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Financial Supply Chain Management

Managing the financial supply chain

chain management definition supply

• All facilities, functions and activities associated with the flow and transformation of goods and services from raw materials to customers, as well as associated information flows
• An integrated set of processes of "source," "do" and 'deliver' the goods
• The system of suppliers, manufacturers, transporters, distributors and suppliers that exists to transform raw materials through to finished products and supply those products to customers

The part of the supply chain that comes after the manufacturing process is sometimes known as the distribution network

Types of supply chain

1. physical supply chain

2. Financial Supply Chain

physical supply chain refers to the movement of goods as described above between the initial supplier end customer.

financial supply chain refers to the movement of funds resulting from the physical supply chain

Integration of FSCN with the physical supply chain

financial supply chain is integrated with the physical supply chain in several places with activities mainly in regarding payments and loans.

Generally banks offer these services for some time also provides other agencies

Objective of SCM

SCM refers to the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed.

"In the right amounts

The correct location

"At the appropriate time

In order to

Minimize total system cost

To meet customer-service requirements

Need Financial Chain Management

Benchmarks business performance indicate that enterprise resource planning (ERP) and other technologies have transformed the customer and the processes of supply chain but the performance of the finance function has not changed. Although some companies have improved the performance of their deep financial processes, financial functions are still neglected in many companies, and the day's sales outstanding (DSO) and working capital needs are very high in several industries. The capital scorecard 2008 work of CFO Magazine shows that there are significant differences between the performers of high and low within an industry. In automobile industry, for example, the best score in DSO was 44, while the worst score was 241-five times more than the sector median of 47. The research Hackett Group indicates that the department's funding costs continue to consume more than 1% of income in many companies, and CFOs struggle with low transparency of its daily cash flows

At a time when unprecedented economic uncertainty and rising expectations of the shareholders are putting all functions under closer scrutiny than ever, the finance function should be driving business, does not stop. Financial supply chain management (FSCM) can help companies to eliminate some of the inefficiencies in business processes to be more effective.

Financial Definitions supply chain

There are various definitions of supply chain financing in the long term, which first appeared in 2000 and 2001. In accordance with the research firm Killen & Associates (2001), the financial supply chain "is parallel to physics or string represents material supply and all operations activities related to the flow of money from the customer's initial order through reconciliation and payment to the seller. "The Aberdeen Group, another research firm, calls the financial supply chain "a number of B-to-B related to the intra-and inter-company functions based financial transactions and processes [that] before starting to buyers and suppliers to establish contact and continue beyond the liquidation process. "The Both definitions emphasize different topics. Killen focuses on the parallels between physical and financial supply chain, and highlights a cash flow section of the collaborative nature financial management of the supply chain and reveals that the financial value chain is not confined to the inner walls of a company, but includes the communication and cooperation business partners

Both definitions focus on a process-oriented view of the financial supply chain that is basically correct, however, in many respects, the explanations are not sufficient:

They focus heavily on the cooperation between enterprises, in particular, suppliers and customers and do not consider other partners major trading within the financial supply chain, such as banks.

They first describe the status quo, and not the stress of the various dimensions for the optimization of business processes within the financial supply chain.

Motivation and the key to effective financial supply chain are not obvious.

Another definition that includes these three areas is as follows: The financial management of the supply chain (FSCM) is the integrated planning and wide, and control of all financial processes that are relevant within an enterprise and communicate with other companies. The aim of FSCM is increasing transparency and level of automation of business processes along the financial value chain. The aim is to save processing costs and reduce working capital of the company. This definition does not take into account that the financial supply chain effectively begins and ends, because there are also analytical processes that are not directly related to a business process, but nevertheless belonging to the financial supply chain

Key Performance Indicators

There are several key performance indicators that are relevant to measure the financial management of the supply chain. A key indicator is the cash flow cycle, which defines the period between supplier delivery until the cash collection of accounts receivable from customers (Figure 1). It is the period of time necessary for the company to receive the funds invested again in the form of cash. The cash flow cycle can be divided in the gait cycle, which is the period of time between delivery of the suppliers and the actual revenue cash credit, and cash flow cycle, which is the time period between payment in cash for inventory and cash collection accounts receivable. The longer the cash flow cycle, the higher the working capital requirement of a company, which means that a reduction in cash flow cycle immediately free up liquidity

