Financial Services Industry:Supply Chain Structure
All industries use some version of a supply chain to track the flow of goods and services it uses and produces. Financial services is no different. Financial transactions are an integral component of the physical supply chain. By connecting business partners from order placement to settlement, the financial supply chain carries the flow of financial information in the direction opposite to the flow of goods and services.
The financial supply chain is one that is closely aligned with and triggered by processes in the physical supply chain as demonstrated by the diagram shown below. Financial supply chain services include transactions related to purchase order processing, letters of credit, open account management, pre & post-shipment financing, reconciliation, invoice presentment, dispute management, foreign exchange and insurance management.
Buying firms initiate the process when they source materials and/or finished goods from suppliers within their supply chain. Financial institutions may help advise the buyer on issues related to credit issuance and financing. Once an order is placed, the financial institution may provide partial payment against the negotiated terms or supply an approved letter of credit to show the supplier that the buyer has the means to pay once production begins. Once the goods are produced and shipped, the financial institution may help insure the goods and, upon receipt, settle the account according to the terms of the contract.
The financial institution may also help the buyer to forecast cash flows using cash management services it provides to the buyer. The financial institution may also help to reconcile disputes, validate data related to the goods, and finally release funds and remittance detail.
