Some key questions the report answers include:

• Why outsource this function? In addition to cost reduction, outsourcing the freight audit and payment function enables shippers to reduce time spent on tasks like collecting carrier invoices, conducting freight invoice audits, making payments to carriers, and pulling detailed reporting on freight costs and services.

The highly regulated nature of the U.S. transportation market is another factor pushing shippers to  freight audit and payment services. The report shows that shippers are adopting these services to ensure compliance with various regulations.

• How big is the market? The report notes a market value of $696.11 million in 2022 and projects that number to reach $1.85 billion by 2030, growing at a compound annual growth rate (CAGR) of 13.67% from 2024 to 2030.

• What are the market segments? Currently, the market is bifurcated based on organization size, mode, industry verticals, and geography.

• Large organizations make up the largest market share, accounting for 64.48% of the market in 2022, with a market value of $448.87 million. The report projects this number will grow at a CAGR of 13.67% during the forecast period.
• Road freight accounted for the largest market share of 39.16% in 2022, with a market value of $272.59 million. It is projected to grow at the highest CAGR of 14.33% during the forecast period.
• Top industries included in the market are retail, manufacturing, food and beverage, and healthcare. Retail accounted for the largest market share of 31.35% in 2022, with a value of $218.21 million and a CAGR projection of 13.84% during the forecast period.
• Regionally, the market is classified into North America, Europe, Asia Pacific, Middle East & Africa, and Latin America. North America accounted for the largest market share of 44.9% in 2022, with a market value of $312.57 million and is projected to grow at a CAGR of 13.77% during the forecast period.

During these downturns, cost control and risk mitigation become paramount. With reduced consumer spending and decreased orders, companies must optimize operations to maintain profitability. Traditional supply chain models may falter in such conditions, leading to inventory surplus, increased carrying costs, and potential disruptions.

In bear markets, supply chain visibility becomes critical to identify bottlenecks and inefficiencies. Fluctuating demand patterns necessitate dynamic adjustments to inventory management and transportation routes.

It is important to stay agile and responsive to market shifts, ensuring supply chains are well-positioned to handle sudden changes in customer demands. The ability to make data-driven decisions and forecast future trends accurately can make all the difference in surviving a bear market’s turbulent waters.

Bull markets bring a separate set of challenges. With increased consumer confidence and growing demand, companies must prepare to scale their operations effectively.

From Bear To Bull

Rapid growth can put immense pressure on supply chains, testing their capacity and efficiency. Supply chain professionals need to ensure a seamless transition from accommodating bear market constraints to capturing the growth opportunities that bull markets present.

In bull markets, supply chain optimization becomes equally vital to avoid bottlenecks and meet customer expectations. Timely and efficient deliveries are paramount during periods of heightened demand.

Maintaining stock availability, streamlining order processing, and minimizing lead times become crucial to capitalize on the market’s favorable conditions.

Leveraging technology becomes paramount to overcome the challenges posed by these market swings. Advanced data analytics and predictive modeling empower professionals to make informed decisions, ensuring a company’s ability to stay ahead of market fluctuations.

Intelligent supply chain visibility tools offer real-time tracking and monitoring capabilities, enabling professionals to optimize inventory levels, reduce inefficiencies, and respond swiftly to market shifts. Automation and robotics streamline workflows, improve accuracy, and free up resources to focus on strategic decision-making. Collaborative platforms strengthen communication and cooperation between stakeholders, fostering a seamless exchange of information and enhancing overall supply chain efficiency.

The convergence of technological advancements with supply chain expertise holds the key to conquering the dual challenges posed by market swings, driving businesses toward sustained growth and prosperity.

Continued technological progress and innovation enables organizations to come out heads and shoulders above the rest—these companies hold the distinction of being disrupters, setting the pace for everyone else to follow.

This informational guide outlines a proforma invoice format, its benefits, and potential drawbacks. Whether you’re a business owner, a committed buyer, or someone curious about invoicing, we’ve created this information about proforma invoices for you.

The shipping industry also relies on the significant differences between proforma and commercial invoices.

Proforma: An Industry Standard Invoice

The proforma invoice, often shortened to “proforma,” has roots in international trade and commerce. The term “proforma” comes from Latin, translating to “for the sake of form” or “as a matter of form.” This defines the invoice’s primary purpose: to provide a good faith estimate or preliminary bill before finalizing the sales or tax invoice.

Historically, proforma invoices emerged as a standard in international shipments and commercial invoices and a precursor to the final invoice. It acted as a quasi-contractual agreement between the seller and buyer outlining costs and delivery dates. It wasn’t necessarily an official document demanding payment but a formal proposal outlining a commercial invoice, but a proforma invoice streamlines the order process.