Within the cash flow cycle we can distinguish the following parameters,

• Days in inventory: Is the length of time between delivery of the goods and the supplier's invoice and the sale of the goods and invoice the customer. It describes the average number of days of the assets of a company to remain in inventory before being sold. This metric is the focus of all activities around the classical supply chain management
• Days in Accounts Payable: This is the time elapsed between the delivery of goods and the supplier's invoice and actual payment of the inventory. This figure describes the average time it takes to pay a supplier. This parameter considers the outstanding receivables of a company, and is an important measure for borrowers focus on their efforts to optimize the purchase to pay cycle.
• Days sales outstanding: This is the time elapsed between the sale of the goods and invoice customer, and the date of effective payment of the customer. This metric measures the average number of companies that take days to collect revenue after a sale made. A large number DSO means that a company is selling to their customers on credit and taking longer to collect the money. The figure is an important figure to creditors, to optimize the order cycle-to-cash
• Days in accounts receivable: This is the time elapsed between the sale of the goods and invoice customer, and the expected payment date. The key performance indicator p is similar to DSO, and indicates the average time in days that receivables are outstanding. Days in accounts receivable can also be called DSO best, as the company would gain all the credits before the expiration date

Within cash flow cycle there is a potential to reduce the two days in inventory and days sales outstanding. Days in accounts payable may be increased, but should be monitored carefully to avoid jeopardizing supplies. Days in accounts receivable can be reduced through optimization of recovery. Another important indicator for efficient management financial supply chain is working capital, a balance sheet metrics and part of liquid assets. Working capital is calculated as assets minus cu rretn iittes llibi a title = "Look up Dictionary QFINANCE term">, and is a measure of reserved liquid and short-term solvency of the company available to meet the contingencies and uncertainties. One key objective of financial title = "Look up Dictionary QFINANCE term"> supply chain management is to optimize title = "Look up Dictionary QFINANCE term"> working capital by reducing, for example, outstanding accounts receivable.

Flows supply chain

A supply chain is a network of partners that produces raw materials, subassemblies, and finished products, and then distributes them through various sales channels to customers.

Along this chain, there are three main streams:

material, information, and financial

Financial Flows in Supply Chain

Billing and Payment

The financial flow of a typical supply chain includes thousands of invoices and payments in a given year. The scale of this problem is a challenge to find companies form simplify processing. There is a considerable savings that are made in other categories in addition to processing improvements. Any organization unique supply chain, both Accounts Payable (A / P) and receivables (A / R) activities. Each invoice is an A / P from the buyer's perspective and a downstream RA / from the perspective of the upstream vendor. Several bills, however, usually pay for a single payment. This requires information about which specific invoices are covered by a remittance. Furthermore, when the bills are reconciled before payment, the party of three-way purchase order (PO), shipping receipt, and the bill may fail if all documents are not exactly consistent. Both of these potential failures can often be treated with innovative payment solutions for the preset tolerances automatic processing

Data transfer

 

Financial flows also include the transfer of information through Electronic Invoice Presentation (EIP) and electronic payments. This combination is the Invoice Electronic Presentment and Payment (EIPP), an advanced payment application that automates financial specific tasks, as well as an opportunity to collect, aggregate and share valuable information through the supply chain. Until recently, information and financial flows were treated separately. However, innovative solutions Payment can now include detailed transaction information such as date and time of receipt, the vendor name, amount received, order number, etc. With so much information and detailed financial products available in electronic format can minimize human errors, reduce time of reconciliation, and create an integrated supply chain more strongly. Importantly, banks can help customers to ensure that reconciliation and announced to General Ledger (GL) is automatically integrates

Challenges for Supply Chain Management

Although companies have made a large number of significant improvements chain management over the last decade, there are still some unique challenges that affect operational efficiency and service. The challenges listed here are most closely related to what is commonly known as the bullwhip effect "," a term that refers increases of final consumption demand as one moves up the supply chain. How does a company mitigate the bullwhip effect depends on the cause

CHALLENGE: Information distortion

SOLUTION: Ensure the rapid exchange of information along the chain

One cause of the Bullwhip Effect deals with a distortion of information. consumers if sales increase by 5 percent in a given week, a retailer might complete ordering over 7 percent in response to increased product and a feeling that demand will continue. The next link in the chain, the observation what appears to be an increase of 7 percent in demand, then the orders of a greater increase in their supplier. Finally, the factory can see a 20 percent increase inflated orders

Delays in the transmission of changes on the demand or supply can amplify the problems. A good way to address this situation is to share point of sale (POS) information

with all partners in the chain. Emerging electronic payment (eg, card-based solutions) and provide information management tools for a new way to share information.

SOLUTION:-Managed Inventory suppliers (VMI)

Another way to deal with distortion of information is to allow the supplier "decision rights" with regarding the timing and quantity of replenishments. While many buyers may have concerns about these decisions on suppliers, there have been numerous

successful pilot and large-scale applications of this concept, known as vendor managed inventory (VMI).

