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OPTIMIZING THE FINANCIAL SUPPLY CHAIN

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Financial supply chain management (FSCM) came into the picture this past decade as an offshoot of supply chain management (SCM) to, in essence, mirror what was successfully being done through the management of supply chain activities (materials, information, and finances) as they moved from supplier to manufacturer to wholesaler to retailer to consumer.

Prior to the global economic nosedive of last decade, the supply chain side of things was making great progress in optimization, but the financing and accounting side wasn’t keeping up. Opportunities in payment optimization to reduce costs and risks, streamline processes, and generate revenue were being missed entirely, and buyer/supplier relationships were taking the hit. While

the customer might have been satisfied with the end-product, internal relations and operations—including those with suppliers—were often disjointed, costly, and less than optimal.

THEN CAME THE IDEA OF FSCM Like supply chain management, which exists namely to maximize customer value and achieve a sustainable competitive advantage through managing the flow of goods, FSCM represents a conscious effort to maximize the entire procure-to-pay (P2P) and order-to-cash (O2C) processes and acknowledge the connection between financial management and relationship management by managing the flow of cash. By optimizing the flow

of the pieces and parts that make up the whole of the buyer, supplier, and financing relationships, businesses that engage in FSCM have created strategic winning points that maximize profitability, minimize expenses and risks, and lead to optimum success—especially in today’s unprecedented economic uncertainty.

FSCM addresses the fact that the entire chain of activities that ultimately affect and determine a company’s profitability need to be cohesive, considerate of details, and as effective as possible. FSCM uses technology and processes that allow businesses to take a more streamlined stance on strategizing the timing of purchases, inventory, pricing, risk management, payment terms with suppliers, and discount opportunities. The result is that, with finance optimization as

It used to be that business cash flow management was a standalone process that didn’t rub elbows with

purchasing and supply chain management. At one end of the office or warehouse, purchases would be

made and supplies would be managed, and at the far other end, accounts would be paid and received.

But no one from either side of the business was necessarily talking to the other side to make sure that

everyone was on the same page when it comes to the main goal of working capital optimization.

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the driving force, the organization becomes a united team with companywide buy-in that communicates and works together to optimize working capital and improve relationships and processes internally and with suppliers.

If your own approach to FSCM and your cash flow cycle could be better optimized, keep reading to find out why—and how—to turn your financial supply chain activities into a cohesive, streamlined, cost-effective, risk-mitigated, collaborative, and profit-enabled practice that gives your business the competitive edge.

BRIDGE THE DIVIDE FSCM takes a targeted, two-tiered approach to bridging the communication and operational gap between the purchasing and accounting departments, and between buying and selling processes. As outlined in an online review of FSCM retrieved from ResearchGate.net, a robust financial supply chain management system takes a holistic approach to both the physical and financial flows of a business, allowing for a companywide engagement to planning, managing, and controlling all processes and transactions related to the financial flows along the entire supply chain.

According to the review’s authors, Georgios Vousinas and Stavros Ponis, in the more volatile financial climate we find ourselves in today, managing working capital during the long cash flow cycles from procurement to sales is a very real, critical challenge. FSCM allows businesses to oversee and identify concrete ways to reduce their working capital during the sales cycle and improve processes along their supply chain. The needs and behaviors of internal departments

and employees are also taken into account with FSCM, resulting in better communication, improved efficiency, more productivity, increased revenues, and, ultimately, larger profits.

Outside company walls, the use of FSCM practices in supply chains can turn buyer/seller and financing challenges into “win-win” situations. The conflict between buyers, who often seek to delay paying for goods until a financially opportune time, and sellers, who ask for timely payment to avoid short-term borrowing, gets addressed—and the solution becomes a simple and fast payable system that saves both parties time, money, risk, complexity, and frustration.

INCREASE TRANSPARENCY A very real challenge for organizations today is the dual work of cutting costs and gaining access to required funds to do business. Unprecedented economic volatility and intense expectations from shareholders have increased the need for more transparency into the day-to-day cash flow cycle.

An article on the benefits of FSCM in Supply & Demand Chain Executive (SDCE) emphasizes using an “outside-in approach to understand how the end-to-end supply chain processes begin with the consumer and work backward to the supplier.” Because FSCM follows the flow of money, it allows for a closer look at “the trade-offs that maximize profitability.” According to the SDCE article, with FSCM you can track each event in the supply chain that impacts cash flow as it happens, which allows for greater process and performance transparency in the interrelated chain of events that impact working capital, payment terms, pricing, and inventory.

