Historically seen as a tool primarily for improving working capital, supply chain finance has evolved into a multifaceted solution that addresses numerous critical business needs. Anticipating these needs will be vital to ensure the product continues to support the real economy in the months and years to come.
Supply chain finance (SCF) emerged as a singularly focused solution – its primary role being the lubrication of working capital management between buyers and sellers. Over the years, this finance mechanism has evolved, increasing in scope to address myriad corporate needs, from facilitating operational efficiencies to improving resilience and driving sustainability.
But this shift in scope from single-purpose tool to adaptable product is only the beginning, explains Ángel Bustos, global head of supply chain finance at Santander Corporate and Investment Banking (Santander CIB).
“We’re redefining the notion of our programmes, moving away from the ‘plain vanilla’ concept to a more strategic approach that responds to today’s complex business landscape,” he says.
“In essence, we are transforming SCF into an integrated service that goes far beyond working capital management and empowers clients to react swiftly to challenges and opportunities, manage disruption, and gain flexibility in the face of volatility.”
A tailored solution
Over the last three decades, Santander CIB has successfully delivered tailored SCF solutions to thousands of clients across multiple sectors and geographies. By acting as a conduit for suppliers to access competitive financing, the bank has played a vital role in fostering a more resilient trade ecosystem. However, contributing to more financially robust supply chains is only part of the story.
In recent years, corporates have come under growing pressure to transition to greener operating models, decarbonise their business operations and source more sustainably – and the bank’s SCF offering has adapted to meet these demands.
“We expect to see sustainability components incorporated into half of our entire SCF portfolio in the short term,” says Sergio Bataller, who leads SCF origination at the bank.
By linking financial incentives with sustainability targets, corporates can leverage the product to promote responsible practices along the entire chain, supporting the transition to an economy that is more respectful of people and the planet.
Meanwhile, the current macroeconomic and geopolitical events have pushed corporates to diversify supplier networks and build up buffer stock – driving an increased need for holistic working capital support that can provide financing as early as possible in the cash conversion cycle.
“Corporates now require solutions to multiple issues simultaneously, and it’s incumbent on us to stay in tune with their needs,” says Bustos.
To achieve this, between 2021 and 2023 the bank engaged with almost 200 chief treasury officers across its footprint, asking which of nine key factors concerned them most about their supply chain.
“Their feedback was invaluable, and we are using it to guide the development of new solutions within the bank,” says Bustos. “Notably, we’re seeing changes in the relevance of some issues. We adapt our strategies to align with these changes to ensure we’re always meeting our clients where they are.”
Responding to a changing landscape
The findings from the bank’s research unveil a complex landscape for corporate treasurers worldwide. While mitigating supply chain disruption remains top-of-mind, fewer respondents ranked this as their top concern in 2023 versus 2021.
Meanwhile, ESG considerations have grown in prominence, as have topics such as addressing deep-tier supplier finance.
The survey also revealed a greater emphasis on regional and global supply chain strategies, as treasurers seek to standardise processes across their entire network.
“This is where our ability to offer ‘glocal’ solutions comes to the fore,” says Bustos. “We excel at handling payments in local currencies compared to others, not only because we can provide support to suppliers beyond the top OECD countries but also because our solution transcends working capital management to improve the efficiency of the end-to-end supply chain, from optimised reconciliation to FX solutions for consolidating payments into a single base currency.”
Amid a challenging macroeconomic environment, treasurers are increasingly looking to diversify their funding sources, according to the bank’s research. “We estimate that two in three SCF programmes will include a multibank strategy by 2025,” says Bataller, adding that to meet this need, Santander CIB has invested in the development of a multibank SCF platform with white-label capabilities in order to allow other banks and institutional investors to participate seamlessly as funders.
The disclosure of SCF programmes, ranked as the issue of least importance in 2021, has risen to become a key focus for treasurers. Concurrently, the topic of supplier payment terms has risen from eighth to fourth place from 2021 to 2023. This comes in the wake of accounting standards reforms which aim to make it easier to see when a company is using the tool to pay suppliers – as well as uncover troubled companies misusing the mechanism to extend payment terms well beyond industry standards.
“Regulatory changes and a heightened focus on sustainability are driving companies to be more cautious and mindful of their actions,” says Bustos. “As we see it, disclosure is not just about compliance; it’s about showcasing responsible and sustainable practices, which ultimately benefit the entire supply chain.”
With a global footprint and access to extensive proprietary data, Santander CIB can provide clients with valuable information, including typical payment terms by sector. This allows clients to benchmark their arrangements against their peers, and ensure they’re not deviating from what is considered reasonable.
“We provide clients with insights that are not only relevant but also industry-specific, allowing them to make informed decisions about their payment terms,” says Bustos. “It’s about offering a fact-based approach that empowers corporates to take decisions with confidence.”
The value of expertise in anticipating future needs
As corporates grapple with multiple challenges, the comprehensive solutions Santander CIB provides differentiate it from newer entrants to the supply chain finance space, which often have a narrower focus.
“We’re in a unique position in that we can offer robust and diverse solutions that fintechs may not be able to match,” says Bataller, adding that the bank is witnessing a significant growth in demand for its SCF offerings across multiple industries as a result.
“The fast-moving consumer goods and energy sectors are particularly engaged,” he adds. “This is recognition of the value we bring to the table – providing solutions that are not just efficient, but that also help these industries solve complex challenges in today’s rapidly changing environment.”
But responding to known client needs is just one piece of the puzzle. Discerning and addressing unexpressed requirements is the other, more complex part.
“At Santander, we have always been proactive, often anticipating our clients’ needs before they even articulate them,” says Mencía Bobo, global head of trade and working capital solutions at Santander CIB.
She points to the bank’s integration with SAP’s enterprise resource planning system as an example. The integration allows companies to arrange payables and receivables financing in the same system they make and receive orders, delivering a streamlined end-to-end process that starts with purchase requisition and ends with supplier payments.
“Initially, our clients weren’t aware of the potential benefits of this solution,” says Bobo. “However, when we developed and presented it, the response was overwhelmingly positive. This is a testament to our commitment to innovating and staying ahead of the curve.”
In adapting its offering to the realities faced by corporates, Santander CIB is broadening the potential of SCF, transforming it from a standalone financial tool to a versatile instrument that can foster sustainability, resilience and operational efficiency.
As a result, as new challenges and opportunities continue to present themselves, the bank is empowering its clients to navigate the complexities of the future – no matter what the future holds.
This article was originally published in Global Trade Review