Procurement Glossary & Terminologies

Definition

The concept of looking at all of your financial processes holistically rather than as discrete procedures is known as financial supply chain management (FSCM). The order-to-cash cycle, working capital management, and procure-to-pay cycle business processes are all a part of this end-to-end process.

Understanding Financial Supply Chain Management

The term ""financial supply chain"" describes the exchange of money between trading partners that make it possible to buy, produce, and sell goods and services. Businesses frequently spend significant money controlling their physical supply chain at the expense of their financial supply chain. Disconnecting these interconnected supply chains can adversely affect a company’s working capital and, in some cases, even threaten its survival.

The financial supply chain provides the cash flow required to keep the doors open, the lights on, the employees paid, and the production and delivery of goods.

The introduction of supply chain financing programs from the financing institution with new types of payable processes and payment arrangements among business partners gave rise to the idea of financial supply chain management. Prominent participants’ and outside financial providers’ financial services contribute to overall supply chain efficiency growth and competitiveness. It fundamentally reduces the complexity of payment processes through open accounts and, in the meantime, permits small participants to get access to the best credit ratings of prominent participants to lower their cost of capital. It strengthens long-term supplier-buyer ties and increases short-term liquidity along the value chain.

Importance of Financial Supply Chain Management

Typically, about 5% of the unit price cost goes toward finance, insurance, and transaction costs. As a result, firms need to manage the entire financial supply chain better. Two factors foster an open environment in businesses for the financial supply chain management.

1. The first is the advancement in network technology, which enhances visibility along the physical supply chain.

2. The other factors are the thorough comprehension of the entire process and cooperation both inside and outside the company.

Convincing businesses that improvements in financial supply-chain procedures would lead to a lower cost of products sold, more productivity, and better financial savings management information is the problem facing finance, treasury, and banks.