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Technology payment platforms that facilitate the FSCM process provide a gateway for added transparency because they turn the payable process electronic, and integrate with ERP (enterprise resource planning) systems, eliminating messy and time-consuming paperwork and filing, bringing all data from P2P and O2C into a comprehensive and easy-to-access digital platform—all with the added benefits of security, cost-reduction, and revenue generation.

MITIGATE RISK According to an article in IndustryWeek magazine that studied corporate executive and senior financial managers, “the top two pressures motivating manufacturers to focus on the financial supply chain are demand volatility’s impact on available cash, and the risk of trading partner default.” In a volatile market, manufacturers and suppliers have pressure from executives to keep inventory in stock, but the repercussion is that cash flow becomes unpredictable, and risk goes up.

FSCM helps address these pressures. The global economic crisis of 2008 meant that availability of money that used to be readily loaned was now greatly reduced. “In fact,” notes the IndustryWeek article,

“several supply chain networks would have been on the verge of collapse if suppliers’ liquidity shortfalls had not been balanced by financially strong firms within the supply chain.”

According to the review of FSCM posted on ResearchGate.net, when financial institutions began offering more competitive, open accounts, smaller program participants were able to benefit from larger program participants’ optimal credit ratings. The new financial products offered today make financing costs much more manageable, which increases reliability, reduces risk, and consolidates long-term supplier-buyer relationships.

The Integrated Payables solution provided by WEX moves all payments to electronic on day one, and provides the advantage of WEX being the issuer, processor, and merchant acquirer all in one. This way, the entire payment process is controlled and monitored in real time, giving customers greater visibility, automation, and control for maximum payment optimization and risk mitigation.

OPTIMIZE CASH FLOW FSCM serves to help businesses manage cash and free up as much working capital as possible. The cash flow cycle begins

with ordering and receiving (and paying for) goods for production and ends when payment is received from a customer for goods sold. Keeping the cash flow cycle as short as possible is key to maximizing revenue. Identifying and making reductions within the cash flow cycle reduces the needs for working capital and frees up liquid assets in real time. When we think of finance as a supply chain, we see that all events that make up the flow of cash, from procurement-to-pay to order-to-cash—with cost, value, ROI, and other vital customer and spend data available for analysis—are parts of the sum total that includes the flow of goods and the financial information that determines key decisions for a business. In other words, the success of an organization in today’s fluctuating marketplace relies not just on monitoring the flow of goods but on optimizing the cash flow. Within the FSCM framework, incentives for both the buyer and supplier encourage a shorter cash flow cycle. As businesses seek to improve cash flow, supplier terms management can be a valuable strategy to improving and optimizing the cash conversion cycle which can ultimately help improve both the income statement and balance sheet. Decreased payment terms help buyers pay the full invoice amount on the due

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By migrating payable processes to electronic payments, companies further reduce risk because the buyer gains greater control and visibility over payments and the supplier benefits from secure electronic settlements, minimizing the risk for errors and fraud.

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date or take a discount for early payment. Supplier reconciliation is automated and secure, and short-term liquidity is instantly improved in the value chain. WEX’s Integrated Payables solution leverages the value of terms management by analyzing a company’s supplier payment portfolio and developing a comprehensive discount administration strategy to improve cash flow through complete supplier payment optimization. The result is a seamlessly integrated, fully automated solution leveraging all payment modalities—including virtual accounts, EFT with discount administration, or check—that connects buyers with their suppliers through a simple pay file integration. WEX Integrated Payables reduces manual processing and facilitates comprehensive supplier/terms management to maximize margin improvement, efficiency, and control—for ultimate payment and cash flow optimization.

MINIMIZE EXPENSES Before you can control your company’s spend, you have to understand it. While the purchase of critical materials is top-of-mind for most businesses, hard-to-track indirect costs like office supplies, travel, and out-of-pocket expenses are often left unmonitored, resulting in needless overspending. Incorporating technology that helps analyze spend trends gives you the insight and information needed to curb spending.

Analytics—whether manual or automated—provide the details needed to avoid overspending. Decision-making is improved when spending is understood based on a comprehensive analysis of real data. Buyers who analyze spending histories can leverage this data to negotiate supplier contracts and discounts. Looking more

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deeply at spending will flag out-of-policy transactions and implement further controls where needed to ensure compliance and avoid unnecessary overages.