CHALLENGE: A miscommunication

SOLUTION: The collaboration and integration

Companies throughout the supply chain are more collaborative in comparison with the past. They are expected to share and try to operate in a highly integrated manner so that the end customer receives the supply chain in the most comprehensive integrated. Collaboration can be

several ways. A simple forecasting exchange between partners in the supply chain often can avoid the lack of communication about special promotions or other events that affect demand. A more complex integration may take the form of VMI

Data transfer

 

Financial flows also include the transfer of information through Electronic Invoice Presentation (EIP) and electronic payments. This combination is the Electronic Invoice Presentment and Payment (EIPP) Advanced payment application that automates financial specific tasks, as well as an opportunity to collect, aggregate and share valuable information through supply chain. Until recently, information and financial flows were treated separately. However, innovative payment solutions can now include detailed information transactions, such as date and time of receipt, vendor name, amount received, order number, etc. With so much product information and detailed financial available in electronic format can minimize human errors, reduce reconciliation time, and create an integrated supply chain more strongly. It is important note that banks can help customers to ensure that reconciliation and posting to General Ledger (GL) is built automatically

Financial Flow management problems

Most companies require significant amounts of capital to cope with variable and unpredictable both financial flows and outflows. When viewed together, the challenges of cash flow management, including slow processing, cash flows unreliable and unpredictable expensive processes, high-Days sales outstanding (DSO) and suboptimal lending decisions require more working capital than necessary.

If these challenges were withdrawn, the money saved could be shifted to more valuable uses. In order to address strategically and minimize the flow of the challenges Financial and take appropriate action, you must first identify and evaluate common causes.

Manual Process

Manual processes tend to be slow, unreliable and unpredictable, and in the final analysis, often more costly than automated solutions.

The lack of timely information

In many situations, financial flows do not contain sufficient detail so that anyone manual or automated systems to carry out their work. As a result, more time and effort required to obtain missing information (eg invoice level detail

information such as SKU numbers, item quantities and numbers of PO).

Lack Empowerment employees and

Spend Compliance Policy

If you purchase by individuals not handled carefully and control spending Bad can produce, thereby undermining the company's initiatives to control costs and improve strategic sourcing. Strategic Sourcing forces companies to find out how they are buying with diverse suppliers for different product categories. Conducting periodic analysis to create reports to help control costs and negotiate with suppliers of key strategic sourcing can be long and costly if these data are captured electronically.

Delays in Invoice Reconciliation

Delays in invoice reconciliation are a particular cause of additional working capital, but the reception delay payments and increase days sales outstanding (DSO) of loans. When there is a mismatch of orders three ways, orders, and the shipping receipt, is delayed inevitable, while the mismatch is investigated. These investigations usually take time and add costs.

Processes for establishing optimal boundary

Companies often maintain their own departments to establish customer credit limits. However, the ability to establish optimal credit limits may require sophisticated algorithms that are often inaccessible to non-financial companies.

What's happening

Supply Chain Management

Several trends and best practices in managing innovative supply chain are being observed in companies with vision. These include

Shared Services Group Buying

Companies that previously had separate purchase and payment transactions in many places are moving to the services of a "shared" model that centralizes these functions. The key benefits of shared services are the economies of scale and increasing the quantity discounts from suppliers. availability on the shelf of the Shop for the end consumer can also measure the average response time to special orders, and their response time worst case.

Provider Web portals for inventory data

Many companies are setting up websites where suppliers can see inventory levels at the facilities customer and point of sale or consumption data of materials. In order to implement vendor managed inventory (VMI), we need to gain access provider

Inventory and customer consumption data. These websites may also contain information on the status of supplier invoices.

Sophisticated Planning Systems Supply Chain

Modern supply chains have several levels, and is often inefficient to manage independently each level. Several companies have installed sophisticated supply chain planning systems to replace the separate layers of independent decisions.

Extended Performance Measures

Progressive companies today work as part of an integrated supply chain and product measure

Collaboration along the chain, VMI

Leading companies are working closely with partners along the supply chain to address to implement VMI. The evidence speaks loud and clear that VMI generally reduces inventory in the supply chain, increases greater product availability, and improves income.

Expanded service offerings

Often, a company can request a new service made by one of its customers. Illuminated companies are exploring these possibilities to determine whether

will lead to improved profitability. If so, they may decide to offer the service expanded to all its customers, increasing profitability and also provides a closer connection with customers

 

What is happening in the social cash flow management

Several trends and best emerging practices of financial flows that help to streamline electronic payments and build end to end. These include:

Purchase Card cards & Distribution

More and more companies are installing purchasing cards (P-) as a way to make purchases more efficient and profitable. P-Card systems also allow companies to pass the aggregate data quickly and frequently, and to maintain compliance with company policies pass also increase financial transparency and help companies comply with the rules. The distribution of cards is designed to redevelop distributors and receivable accounts of wholesalers (A / R) through the process of replacing cash, customers credit and promissory notes. By changing the manual process driven and the burden of billing and collections of the distributor to the Bank, the distribution of cards turns the collection process in rapid electronic payment without paper, the reduction in accounts receivable (A / R costs) considerably. Selling the product can be immediately transferred to working capital to accelerate the turnover.