Proforma Format

A proforma invoice is a step-by-step process linked to proforma invoice templates available in most invoicing software. When drafting a proforma invoice, include essential data like the company name, contact details, invoice number, address date, description of the goods or services rendered, shipping information, applicable taxes, expected delivery date, and total cost.

Imagine you’re a business owner dealing in international imports. Before finalizing a deal with a supplier overseas, you might request a proforma invoice to get an idea of the transaction details. This would include a description, delivery, and shipping costs. This invoice, also used for customs purposes, demonstrates the parties agree on the terms.

Once the customer receives the goods and agrees to the terms outlined in the proforma, they issue a commercial invoice or a final sales invoice. This official proforma invoice serves accounting purposes and becomes a legally binding agreement, indicating the customer’s accounts payable.

Example for utilizing a final proforma invoice:

• Before sending a final sales or tax invoice for preliminary costs.
• As a binding document (although not legally binding) for both parties on the financial value and other key details.
• During international trade, customs require a bill of sale to accompany the goods.

How to Create a ProForma Invoice

When creating a proforma invoice, the details should clearly show the expected transaction. Here’s a quick review of the details a typical proforma invoice includes:

• Company Name: The name of the business or individual providing the goods or services.
• Contact Details: Phone numbers, email addresses, and physical addresses.
• Invoice Number: A unique identifier for the invoice is crucial for tracking and accounting purposes.
• Address Date: The date of the invoice draft.
• Description of Goods or Services Rendered: Detailed information about what is being sold or provided.
• Shipping Information: Any relevant details about how the goods will be delivered, including expected delivery dates and applicable shipping costs.
• Applicable Taxes: Taxes or tariffs that might apply to the transaction.
• Total Cost: An estimate of the total financial value of the transaction.
• Expected Delivery Date: A projection of when the goods or services will be delivered or rendered.
• Payment Terms: Descriptions of how and when the buyer is expected to remit payment.

Proforma vs. Commercial Invoices and Other Types

In the vast world of invoicing, understanding the differences between various types of invoices is crucial. Proforma invoices and commercial invoices are two documents often used in international trade. While they may seem similar initially, they serve distinct roles and purposes in a transaction.

A proforma invoice is a preliminary invoice sent to buyers before a sale is finalized, offering an estimate of goods or services and the total cost. A commercial invoice is an official document accompanying shipped goods, representing a legally binding agreement and request for payment between the buyer and seller.

To learn more, see our article on Proforma vs. Commercial Invoices.

Benefits of Using a Proforma Invoice in the Sales Process

Incorporating proforma invoices into the sales process offers distinct advantages. A clear communication tool that the seller and buyer have the same expectations regarding costs, goods, services, and delivery timeline. This preliminary bill facilitates smoother negotiations and can act as a binding agreement of good faith, even if it’s not legally binding.

A proforma invoice is significant for international trade and customs clearance purposes. They allow businesses to provide essential details about a transaction without committing to the final details. This adaptability can build trust and understanding between trading partners, creating a transparent and efficient sales process.

Are Proformas Legally Binding Documents?

In business transactions, the distinction between an official invoice and a proforma invoice is crucial. Many often wonder: Is a proforma invoice legally binding?

The straightforward answer is no. A proforma is a preliminary invoice that provides a detailed proposal of any charges if the sale goes through. It outlines the seller’s intention to deliver goods or services for a specific price and is a negotiating tool when finalizing details.

However, it’s essential to differentiate between “intention” and “obligation.” While proforma invoices lay out the terms and the expected costs, they don’t compel a customer to make a payment, nor do they bind a business owner to the terms outlined. Unlike a sales or tax invoice, which serves as an official request for payment, a commercial invoice has legal context. A proforma invoice is an estimate or proposal.

That said, it is recommended that both parties are on the same page and clearly understand what the proforma invoice entails. While it may not be a legally binding agreement in and of itself, it can form part of broader contractual negotiations.

Disadvantages of Proforma Invoices

While proforma invoices offer a range of benefits in the preliminary stages of a transaction, there are also some potential pitfalls for businesses:

• Potential for Misunderstanding: Given that proforma invoices are not final sales invoices, there’s a risk that the customer might mistake them for the final bill. This can lead to confusion regarding the payment.
• Absence of Legal Weight: These are not legally binding documents, so businesses cannot enforce payment based solely on a proforma invoice. If a committed buyer changes their mind, the seller has limited recourse to request payment.
• Possible Changes in Final Cost: The amount presented on the proforma invoice might differ from the final sales invoice due to unforeseen costs, shipping costs, or applicable taxes. This could lead to disagreements between the buyer and seller.
• Complexity in Financial Tracking: Using proforma invoices can complicate a company’s accounts payable and accounts receivable tracking if handled incorrectly. Proper invoicing software and systems help differentiate between proforma and official sales invoices.
• Misinterpretation in International Transactions: For international imports and trade, misunderstandings can arise due to differences in terminology or business practices between countries.

