Until recently, procurement and treasury hardly recognized each other. Now, as C2FO’s Sean Van Gundy explains, they are working together to create value and help fund suppliers
Not very many years ago, meetings between procurement and treasury would start with a lot of handshakes and introductions. The truth was, they had probably never met before, nevermind collaborated on a project.
That has been changing, partly because businesses have been chipping away at the silos between their different functions. The economics of the real world have compelled people to reach across the organization to look for ways to deliver value – and not get left behind by the competition.
But there is another reason. “Companies are more global today than they were even just five years ago,” says Sean Van Gundy, managing director, working capital advisory at early payment solutions fintech C2FO. “That’s driving every role to be much more strategic in nature.”
Complex, global supply chains have underpinned the growing strategic importance of procurement as it searches for more ways to add value. Treasury’s role has swiftly evolved beyond safeguarding cash balances and working out how much cash will be needed tomorrow. Together, says Van Gundy, procurement and treasury “are starting to work well together to optimize the use of cash. They realize that there are tools that can help them change the nature of the conversation between them.”
The tools Van Gundy is talking about are a suite of options that can help improve the organization’s working capital position, make better use of cash and provide liquidity support to the supplier base. The tools include:
supply chain finance, which brings in a third-party finance provider that suppliers can turn to at a lower cost;
dynamic discounting, which is a risk-free way of generating better-than-market returns on treasury’s cash, while reducing procurement’s purchasing costs; and
procurement cards, which allow suppliers to be paid almost immediately while allowing the buying organization to keep hold of its own cash for longer.
It’s soon apparent that, while the tools available can indeed add value to the buying organization, true collaboration between procurement and treasury is absolutely essential to achieve that. “Those tools sit with treasury because it’s treasury that has to make corporate cash available or to broker the relationship with the external finance provider,” says Van Gundy. “But the most successful early payment programmes are the ones where procurement steps in to own it. It’s not only that procurement owns the relationship with the supplier, but the fact that these tools help the organization achieve its goals while at the same time doing the right thing for the supplier.”
Tools and benefits
Different tools provide different benefits for both sides of the buyer-seller relationship, so selecting the right combination of tools and determining which are better suited to particular suppliers is something where procurement and treasury can work together. Treasury understands the financial characteristics of suppliers that might derive more value from one particular solution rather than the others, while procurement has the spend data and the understanding of the strategic importance of the vendor. A sizeable, strategically important supplier in need of access to liquidity may be less appropriate for a procurement card solution, for example, but prepared to offer price discounts in return for an early payment opportunity. Working together, procurement and treasury can map out the supplier base to optimize the deployment of these kinds of tools.
Other functions play an important role in the successful implementation of early payment solutions, of course, such
as finance, accounts payable, shared services, IT and accounting. Bringing them all together need not be a daunting challenge, however. “We can help bridge the gaps,” says Van Gundy. “It’s the fintech’s responsibility to be an educator and help people be more strategic in their thinking. That’s a big part of what we do.”
Sometimes, procurement is wary of new tools that they fear may upset their long-nurtured relationships with suppliers. But here, too, the fintech provider has a role to play in helping procurement and its suppliers understand how the tools work and how they help provide a win-win result.
“It’s the 80-20 rule – 80% of the spend is with 20% of the suppliers. But it’s the other 80% of the suppliers who really need access to funding. These companies want to do more business with you, but they will struggle if you don’t have any way for them to get early payment,” says Van Gundy.
Treat suppliers like customers
Businesses realize that it’s possible to be a tough negotiator without becoming adversarial in the supplier relationship. Instead, the sustainability of the supplier base helps ensure the sustainability of the buying organization. “You need to treat your suppliers as well as you treat your customers,” says Van Gundy. “Without those suppliers, you can’t do business with your customers.”
Banks are increasingly partnering with fintechs such as C2FO, and that will continue to broaden the range of solutions that treasury can make available to the organization, says Van Gundy. “The collaboration will flourish when a solid procurement team comes to the table and says to treasury, ‘If I can get access to cash for my suppliers then we could lower our costs by x million dollars’. We know that suppliers are looking for ways to get paid early and they are more willing today to consider alternative sources,” he says. “So that’s going to require procurement to listen to the supplier base and then challenge the treasury team to help them put that in place for them.”