EIPP (Electronic Invoice

Presentation and Payment)

Gradually, companies are moving toward electronic bill presentment (EIP) and Electronic Invoice Presentment and Payment (EIPP). In a recent survey, 78 percent of respondents said they were "very likely" or "somewhat likely" that the transition from paper checks to electronic payments in B2B Payments next three new tools today years2 EIPP an excellent opportunity to perform tasks of financial flows and the flow of information at the same time. The ability to send detailed information to the invoice (SKU numbers, quantities, PO numbers, etc.) along with remittances enables supply chain to transfer this information quickly and without errors often

manual procedures.

Invoice image

Some companies are soft copy of creating images on paper bills so that all payments are appropriate along a aa electronically, without paper. Others are creating data warehouses to keep the line item detail, with information from a solution of P-Card or other sources.

Provider Query Web Portals bills

Other signifi cannot trend is the development of automated web-based consultation to providers. Instead of accessing a call center to a simple question, providers may access a Web portal for your company and conduct research on self-service with regard to state

their bills (received in accounts payable tail, the tail of reconciliation, scheduled to be paid after a certain date, etc.).

Web-Based Information Financial

To reduce costs, significantly improve expenditure management, and make more informed business decisions, many companies are finding that is critical for financial transactions electronically capture and invoice-level data and then check it through a reporting tool based on Web. This transaction and invoice-level data, can be easily integrated with

existing back office financial systems. Research indicates that this integration capability can save 1-4 days per month in the synthesis of manual data entry and reconciliation activities

KPI chains supply

Product supply chain metrics are three key dimensions:

• Customer Care at cent general rate as measured by percent complete filling Order Price on an accumulation of stock situation, or percent on-time delivery in a case of construction to finish. Increasingly in cases of multiple stocks, the companies also measure product

Availability (percent time shares) on the shelves of retailers as an indicator of customer service.

• Inventory (Properties) is measured by its value, supply (days inventory), or inventory turns (Turns = Cost of goods sold (COGS) / value of inventory). Three indicators are closely related. Knowing a company's annual COG can be obtained no

inventory of criteria in any of the others.

• Speed is often measured by cash to cash (C2C) cycle (C2C = Inventory + A / R – A / P), all in days of supply.

A result Negative C2C cycle is attractive for growth. However, taking the perspective of supply chain, one of the vendors probably used deferred payment terms and find other ways to manage profitability. Moreover, to pay a company to be recovered are from another company, and in view of the supply chain these "ring" with a

another. However, the integration of automated payment solutions can lead to a significant reduction in uncertainty A / P and A / R flows that ultimately could be very valuable for the whole chain

KPI of financial flows

Key Performance Indicators (KPI) for financial flows are:

• Days Working Capital (DWC) =

(Working Capital / annual income) x 365

• Days sales outstanding (DSO) =

Accounts (Receivables / Revenue year) x 365

• Days of Inventory (DIO) =

(Value of inventory / COGS) x 365

• Days payables outstanding (DPO) =

(Accounts Payable / Annual Revenue) × 365

Days of working capital can be easily converted in a metric equivalent of Operations percent of annual sales. (For example, if a company DWC is 50 days after operations as a percentage of annual sales = 50/365 = 13.7 percent.)

Another important characteristics of financial flows are:

• Reliable payment

• The predictability of cash flows and outputs;

improving cash flow

• Information Management (data invoice level

financial data)

How key supply chain and financial flow for greater efficiency KPI Connect

In many cases, key financial performance indicators of flow may have a direct and positive impact on supply chain performance management.

Impact on C2C

The financial flow of KPIs DIO, DSO, and DPO has a direct correlation with the C2C cycle supply chain metrics. Improvements in the design and supply chain operation can deliver results in reduced inventory levels, improving this indicator. In addition, modern

payment such as EIPP systems can deliver results in a reduction in both A / R and A / P for businesses along the supply chain. In this case, the benefit would be reduced needs for working capital.

Impact on Service

Accelerated flows of financial support from a supply chain function properly. On the contrary, if the delay in financial flows led to delays in receipt of material, then customer service (fill rates, availability, time delivery) may be unexpectedly degraded.