In conclusion, while proforma invoices play a significant role in business transactions, it’s essential to understand their purpose and limitations. Proper communication, clear documentation, and awareness of potential challenges can mitigate most of the drawbacks associated with their use.

FAQs

Navigating the intricacies of business documentation? Here are frequently asked questions to clarify the role and features of proforma invoices.

What is the difference between an invoice and a proforma invoice?

A final invoice demands payment for goods/services, while a proforma invoice provides a preliminary estimate without any payment obligation. 

What is the benefit of a proforma invoice?

A proforma invoice offers an advanced view of expected costs, facilitating smoother negotiations and clearer transaction expectations, and is not an official invoice.

Proforma Invoice Defined Summary

A proforma invoice is a preliminary bill in the sales process outlining the expected costs for goods or services before finalizing details. A formal invoice is an integral part of the shipping industry. Unlike official sales invoices, a proforma invoice isn’t legally binding but provides a foundation for transaction negotiations and clarity in international trade.

What Is a Proforma Invoice?

A proforma invoice may answer a letter of inquiry from a potential buyer or provide the terms of a final invoice, so the customer knows what to expect.

“Pro forma” means “as a matter of form”, so these are more of an estimate or example of what the real invoice will be or look like at the end of the project.

A proforma invoice includes a description of the goods, itemized list of costs, and the estimated payable amount. It also has other general details like the company or individual’s contact information, address, and buyer name.

A potential customer may ask for this invoice before agreeing to hire the company or individual. Many businesses, especially contractors, refer to the proforma invoice as a “quote” or “estimate” of the project’s final cost. The seller does not guarantee that the amount will be what is on the pro forma invoice.

When to Use a Proforma Invoice

You use a proforma invoice before the goods or services have been exchanged. The purpose is to give the customer or potential customer an idea of what the project or product will cost, so they understand what to expect as the final cost. It’s like a good faith agreement between the seller and buyer, so everyone is on the same page concerning price points.

Proforma Invoice Examples

Not all situations call for a proforma invoice. If the amount is determined before the transaction is complete and services rendered, there is no need for a pro forma, as the price is clear to everyone. Pro forma invoices are necessary when the cost may vary depending on unexpected labor, materials, or time. Below are a few examples of when a pro forma invoice may be used:

• Commissioned artwork estimation
• Construction project estimation
• Personalized clothing estimation
• Automotive work estimation
• Estimated attorney fees
• Estimated elected medical expenses

The services or goods above may require extra materials or take more time once the project is underway, meaning the seller will have to charge more for the service or product. For example, a construction project may cost more because the contractor finds mold or the buyer asked for a different kind of wood.

What Is a Commercial Invoice?

A commercial invoice is the standard invoice sent to the client after the goods are received or services rendered.

The commercial invoice reflects the project’s actual cost, including all materials, labor, and other expenses. The payable amount on the commercial invoice may be lower or higher than what is on the proforma invoice. The amount on the commercial invoice is what the client must pay to the company or individual. A commercial invoice reflects the final cost a buyer must pay.

While commercial invoices can be used by any company or individual issuing a charge, they are common in international shipping transactions and global trade. Importing and exporting goods always have a commercial invoice to declare to customs officials the amount paid for the shipment. The invoice is necessary for customs clearance declaration purposes when sending a shipment abroad.

Despite the name, commercial documents are not only for commercial purposes. Independent artists, writers, laborers, and contractors often use invoices to request payment.

When to Use a Commercial Invoice

When the job is complete, you send the commercial invoice. This invoice is the final amount, so you should not send a commercial invoice until all related expenses have been calculated. You send the commercial invoice when you are ready to receive payment for your goods. You cannot send a commercial invoice before you finish the project unless you know the exact price, in which case the proforma invoice is unnecessary.

Commercial Invoice Examples

A commercial invoice is any invoice with the final payable amount that reflects the goods received or services rendered. Some services can be paid in full ahead of time because the cost is pre-determined and not in flux. But the following bills are examples of commercial invoices that state the payable amount based on real goods and services.

• Exported goods cost
• Imported goods cost
• Final medical bill
• Final attorney services cost
• Final construction project bill
• Final catering bill

Many examples above would have succeeded with a proforma invoice, but international shipments often only require a commercial invoice.

