Improving Supply Chain Finance: How AI-Driven Sourcing Boosts Working Capital Efficiency

Supply Chain Finance, Supplier Finance, Reverse Factoring—different names for the same type of solution. These technology-based business and financing processes aim to lower costs and improve efficiency for all parties involved. It is frequently associated with the buying organization's need to optimize working capital and is often part of a broader initiative to extend supplier payment terms. There is much debate on the merits or drawbacks of supplier financing solutions.

Some organizations swear by them, claiming improved supplier relationships, while others have found themselves in the crosshairs of negative press. Regardless, Supply Chain Finance (SCF) is a widely used solution—so much so that regulations in several countries now mandate the disclosure of these financing structures.

The Role of Working Capital in Procurement

Working capital by definition is the difference between a company’s current assets and current liabilities.  It is an incredibly important liquidity metric - it reflects how well a company manages its cashflow.  Procurement is playing a larger role here today, oftentimes aligning closely with the strategic priorities of the office of the CFO.

While companies have several levers to improve their working capital, one common approach among Fairmarkit’s customers and prospects is optimizing Accounts Payable or Days Payable Outstanding (DPO)—often a business euphemism for extending supplier payment terms.

Conceptually, the mechanics of SCF are straightforward: buyers want to extend payment terms, while suppliers prefer to be paid as quickly as possible. To bridge this gap, a financing party is introduced, offering recourse-free financing to suppliers for select invoices. This approach provides liquidity to suppliers while allowing buyers to optimize their cash flow.

The Challenges of Implementing SCF

Despite its apparent simplicity, implementing an SCF program is anything but easy. Extending payment terms necessitates important conversations with suppliers about the buyer’s working capital initiatives and the introduction of a financing mechanism. Procurement and category managers can engage and influence key suppliers—typically the 20% of suppliers that account for 80% of company spend (strategic spend). However, beyond these key relationships, frequent and mass communication becomes the default approach to introducing new corporate payment terms and optional financing mechanisms.

Results can vary. Adding another layer of stakeholders and complexity, and the additional workload for buyers and financing providers can be significant. There must be a better way—and there is.

The Fairmarkit Advantage: AI-Driven Efficiency

The best time to negotiate supplier payment terms isn’t after contracts are in place—it’s during sourcing events and contracting discussions. Organizations already account for supplier payment terms during RFPs and RFQs, making this the perfect opportunity to align suppliers with working capital strategies.

That’s where efficiency comes in.

Fairmarkit’s AI-powered sourcing and autonomous negotiation capabilities streamline supplier engagement. By leveraging automation, a single procurement professional can manage 10 times as many transactions as before. This increased efficiency leads to substantial improvements in cost reduction, cycle times, and compliance. Fairmarkit’s KIT can even negotiate optimal payment terms with suppliers, ensuring alignment with the organization’s financing solutions.

Addressing the Long Tail of Spend

Every SCF provider has its own approach to tackling the "long tail"—the 80% of suppliers that represent only 20% of spend. Penetrating and addressing this portion of supplier relationships is a well-known challenge, and it’s precisely the problem that Fairmarkit helps solve.

By leveraging autonomous sourcing, machine learning, and generative AI, organizations can achieve significant outcomes, including:

• Cycle time predictability and reduction
• Supplier rationalization
• Improved savings yields
• Enhanced supply chain resiliency
• Organization-wide compliance, including payment term consolidation

The Intersection of Procurement and Treasury

Optimizing working capital while ensuring compliant sourcing doesn’t have to be a tradeoff, and Procurement teams can drive results By integrating Fairmarkit’s AI-driven sourcing capabilities with SCF strategies, organizations can achieve both procurement and treasury goals with minimal additional effort. It’s a strategic advantage that transforms supplier financing into a seamless, efficient process.