Impact on Inventory

Financial flow processes associated with A / R can also affect the supply chain. There may be cases where unexpected delays in the strength of cash receipts of a company to delay the order of the materials receive, due to limited operations. This could result in reduced customer service later, when the absence of the missing materials is felt, but could result in a lack of higher stocks, lower-time delivery, and incomes shrank.

Improving the timing of funding flows

The adoption of automation solutions for financial clows card such as purchase and distribution of cards and EIPP systems creates opportunities for improvement and cost savings in several areas.

 

Buying and Selling More Efficient Processes

P-Cards have provided a significant reduction in the purchase of processing costs. Studies show a reduction of 50-60 percent in A / P processing systems.6 electronic bill Another advantage of the P-Card is that you can easily sync with the company

spending policies. Merchant Category The codes can be used to purchase directly from vendors on the approved list of suppliers of a company (AVL). May be in dollars

limits costs established in any single purchase, which can vary by individual. To improve sales and collections processes, a seller may receive the settlement funds as soon as the day after accepting a P-Card and and / or distribution of a card as payment method.

Faster Electronic reconciliation through

The submission of invoices (EIP) and payment (EIPP)

Electronics Reconciliation – A / P

Matching delivery receipts, invoices and purchase orders has been a manual process for A / P in many companies. It is not uncommon to have the mismatch rates between 10 and 25 percent of all invoices received. The buyer usually reported

The seller of the lack of coincidence and can not make any partial payments on the bill until the dispute is resolved. It may seem that the buyer is winning "fl oats"

or the use of working capital until resolution occurs, but the cause is a mismatch document, there is no way that the buyer can plan on that floor of oats systematically.

Moreover, from the standpoint of the supply chain, the uncertainty associated with the delay in payment of the bill until a decision can create difficulties for the seller. Electronic means of improving the process of three-way comparison are emerging. The companies that have moved

in this direction generally carried out in three-way match much earlier in the process. No need to wait until the invoice is due, the party may be performed immediately after the material has been received and conducted a recount. (Quality Controls

can be done in parallel.) If a discrepancy is found, then enough time to correct without delaying payment beyond the normal time limits, and that conciliation has started much earlier in the process. Moreover, modern systems can provide EIPP invoice level sufficient detail so that many mismatches can be quickly diagnosed with the information provided electronically. It speeds up the process reconciliation

significantly and achieves a much lower cost. Electronic Reconciliation – an R /

 

Electronic Reconciliation - An R /

 

The same party three-way discussed above is also present in the A / R side. Companies can easily have a three-match discrepancies in the A / R side from 10 percent and 40 percent of the invoices sent. It can take up to 40 days to resolve discrepancies. The company may receive only partial payment of your bill during this period and sometimes without pay, until the discrepancy is solved with automated systems, reconciliation can be achieved sooner, more easily and faster. Modern electronic payment systems can include detailed information such as order number, invoice number,

and sufficient bill online order to resolve mismatches article details many of them without further manual effort. The result is significantly faster cash inflows (for example, a cycle more cash to cash) and reduced days sales outstanding (DSO). Furthermore, automated

An R / treatment can improve customer relations

 

Increased information flow

Data Integration

The use of P-Card allows companies to obtain detailed data which is very useful in the reconciliation process and could also be useful in providing goods chain.

While all card transactions contain "Level one" of information (the minimum necessary to clear and settle the financial transaction), modern systems allow for "Level Two" and " level three "data capture and reporting of transactions. In particular, Level Three data

may include invoice level details such as amount of the discount freight / ship amount, order date, account number, commodity code item, the item description, quantity, unit of measure, and cost unit.

Supplier Web Portal

A provider of web portal allows electronic access to vendors of corporate information records related to your business, such as invoice status. The modern electronic payment systems can contain sufficient detail to allow many inquiries from providers be manipulated by a service portal auto suppliers. This saves the buyer and seller time and money, reduce phone calls to the buyer and provides an answer faster to the seller.

Credit and Collections Outsourcing

Credit limit optimization

When setting appropriate credit limits for customers, a number of different factors come into play, including profitability and credit risk account. Monitoring credit limits dynamically is difficult for companies to conduct themselves. There are economic

efficiency in outsourcing the task of determining the optimal credit limits and monitoring dynamically. Very few companies can claim their core competency is the optimization of credit limits. This business function is a natural candidate for outsourcing from a financial institution. These institutions have staff specialized to deal with credit risk assessment and standardized collection procedures. Due to economies of scale, may be able to provide this function more profitably.

Receivables Financing

If a company or an industry traditionally has had long periods payment (eg 90 days or more), providers often want to have its accounts receivable financing. This is another opportunity for banks to provide a value.