Key Differences Between Proforma and Commercial Invoices

As mentioned, the invoices look pretty similar in layout and features. At a glance, it’s easy to confuse the two invoices, which is why it’s important to understand the differences between the documents.

The key differences come down to the purpose of the invoice and which one is appropriate at a certain stage within a project. The sections below explain the key differences between the two invoices, so you know when to use them and what they mean when you receive one.

When They Are Issued

Proforma invoices go out before the project or service finishes. A proforma invoice is almost always used before the project begins. It is often sent before the customer officially hires the company or individual. A proforma invoice may be sent during a project, but it is less common.

You cannot send a commercial invoice until all expenses are calculated, and the job is 100% done. Otherwise, the amount may be incorrect. 

What They Include

The information on the proforma and commercial invoice is very similar. Both will likely include details concerning the buyer, seller, project, or product, tax implications, and payment process. Payment terms include information such as how long after project completion the payment must be sent or what forms of payment the seller accepts. The difference is the payment amount listed.

On a proforma invoice, the amount listed is only an estimate based on expected costs. A commercial invoice amount shows what must be paid based on real costs. A commercial invoice frequently includes an itemized list of the precise expenses that contribute to the final payable amount.

How They Are Used

A proforma invoice gives the buyer an idea of what they will have to pay. For the seller, proforma invoices can help budget their expected income. A commercial invoice will be saved for taxes and accounting purposes for both parties.

Bottom Line  

Not every business uses commercial and proforma invoices, but they can be beneficial for accounting and communication purposes. Remember, proformas come before the goods or services, and commercial invoices come after. Proforma vs. commercial invoice comes down to the estimated cost vs. the actual price.

Prices have been on the rise since early 2021. In April, the consumer price index expanded by 4.2% annually, according to the Bureau of Labor Statistics. That figure rose to 8.9% growth 18 months later in September 2022.

Price growth varied among particular commodities—in May 2022, for example, the cost of bacon averaged 18% annual growth, orange prices rose by 17%, and used cars were up 23%.

Inflation isn’t inherently undesirable for an economy. Historically, the Federal Reserve has aimed to keep prices accelerating up to 2%.

The trouble starts when price growth advances much faster than 2%, as has been the case in the U.S. economy for nearly 24 months. To rein in excessive inflation, the Federal Reserve raised interest rates to 4.25-4.5% throughout the course of 2022.

These circumstances have particular ramifications for the supply chain, especially transportation costs.

Enlarged Expenditures

A confluence of factors—from wages to materials to driver shortages—drove up costs over the past two years. One of the primary ones was diesel prices.

The cost of diesel rose 55%, to $5.81 per gallon, on average, in the first half of 2022. While most consumers struggled to absorb higher gas prices, executives tasked with purchasing logistics services had the additional headache of preventing fuel surcharges from bleeding into the price of other products.

“We’ve had clients spend more than $5,000, just in fuel, to move goods from the Midwest to the West Coast region,” says Jeff Pape, senior vice president and director of product and marketing for transportation at U.S. Bank.

Costly Repairs

Ballooning prices didn’t just impact the cost to keep a vehicle running. They also bled into the price of repairs and replacements for vehicles, which pushed up costs for carriers, notes Ann Marie Jonkman, senior director of global industry strategies at Blue Yonder, a supply chain software company based in Scottsdale, Arizona.

But it wasn’t just inputs that pushed up prices. As online shopping rose in popularity, transportation networks had to shift to meet demand.

“We weren’t ready for it,” says John Haber, chief strategy officer at Transportation Insight, a third-party logistics firm based in Hickory, North Carolina. “The overall profile of the consumer changed, and that creates a different type of transportation network. “Deliveries skewed heavily into parcel,” he adds. “That’s an expensive service to begin with, and then network capacity got stretched to the limit.”

Already notoriously expensive, momentum toward parcel caused prices to accelerate even more rapidly in 2022. Both FedEx and UPS increased base shipping rates by 5.9%.

That trend will continue into the new year. In October 2022, citing an “inflationary backdrop”, FedEx and UPS each unveiled plans for a 6.9% rate increase in 2023.

Meanwhile, in November, the U.S. Postal Service announced that it would follow suit, raising prices from 5.1% for Parcel Select shipping, to 7.8% for its First Class Package service in the coming year.

“That’s without any additional surcharges,” notes Josh Dunham, CEO and co-founder at Reveel, a shipping intelligence platform headquartered in Irvine, California. “An over-maximum limit charge, for example, might run upwards of $1,000 per shipment.”

