By Arun Poojari, Co-founder and CEO, SCF Platform, Cashinvoice
The global supply chain was once considered a relatively stable system, with longer production cycles, consistent consumer demand, and lesser pronounced geopolitical tensions. This predictability facilitated efficient operations and inventory management. However, within a decade, this has undergone a significant transformation brought in by new strategies, manufacturing processes, and partnerships. These changes have also introduced significant challenges, such as cyber threats, geopolitical tensions, financial instability, and resource scarcity, creating a volatile environment.
These disruptions have severely impacted a company’s financial stability, operational continuity, and future growth prospects. In fact, according to a report by KPMG, 47% of supply chain leaders acknowledge increased vulnerability to disruptions. Whether stemming from liquidity constraints, delayed invoice payments, economic downturns, or supplier failures—businesses are attempting to navigate increasingly volatile and complex environments. Fortunately, supply chain financing (SCF) presents an opportunity to companies for better risk mitigation and operational efficiency.
How data and tech in SCF can lead to risk mitigation
Technology and high-quality data form the bedrock of effective risk analysis in financial sectors. To maximise the potential of these advancements—banks, NBFCs, and fintechs are collaborating to implement cloud-based applications across their channels, particularly for financing processes. They offer a tech-enabled platform seamlessly integrated with buyers’ ERP systems to ensure that only verified invoices are forwarded to lenders for financing.
Moreover, high-tech solutions like API-enabled authentication, digital scorecards, automated procedures, and early warning systems streamline operations, simplify onboarding, and mitigate risks. This is possible by gathering and analyzing various internal and external data from suppliers, logistics, and market trends. Organizations then turn this collected data into reliable insights after leveraging business intelligence tools. These insights enable risk departments to monitor SCF trades and closely evaluate client creditworthiness in real-time.
The ability to monitor trade transactions daily and analyze this data to establish a comprehensive view of typical trading patterns also represents a significant leap in transaction oversight. By promptly detecting anomalies in trade flows and flagging potential issues in real-time, funders gain greater control over their exposures. The fact that 39% of business leaders plan to invest in digital technologies to enhance their data analysis capabilities underscores the growing trend toward digital transformation in the financial sector.
Empowering tail-end players
The true value of SCF emerges when smaller players at the tail-end of supply chains gain access to timely working capital. Typically, their weaker financial positions and incomplete disclosures pose a real risk of SCF programs failing. To mitigate this risk, it is crucial to utilize advanced technologies such as AI, ML, and big data analytics in organizational operations.
AI and ML enhance predictive analytics, enabling banks, NBFCs and fintechs to accurately identify potential risks. These technologies also improve fraud detection by recognizing unusual patterns in real-time, thereby protecting all players in the supply chain from financial crimes and fraud.
Moreover, AI in next-generation SCF evaluates a broader range of credit factors, such as POS transaction volumes, MSME customer details, and the owner’s social and legal history. By leveraging these comprehensive digital solutions, financial institutions can better support smaller players and enhance the overall stability of the supply chain.
Altogether, the future of SCF hinges on the vision of business leaders. Technologies that streamline invoice handling enhance supplier relationships, and mitigate risks—whether driven by data science, AI, or a combination of both—will be highly valued. While risk management leaders tend to see supply chain disruption as a significant risk, operations and finance leaders view it as an opportunity and critically analyze its impact. Ultimately, SCF is about optimizing working capital, reducing risk, and improving the bottom line for everyone in the trade.