Is Your Cash Working as Hard as You Do? Taking a Holistic Look at Your Financial Supply Chain


Fostering strong partnerships is crucial to the success of most businesses. And one of the most important relationships needing attention is with suppliers. This is why many companies are putting a greater focus on managing relationships with key suppliers, including the payment flows associated with these partnerships. These relations are at the heart of a healthy financial supply chain and are every bit as important as the supply chain itself.

Treasury has a critical role to play in improving cash flow, driving efficiency and reducing transaction costs. Financial supply chain management offers a vital opportunity to achieve tighter integration between cash management and managing suppliers. The traditional approach of addressing financial supply chain issues on an ad hoc basis - employing a single solution response - is fast being replaced with a more holistic methodology that leverages data analysis and technology to bring treasury and operational efficiencies while also uncovering vital trapped cash.

A 360° Approach to Financial Supply Chain Management

By taking a 360-degree, holistic view of the financial supply chain, treasury can examine metrics in the income statement and balance sheet in order to develop a more strategic approach to management. Savvy companies are sharing transactional data around their supply chain with banking partners.

At Fifth Third Bank, we collect 12 months of data and then conduct a thorough analysis, exploring where funds are spent, how much is spent, how it’s categorized, and what industries are involved. This intellectually curious approach delves into the supplier relationship, including vendor policies, how invoices are received, whether they accept check, ACH, or wire payments, as well as existing payment terms and cycle times.

From this analysis, Fifth Third provides critical observations that offer treasury an objective view into their spending. We also outline the impact that strategically deployed financial supply chain management solutions will have on the organization. This insight can serve as a business case for evaluating the efficacy of using technology to automate Accounts Payable (AP) and Accounts Receivable (AR) processes, driving greater efficiency within the financial supply chain.

Putting Information into Action

Once armed with critical insights into the financial supply chain, Treasury can then put that information into action. The payment terms contained in the contract between buyer and supplier may offer an important opportunity to improve liquidity. By lengthening payment terms, also known as days paid outstanding (DPO), Treasury can make significant liquidity gains.

Another area of opportunity is the way in which Treasury communicates with its suppliers. By eliminating cumbersome manual paper processes, such as purchase order acceptance and acknowledgement, shipping notifications, and invoices, and replacing them with highly efficient electronic solutions, Treasury can achieve critical cost savings. Electronification can also automate the process of matching the purchase order price to the invoice receipt, validating that the correct amount was received.

Armed with critical insights into AP and AR processes, Treasury can examine the terms of payments and decide on the best mix of payment types to meet the organization’s strategic objectives. In many cases, suppliers will be willing to offer a discount in order to get paid earlier than the stated terms on the invoice. Fifth Third offers a suite of real-time tools that optimize and expand Treasury’s ability to capture discounts and determine the most efficient method of paying suppliers, which can lower costs and improve efficiency. Offering suppliers earlier payments for discounted terms is ultimately a win-win for both parties.

Knowledge is Power

It’s important for businesses to avoid underestimating the need for financial supply chain management. Opening a dialogue with a trusted banking partner is an excellent way to explore potential technology solutions that can have a dramatic impact on the entire supply chain. 

The views expressed by the author are not necessarily those of Fifth Third Bank and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank.