable two people, who may not otherwise be exposed to each other, the opportunity to build longer-term meaningful relationships that can develop both individuals personally and professionally. Sometimes it’s not just about advice, it’s about having a safe space to discuss issues and challenges without fear of judgment or consequences to your career – this can be so important for our development.

How to get started and make it successful

Individuals that are struggling to see a path forward in their career and want to take their skills to the next level, and people who would like to pass on wisdom and be exposed to fresh perspectives will benefit from being part of a mentorship.

When I first meet with my mentees, it’s critical to establish their objectives and what they need guidance with, while also establishing what they will contribute to making the mentorship work. Successful mentorships are contingent on both parties investing time and attention into the relationship in a way that is mutually agreed upon.

Each mentoring relationship is different and has its own dynamics. Therefore, it’s critical to do the groundwork before starting and be transparent with what each individual wants to get out of it.

In the past, I’ve had mentees say to me, ‘I want to obtain presentation experience, and I need to do it in the next six months.’ We then can take that aim and turn it into a SMART goal and break down the required steps and actions. After agreeing on an objective, we set the schedule for future meetings and the execution plan, so that both parties have consistency and stability.

A mentorship can be game-changing for people’s lives and careers. It can help elevate each person’s skills, ambitions, and ability to reach new levels. My advice to both mentors and mentees is to reach out to each other, be patient, and be consistent!

Q&A: Meet Zoe!

Zoe is a Senior Program Manager at Taulia and chairs the LIFT Women program. She has been a mentor for many years and is very passionate about helping others develop their professional skills and to maximize their potential.

1. What do you most love about being a mentor?

There are many reasons why I love being a mentor, but mainly it’s the honour of being part of someone’s growth and development, and to see them flourish and succeed. Each mentorship is unique, and it’s thrilling to discover what each individual will bring, and how I can help them thrive. These mentorships have helped me develop my empathy and active listening skills, which have been critical to my own career while giving me more exposure to different teams and aspects of the workplace.

2. What advice would you give to young women starting their careers?

I would tell young women starting out in their careers to get a mentor, irrespective of the mentor’s job or location. Women need to be bold and proactively reach out to the individuals they want guidance from. Joining workplace initiatives like Taulia’s LIFT program and Taulia’s LIFT Women can be a great way to network. Essentially, it’s all about finding a support circle that will empower you and invest in your growth and development.

3. What are your top tips for making a successful mentoring relationship work?

• Bring respect to the mentorship – for the time, effort, and commitment both parties are giving.
• Discuss the timeframe. We have to set expectations and focus on our purpose.
• Have deliberate feedback checkpoints throughout, giving the opportunity to reflect on how the mentorship is working.
• Trust one another and listen.