Collections

Companies are also using the card distribution solutions to streamline their collections and reconciliation tasks.Selling may be more effective when banks manage the rights of libraries.

Low capital requirements

Improved cash flow processing can help reduce working capital through better visibility. more efficient financial processing can help eliminate uncertainties in financial flows and thus contribute to a significant decrease in the Days of Operations (DWC). It has been estimated that greater visibility of A / R can reduce working capital needs up to 20-25 percent.7 One way to estimate the impact of improved visibility is to draw a parallel between the management of working capital and inventory management. Safety stock inventory systems is proportional to the standard deviation error of forecast demand. Improvements in chains supply can often reduce the effective standard deviation of prediction error by 10-20 percent. Applying this logic in Working Capital, one would expect a better visibility on both A / P and A / R, could result in a reduction of 10-20 percent. An industry source provides sophisticated optimization tools cash flow will appear in 2006-07, adding significant improvements in current capabilities of innovative payment

Partner Strengthened relationships

Closer, sensitive client connection

Automated systems to submit invoices and receive payments easier for customers to reconcile and pay invoices. The ability to send advance shipping notices (ASN) and track customer orders (for information on the dynamic state) more can strengthen the relationship between a company and its customers. Differentiate by adding services (eg, EIPP) When a company offers a product not easily distinguishable (eg a commodity), you can use financial services to differentiate themselves from competitors. If a

company EIPP used, it is much easier for customers to do business with that company because the EIPP benefits accrue to both parties in the chain of supply. If a buyer is considering two alternative sources of product, the company that provides the benefi ts EIPP may be in a better position to win the business.

What is happening in

Financial Flow Management

Several trends and emerging best practices of financial flows that help to streamline electronic payments and build end to end. These include:

Purchase cards and card distribution

More and more businesses are installing purchasing cards (P-Card) as a way to make purchases more efficient and profitable. P-Card systems also allow companies aggregated data to move quickly and frequently, and maintain compliance with company policies go also increase financial transparency and help companies comply with the rules. The distribution of the card is designed to reengineer the wholesale distributors and accounts receivable (/ R) process through the replacement of currency, credit and commercial paper customers. By changing the manual process driven and the burden of billing and collections of the distributor to the Bank, the card distribution transforms the process of collection in a fast paperless electronic payment, the reduction in accounts receivable (A / R costs) substantially. sales proceeds can be transferred immediately to working capital more quickly.

EIPP (Electronic Invoice

The presentation and payment)

Gradually, companies are moving towards Electronic Invoice Presentation (EIP) and Electronic Invoice Presentment and Payment (EIPP). In a recent survey, 78 percent of respondents said they were "very likely" or "somewhat likely "The transition from paper checks to electronic payments in B2B payments over the next three new tools today years2 EIPP an excellent opportunity to tasks of financial flows and the flow of information at once. The ability to send detailed information to the invoice (SKU numbers, quantities, numbers PO, etc) along with remittances enables supply chain to transfer the information quickly and without errors often

procedures manual.

Invoice image

Some companies are creating soft copy images of paper invoices to ensure that all payments proceed along an electronic, paperless. Others are creating data warehouses to keep the line item detail, with information from a solution P-Card or other sources.

Supplier web sites for consultation Bill

Signifi cannot Another trend is the development of automated systems Web-based consultation to providers. Instead of accessing a call center to ask a simple question, providers can access a Web portal for their company and make self-service consultation with regard to the situation

your bill (received in tailed accounts payable on the tail of reconciliation scheduled to be paid after a certain date, etc.).

Web-based Financial Information

To reduce costs, improve significant expenditure management, and make more informed business decisions, many companies are finding it essential for the electronic capture of transactions financial and data to the invoice and then study them through a reporting tool based on Web. This transaction and invoice-level data, can be easily integrated with

existing back office financial systems. Research indicates that this capacity for integration can save 1-4 days per month in the synthesis of manual data and reconciliation activities

KPI for supply chains

Product supply chain metrics have three key dimensions:

• Customer usually measured percent Fill Rate percent complete on an accumulation Order Price status of stocks, or percent on-time delivery in a case of construction in order. Increasingly in cases of multiple stocks, companies also the measurement of product

Availability (percent time shares) on the shelves of retailers as an indicator of customer service.

• Inventory (Properties) is measured by its value, for the supply of time (days inventory), or inventory turns (Turns = Cost Goods sold (COGS) / value of inventory). The three indicators are closely related. Knowing a company's annual COG can be obtained no

inventory of criteria in any of the others.

• Speed is often measured by cash to cash (C2C) cycle (C2C = Inventory + A / R – A / P), all in days of supply.