WEX PROVIDES ANALYTICS PROGRAMS THAT SHOW YOU WHERE YOUR COMPANY SPENDS MONEY, ON WHAT, AND WITH WHICH VENDORS. With WEX Analytics, a deeper dive reveals outliers, variances, and specific categories for a detailed picture of business expenses. WEX Analytics consolidates data from multiple sources like your invoicing, expense reporting, ERP, and accounting systems, normalizes the data, and delivers meaningful reports.

With programs like WEX Analytics, employees become key players in FSCM as they get the information they need to minimize expenses with simple customized and ad hoc reporting. They

also learn to identify and quickly address out-of-policy spenders and suspicious purchases in their departments.

By providing the information that leads to key insights, analytics help identify cost-saving opportunities, rein in out-of-policy expenses, and target categories for strategic sourcing.

STREAMLINE THE PROCESS The basics of FSCM begin with evaluating current processes starting with procurement and invoice processing all the way through payment execution and reconciliation. Optimizing FSCM means finding the right digital platform that automates procurement and invoice processing and streamlines the payables and reconciliation process in a way that enriches the buyer/seller relationship through collaboration and trust. Businesses with successful FSCM

efforts often partner with a technology provider that offers streamlined services that deliver value across the financial supply chain.

It’s common knowledge by now that mailing and processing paper invoices and using paper checks to reconcile the P2P and O2C processes are outdated, expensive, and risky practices. Manually processing invoices can represent approximately 60 percent of labor costs.

Electronic invoicing can fully automate the invoice capture, routing, and approval process, resulting in much faster processing, reducing the order-to-pay cycle for buyers by as much as 60%. Straight-through processing eliminates manual sorting, registering, and comparing invoices against purchase orders, and ensures data capture is immediate and accurate. Buyers benefit from making on-time payments, avoid late payment fees, and can take full advantage of timely

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payment discounts; and employees are freed up to focus on strategic, rather than manual, efforts. Plus, automating invoicing and payables provide the visibility and security that manual, paper processing cannot.

Most buyers see a payback in six to 18 months by adopting electronic invoicing and moving to electronic payments. Suppliers also benefit because e-invoicing reduces their days sales outstanding (DSO)—the amount of time it takes to receive payment for the goods or services they provide. Electronic invoicing shortens the supplier’s DSO and O2C cycle, improving working capital because suppliers rely less on short-term loans. Invoices get paid faster because the data contained on them is more accurate, manual data errors are eliminated, invoice delivery time is reduced from days to minutes, the routing and settlement process is automated, the account reconciliation process is streamlined, and invoices don’t get lost or go missing.

Almost all companies use some form of an ERP system to help manage their accounts payable processing—and it’s fair to say that most companies

today want a seamless way to process their payables liabilities, regardless of payment type, be it check, ACH, or credit card. The key is to seek out financial institutions or third-party technology providers that offer a seamless, automated, and integrated way to automate invoices and process supplier payments, regardless of payment type.

WEX’S COMPREHENSIVE B2B ELECTRONIC PAYMENTS PLATFORM IS DESIGNED TO SIMPLIFY THE ACCOUNTS PAYABLE PROCESS AND OPTIMIZE THE VALUE OF EVERY SUPPLIER DISBURSEMENT. WEX’s Integrated Payables application enables companies across a wide variety of industries to reduce costs, streamline processes, and mitigate risk, while capitalizing on discount and working capital opportunities.

Through a unique cloud-based, bank-agnostic framework, WEX’s Integrated Payables platform supports the move to electronic payments on day one by integrating a wide variety of

payment options—virtual accounts (buyer and supplier initiated), network settlements, ACH, EFT with discount administration, and check payments—through a single-source platform. The solution delivers greater transparency and control over the AP process and easily integrates into leading financial systems, giving companies the benefit of integrated reconciliation.

WEX payment consultants take a holistic approach when working with financial executives to analyze a company’s supplier payment portfolio and develop a strategy to streamline the payment process and fully realize the savings potential.

ENABLE PARTICIPATION Optimizing FSCM means that onboarding participants must be easy and rewarding. When choosing the right financial technology provider to enhance your FSCM efforts, select one that ensures maximum buyer and supplier engagement by delivering a standardized approach to payment processing, cost savings, and improved

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Automating the invoice process and making electronic payments can save an organization 55 to 80% per payment.

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cash flow, and a balanced approach across the financial supply chain.

