In my conversations with various businesses across various industries, one thing has become crystal clear: supply chain finance is no longer a “nice-to-have” but a significant element that bolsters resilience and growth. Yet, many companies find themselves dealing with all the same questions: How do we address our liquidity challenges? Or; What’s the best way to future-proof our operations? And perhaps most commonly, what’s the ROI of adopting new solutions?
These are all valid questions, but I often urge clients to reassess their train of thought. Instead of putting a strong focus exclusively on the Return on Investment (ROI), it’s equally (if not more) important to consider the Cost of Inaction (COI). In fact, this perspective shift often times reveals all of the risks and the hidden costs of keeping the status quo.
In this article, I’ll share my insights into the challenges I frequently encounter in supply chain finance, I will talk about predictions for where the industry is headed to, and most importantly speak about why balancing ROI and COI is a fundamental exercise for any organisation that wants to thrive in today’s complex economic environment.
Common Challenges Faced by Clients
While working with clients, there are recurring challenges that always stand out, especially when we talk about supply chain finance.
One of their pressing issues is cash flow constraints. And to be precise, these cash flow constraints oftentimes are directly related to the extended payment terms. In this regard, suppliers carry a big burden and are left in a very difficult position: they are constantly struggling to cover operational costs, pay their employees, or even invest in the company’s growth. This liquidity gap doesn’t just affect suppliers, but it creates a domino effect across the entire supply chain, causing delays and inefficiencies in every component of the chain.
Another challenge we constantly observe is financial instability, especially for the smaller suppliers who frequently have limited capital reserves. Our experience shows that when businesses are faced with prolonged payment cycles, they are often faced with uncertainty and stress, which can threaten their capability to deliver consistent quality and service.
I’ve also observed that operational inefficiencies such as delays in production or fulfillment caused by cash shortages, are a common obstacle that prevents businesses from meeting their commitments. As time passes, these inefficiencies stack up, having a great impact on current operations as well as breaking the trust between buyers and suppliers.
Possibly the most concerning is the cost of missed growth opportunities. This happens when companies are putting a full focus on short-term savings, or investment in additional resources to maintain a system that is outdated. This is something that keeps them away from innovating, scaling or even entering new markets.
What should companies do is not just tactical fixes. My advice is to always apply a more strategic approach when it comes to liquidity management. This approach needs to prioritise resilience, adaptability, and long-term value creation.
Market Predictions for Supply Chain Finance
As the world is rapidly evolving and we are experiencing tectonic changes in every segment, it is very important for the supply chain finance sector to keep up with this trend. I firmly believe that a profound transformation is deeply needed, and once done it will immediately present benefits for every stakeholder. In this area, I would like to mention four trends that we need to set our eyes on: raise of digital solutions, sustainability, geopolitical dynamics, and dynamic liquidity management.
First, digital solutions will definitely continue to gain traction. This is because businesses are increasingly recognising the value of platforms that are streamlined, tech-driven, improve the transparency and efficiency of the processes.
Second, I predict a growing emphasis on sustainability. As we clearly witness, the environmental, social, and governance (ESG) considerations are becoming a significantly central topic to business strategies, and this trend will undoubtedly impact how companies structure their financing and supply chain operations.
Third, geopolitical dynamics will play a very important role in this story. Global supply chains are interconnected by nature and this means that every minor change in trade policies, or the start of regional conflict will have a major influence on strategies for financing, and overall on liquidity management.
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Lastly, the future of supply chain finance lies in dynamic liquidity management.
As a trusted partner in supply chain finance, I’ve witnessed firsthand how dynamic liquidity tools enable businesses to move beyond reactive financial management. These tools provide a pulse on the market by revealing patterns in cash flow demands, borrowing trends, and supplier payment cycles. This data might be a powerful predictor of market shifts when it is analysed strategically.
For example, a spike in liquidity pressures among suppliers often signals tightening credit conditions or sector-specific slowdowns. Similarly, fluctuations in buyer payment terms can indicate changes in consumer demand or broader economic trends. So, companies can anticipate these shifts and adjust their strategies proactively, and this can be done by implementing real-time monitoring and predictive analytics.
Dynamic liquidity management also creates flexibility and foresight. To be precise, it enables businesses to adapt quickly to disruptions, whether they come from inflation, geopolitical instability, or other complex nature. This adaptability is critical for staying ahead in an environment where uncertainty has somehow become the norm.
From my perspective, the integration of predictive liquidity models into SCF solutions is a game-changer. It will bridge the gap between operational efficiency and strategic decision-making, encouraging companies to predict not just their financial needs but also the market conditions that shape those needs.
ROI vs. COI: A Crucial Perspective
In my discussions with potential clients, one question consistently arises: “What’s the ROI?” While it’s essential to consider the return on investment, I often emphasise the importance of focusing on the Cost of Inaction (COI).
ROI represents the potential benefits of taking action, but COI highlights the risks and costs associated with doing nothing. When companies choose to maintain the status quo, they may face accumulated costs and risks that can snowball over time, and this often happens when they least expect it.
In the field of supply chain finance, this concept is specifically relevant. Delaying the adoption of effective financing solutions can lead to missed opportunities, increased operational costs, and strained supplier relationships.
For instance, I’ve seen how hesitation to modernise payment processes can result in higher borrowing costs for suppliers, ultimately impacting their competitiveness. On the other hand, businesses that proactively address these issues often achieve enhanced liquidity, stronger supplier partnerships, and sustained growth—far outweighing the initial investment required.
Summing up
The challenges faced by businesses today require more than traditional solutions. They demand a forward-thinking approach that integrates adaptability and strategic foresight. Companies are capable of making the most out of their supply chain finance strategies if they address common pain points, stay ahead of ongoing and future market trends, and carefully evaluate both ROI and COI.
Let’s not wait for the accumulated costs to catch up with us.
Ultimately, the risks of inaction are real, but so are the opportunities for growth and transformation. The choice is yours: either keep the status quo or make a brave step into the future.
The author of this article, Angelina Milanovska is a Strategic SCF Partner at Liquiditas.
