This posting is in SDC Executive and discusses one of the many areas that we have been pointing out as an opportunity for banks to capitalize and corporates to improve financial operations. The author is a CEO for a payments company specializing in card-based payments. The overall point is that incorporating cards into the procure-to-pay cycle can be a key to automating supply chain operations. Firms that live and die on tight margins and just-in-time inventory processes can inject electronic payments at the front end, something that card rails easily enhance, especially commercial credit cards with the additional working capital feature.
‘The supply chain that supports just-in-time (JiT) manufacturing is beginning to reap the benefits of the digital payments revolution. By replacing accounts payable processes with automated digital alternatives, JiT manufacturers are realising that by overhauling how they transact they can save both time and money. Plugging into a modernised payments system which offers new, automated ways both to pay and accept payments, JiT transactions can be performed quickly, automatically and without human interference….So-called “push payments,” where remittances are sent to the supplier at the point of order using a commercial card as the funding mechanism, means the payments process can be managed hands-free. By marrying this concept with the Internet of Things (IoT) stock management systems that monitor stock levels and provide alerts and reorder triggers, the whole stock reordering and payment process can flow automatically.’
Members of the CEP service at Mercator will know that cards represent a tiny fraction of the B2B commercial payment flows, mostly because suppliers resist accepting cards, especially for larger value payments. However, this model is being re-evaluated during the aftershocks of pandemic-driven policies creating a recessionary world economic impact. Cards have become more popular given the payment and settlement speed, safety, and straight-through capabilities of virtual card accounts. This is especially true for the long tail of suppliers, who are most sensitive to cash flow variances. The author goes on to point out the specific benefits and examples of supply chain automation and augmentation of just-in-time processes.
‘The push payments revolution has the potential to set a new standard in manufacturing agility and B2B commercial card payments. It provides new levels of control, visibility and efficiency that haven’t historically been available either to buyers or suppliers. The days of manual transactions and paper-based invoicing systems are numbered and, while JiT manufacturing is showing the way, it won’t be long before all supply chain finance departments can stand back and let the machines take the strain.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group