C2C A negative cycle is attractive for growth. However, given the perspective of supply chain, one of the vendors probably used to delayed payment terms and find other ways to manage profitability. Moreover, to pay a company to be recovered are from another company, and in view of the supply chain, these "ring" with a

another. However, integration automated solutions for payment may result in a significant reduction in the uncertainty of A / P and A / R flows that ultimately could be very valuable for all chain

KPI of financial flows

Key Performance Indicators (KPI) for financial flows are:

• Days Working Capital (DWC) =

(Working capital / annual income) x 365

• Days sales outstanding (DSO) =

Accounts (Receivables / Annual Revenue) x 365

• Days of Inventory (DIO) =

(Value of inventory / COGS) x 365

• Days payables outstanding (DPO) =

(Accounts Payable / Annual Revenue) x 365

Days of working capital can be easily converted into a metric equivalent percent of Operations annual sales. (For example, if a company DWC is 50 days after operations as a percentage of annual sales = 50/365 = 13.7 percent.)

Other important characteristics of financial flows are:

• Reliable payment

• The predictability of flows Payment and outputs;

improving cash flow

• Information Management (invoice level data with

financial data)

How key supply chain and financial flow for greater efficiency KPI Connect

In many cases, key indicators financial performance of flow may have a direct and positive impact on supply chain performance management.

Impact on C2C

The financial flow of KPIs DIO, DSO, and DPO has a direct correlation with the C2C cycle supply chain metrics. Improvements in the design of the supply chain and operations can yield results in reduced inventory levels, improving this indicator. In addition, modern

payment systems such as EIPP can succeed in reducing both in A / R and A / P for businesses along the supply chain. In this case, the benefit would be a reduction in working capital needs.

Impact on Service

Accelerated flows of financial support from a supply chain to work properly. On the contrary, if the delay financial flows led to delays in receipt of material, then customer service (fill rates, availability, delivery time) can be unexpectedly degraded.

Impact on Inventory

Financial flow processes associated with A / R can also affect the supply chain. There may be cases where unexpected delays in the strength of cash receipts of a company to delay the order of the materials received, due to limitations of Operations. This could result in reduced customer service later, when the absence of the missing materials is felt, but could result in the absence of stocks higher less time delivery, and incomes shrank.

Improving the timing of funding flows

Adoption automation solutions for financial clows such as card purchase and distribution of cards and EIPP systems creates opportunities for improvement and cost savings in various areas.

 

Buying and Selling More Efficient Processes

P-Cards have been provided a significant reduction in the purchase of processing costs. Studies show a reduction of 50-60 percent in A / P processing of electronic invoices systems.6 Another advantage of the P-Card is that you can easily sync with the company

spending policies. Merchant Category Codes can be used to purchase directly from suppliers on the approved list of suppliers of a company (AVL). May be in dollars

set spending limits in any single purchase, which can vary by individual. To improve sales and collections processes, a seller may receive the settlement funds as soon as the day Next to accept a P-Card yy / or distribution of a card as payment method.

Faster Reconciliation through Electronics

The bill presentment (EIP) and payment (EIPP)

Electronic Reconciliation – A / P

Matching delivery receipts, invoices and purchase orders has been a manual process for A / P in many companies. It is not uncommon to have the mismatch rates between 10 and 25 percent of all invoices received. The buyer usually reported

The seller of the lack of coincidence and can not do any partial payments on the bill until the dispute is resolved. It may seem that the buyer is winning "fl oats"

or the use of capital work until resolution occurs, but the cause is a mismatch document, there is no way that the buyer can plan on that floor of oats systematically.

Moreover, from the standpoint of the supply chain, the uncertainty associated with the delay in payment of the bill until a decision can create difficulties for the seller. Electronic means of improving the process of three-way comparison are emerging. Companies that have moved

in this general direction, will out three-way match much earlier in the process. No need to wait until the invoice is due, the party may be performed immediately after the material has been received and made a recount. (Quality Controls

can be done in parallel.) If a discrepancy is found, then enough time to correct without delayed payments beyond the normal time limits, and that conciliation has started much earlier in the process. Moreover, modern systems can provide sufficient details EIPP invoice level so that many mismatches can be quickly diagnosed with the information provided electronically. This speeds up the process of reconciliation

significantly and achieves a much lower cost. Electronic Reconciliation – an R /

 

Electronic Reconciliation - An R /

 

The same three-way game discussed above is also present in the A / R side. Companies can easily have a three-match discrepancies in the A / R side of the 10 per cent and 40 percent of the invoices sent. It can take up to 40 days to resolve discrepancies. The company may receive only partial payment of your bill during this period, and sometimes without pay, until the discrepancy is solved with automated systems, reconciliation can be achieved sooner, more easily and faster. Modern systems electronic payment may include detailed information such as order number, invoice number,

and the bill sufficient to resolve order line item details mismatches many without further manual effort. The result is significantly faster cash inflows (for example, another cycle cash to cash) and reduced days sales outstanding (DSO). Moreover, automatic

An R / treatment can improve customer relations

 

Greater flow of information

Data Integration

The use of P-Card allows companies to obtain detailed data which is very useful in the reconciliation process and could also be useful in providing goods chain.