Supplier enablement programs, like those offered by WEX, deliver significantly more supplier participation due to a proven sustainable framework and integrated service team approach. A successful program begins by effectively stratifying suppliers for electronic payment conversion, considering such factors as disbursement timing release, the cost of processing, enhanced discount capture, and the ease of reconciliation between buyers and suppliers.

Relationship management is enhanced through technologies that make it easy for suppliers to onboard to FSCM-focused programs. Supplier segmentation helps businesses understand where to leverage virtual accounts and discount administration based on market research and historical results. Engagement practices deliver value by providing a streamlined, easy-to-enroll enablement process for suppliers. Supplier management takes the buyer/supplier relationship one step further by providing

program support and training, online remittance data, discount administration, and payment resolution.

WEX’S INTEGRATED PAYABLES SOLUTION IS POWERED BY PAYGENUS, A WEX B2B PAYMENT NETWORK THAT MAKES IT EASY FOR BUYERS AND SUPPLIERS TO SEND AND RECEIVE SECURE PAYMENT INFORMATION. With Paygenus, buying organizations spend less time managing supplier payment preferences, handling inquires, and updating banking information, creating greater operational efficiencies. Suppliers receive electronic payments and remittance information to streamline receivables, reduce days sales outstanding (DSO), and improve access to cash. The Paygenus Payment Network is comprised of hundreds of thousands of participating members, optimizing the full spectrum of the buyer/supplier relationship and improving FSCM at every touch point.

CONCLUSION In today’s volatile economic climate, it’s not enough simply to manage the flow of goods that come through your business and pay the accompanying bills. The whole process of supply chain management needs to be turned on its head, with a paradigm shift that puts the end goal in focus to help determine the means to get there. Financial supply chain management merges cash flow management with relationship management to create an environment where all involved parties get the most bang for their buck. Buyers, sellers, and financial institutions all work together to keep liquidity moving in the right direction in the value chain.

It’s important to take necessary steps to engage and optimize FSCM to maintain a competitive edge. You need a streamlined program that enables collaboration, supports transparency, reduces risk, optimizes cash flow, minimizes expenses, and engages participation. Choosing a technology provider that can help you achieve your FSCM goals is key.

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The options abound, and it’s a matter of shopping around for the right solution that fits your focus once there is companywide buy-in to the process of letting financial directives lead the decision-making in the chain of events from P2P to O2C. WEX’s P2P/AP Solutions are designed to fit your focus in the most streamlined and advantageous ways. They help to shift

the focus and processes of buyers to optimized FSCM so that they, and their suppliers and customers, reap the financial benefits.

“We’re creating a paradigm shift and making it easier, faster, and simpler to manage the complexities of payments,” said Bob Sneed, VP of Corporate Payment Solutions for WEX. “By helping

our clients take a more strategic and disciplined approach to financial supply chain optimization, and providing the tools to achieve it, we are driving bottom-line results for our customers and their suppliers,” said Sneed.

A “best in class” FSCM-maximizing technology solution should be able to provide any organization with the following options:

ABOUT WEX, INC. WEX Inc. (NYSE: WEX) is a leading provider of corporate payment solutions. From its roots in fleet card payments beginning in

1983, WEX has expanded the scope of its business into a multi-channel provider of corporate payment solutions representing

approximately 10 million vehicles and offering exceptional payment security and control across a wide spectrum of business

sectors. WEX serves a global set of customers and partners through its operations around the world, with offices in the United

States, Australia, New Zealand, Brazil, the United Kingdom, Italy, France, Germany, Norway and Singapore. WEX and its subsidiaries

employ more than 2,700 associates. The company has been publicly traded since 2005, and is listed on the New York Stock

Exchange under the ticker symbol “WEX.” For more information, visit www.wexpayables.com or www.wexinc.com and follow

WEX on Twitter at @WEXIncNews.

• A cloud-based solution that delivers optimum flexibility for file-based AP integration.

• Electronic invoicing that serves to shorten the order-to-pay cycle for buyers and order-to-cash cycle for suppliers.

• The ability to leverage a bank-agnostic platform to achieve flexibility across any number of treasury management relationships.

• The simplicity of working with a financial service provider that is also the card issuer, processor, and program management company. This all-under-one-tent solution avoids multi-level relationships that can reduce an organization’s overall benefits.

• The assurance that all payment types are supported with reconciliation for each one (virtual accounts, discounted EFT, ACH, global network, and checks).

• Complete supplier enablement services with transparent communication and accountability for results.

• The ability to provide an expert project management team with customer service and support assistance—wherever and whenever it is needed.

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