While all card transactions contain "Level one" of information (the minimum necessary to clear and settle the financial transaction), modern systems allow for "Level Two 'and' level three "data capture and reporting of transactions. In particular, Level Three data

may include invoice level details such as amount of the discount freight / ship amount, order date, account number, commodity code item, the item description, quantity, unit of measure, and cost unit.

Provider of web portals

A provider of web portal allows electronic access to vendors of corporate information records related to your business, such as invoice status. The modern electronic payment systems can contain sufficient detail to allow many inquiries from providers to be handled by a service portal for auto suppliers. This saves the buyer and seller time and money, reduce phone calls to the buyer and provides an answer faster to the seller.

Credit and Collections Outsourcing

Credit limit optimization

When setting appropriate credit limits for customers, a number of different factors come into play, including profitability and credit risk account. Monitoring credit limits dynamically is difficult for companies to conduct themselves. There are economic

efficiency in outsourcing the task of determining the optimal credit limits and monitoring dynamically. Very few companies can claim their core competency is the optimization of credit limits. This business function is a natural candidate for outsourcing from a financial institution. These institutions have staff specialized to deal with credit risk assessment and standardized collection procedures. Due to economies of scale, may be able to provide this function more profitably.

Receivables Financing

If a company or an industry traditionally has had a long period payment (eg 90 days or more), providers often want to have its accounts receivable financing. This is another opportunity for banks to provide a value.

Collections

Companies are also using the card distribution solutions to streamline their collections and reconciliation tasks.Selling may be more effective when banks manage the rights of libraries.

Low capital requirements

Improved cash flow processing can help reduce working capital through better visibility. more efficient financial processing can help eliminate uncertainties in financial flows and thus contribute to a significant decrease in the Days of Operations (DWC). It has been estimated that greater visibility of A / R can reduce working capital needs up to 20-25 percent.7 One way to estimate the impact of improved visibility is to draw a parallel between the management of working capital and inventory management. Safety stock inventory systems is proportional to the error standard deviation of forecasts of demand. Improvements in chains supply can often reduce the effective standard deviation of prediction error by 10-20 percent. Applying this logic to Working Capital, one would expect a better visibility on both A / P, A / R, could result in a reduction of 10-20 percent. An industry source provides sophisticated optimization tools cash flow will appear in 2006-07, adding significant improvements in current capabilities of innovative payment

Partner Strengthened relationships

Closer, sensitive client connection

Automated systems to submit invoices and receive payments easier for customers to reconcile and pay invoices. The ability to send advance shipping notices (ASN) and track customer orders (for dynamic state information) can more cement the relationship between a company and its customers. Differentiate Adding services (eg, EIPP) When a company offers a product that is indistinguishable easily (eg a commodity), you can use financial services to differentiate themselves from competitors. If a

EIPP company uses is much easier for customers to do business with this company because EIPP benefits accrue to both parties in the supply chain. If a buyer is considering two alternative sources of product, the company that provides the benefi ts EIPP may be in a better position to win the business.

Conclusions

The flow of financial supply chain is at a critical threshold of evolution. Current trends in supply chain and financial flow management clearly favor the use of automated payment solutions. The continued expansion in this area has a high potential to:

• Significantly reduce costs Buying processing • Speed up the payment and reconciliation • Reducing the bill collection costs significantly and minimize the number of days sales outstanding (DSO)

• Creating greater processing efficiency in the procurement of goods

• Increased visibility, which means less uncertainty in accounts receivable (A / R) and accounts payable (A / P) and a reduction in working capital requirements

The number of payment solutions in this booklet offer businesses a powerful automated system capable of eliminating the financial challenges of flow in the supply chain today. Based on an analysis of available data supply chain performance and impact measures (as defined in the Visa Commercial Solutions Industry Briefing) is possible to draw some generalizations about economic efficiency and benefits to be gained by improving Financial flows with various innovative payment solutions. Quantitatively speaking, a company with revenues of $ 1,000,000,000 per year would get an annual saving of nearly $ 10 million, or nearly one percent of the savings Projected revenues.10 This represents more than 20 percent of annual profits typical for such an undertaking. For a medium-sized Fortune 500, the annual savings could be up to $ 81million and eight times more muchi

 

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