The Expensive Final Mile

To compound the financial pressure, parcel shipping often entails final-mile delivery, explains Nick Brown, director of supply chain solutions at enVista, a software and consulting firm headquartered in Carmel, Indiana. Not only does the last transportation leg generate a significant portion of shipping expenses, but promises of free shipping can make it difficult to transfer those costs to the end consumer.

Accessorial fees have pushed rate increases above 10% for Reveel’s customers, according to Dunham.

He recommends negotiating with carriers to tame parcel shipping fees. “It’s critical to focus on areas with the most spend,” he says. “One big mistake we see is shippers hammering carriers for a discount that only impacts 2% of their shipping profile.”

Rising transportation costs have coincided with demands for fast shipping, and not just from consumers.

In its survey, The Delivery Economy and the New Customer Experience, project44 found that 94% of people who make purchases on behalf of a company expect the same level of satisfaction as when they make a personal purchase. This includes short lead times, inexpensive shipping, and a transparent delivery process.

“Speed is expensive,” says Brown. “Intermodal costs less, but it takes a few more days. Internationally, a boat is 20 times cheaper than a plane. The big question is whether you can still support your customer with a slower mode.”

Get Strategic

One way to get around the apparent impasse is to implement a robust inventory management strategy.

Keeping a reserve of inventory close to its next destination can reduce reliance on expensive transportation modes.

For example, holding safety stock near a production facility could help avoid last-minute air shipments, says Erik Wanberg, head of inventory management at Taulia, a supply chain finance software provider headquartered in San Francisco.

Reworking inventory management isn’t an overnight solution. “But managing the flow of goods can set you up for flexibility to react in the future,” says Brown. “Once your stock is in the right place, you can choose the right mode, at the right service, at the right price.”

It’s one thing to design a transportation strategy when shipping costs are (relatively) stable. It’s another when a confluence of factors collude to push up logistics prices.

Gaining Efficiency

In the short term, a company might increase reliance on the spot market to move loads, or pass increases along to their customers. But these choices don’t fit for all verticals, and could sour relationships with business partners or the customer base. Instead, there are ways to gain efficiency within existing partnerships.

One is to consolidate small shipments from less-than-truckload to truckload. “If I deliver along a particular route five days per week, I could lower the frequency to completely fill a truck,” says Dr. Madhav Durbha, vice president of supply chain strategy at Coupa, a business spend management platform based in San Mateo, California.

Digital twin technology can help to preview the impact of different shipping scenarios. By creating a digital model of their supply chain, shippers can see the effect of changing their replenishment schedule.

Transportation needs might also differ based on shipment volumes. To rein in trucking procurement costs, some shippers are segmenting lanes by quantity of freight.

“High-volume, consistent, balanced lanes are best served by a dedicated or private fleet,” says Claude Pumilia, president and CEO of DAT, an analytics platform and load board headquartered in Denver. “Medium to high-volume, or one-way lanes, should be incorporated into the annual bid and run through the traditional routing guide.”

For low or sporadic volumes, Pumilia recommends tendering loads to a freight broker or third-party logistics firm. A logistics provider can negotiate rates based on economic conditions, to minimize the vagaries of the trucking market.

Diversifying the carrier base can prove especially useful if freight networks shift. If an incumbent carrier’s freight portfolio changes, it could make a particular shipper’s loads less attractive—and more expensive.

Here’s an example. Say Carrier X has contracted for 10 outbound loads per week from a Minneapolis-based plant. If that carrier also delivers 12 loads into Minneapolis for another shipper, they could price outbound shipments at a relatively low rate.

If Carrier X lost their inbound shipper, however, that could force them to run empty equipment into Minneapolis, thus increasing their linehaul rate.

One way to combat this is to continually hold procurement events, and invite new carriers to them, recommends Dr. Jason Miller, associate professor of logistics at Michigan State University Eli Broad College of Business.

Relationships First

A shipper’s relationship to their transportation provider is as important as any financial calculation. Rising transportation costs can incentivize businesses to improve truck utilization, but in doing so, shippers must be aware of the impact that a new strategy could have on a carrier.

Take driver detention. Nearly half of drivers wait at least two hours to get loaded at a shipping facility, finds the American Transportation Research Institute. Those delays cost truckers nearly $1 billion in wages annually, and increase the risk of accidents on the road, according to the Department of Transportation.

Shippers should be mindful of how changes in lane density and utilization affect their core carriers, especially if they lead to longer wait times and fewer trip miles for their drivers. “It can put long-standing carrier relationships and vital capacity at risk,” Pumilia cautions.

Conversely, nurturing robust communication can be beneficial to all parties. Instead of indiscriminately soliciting trucking capacity, Ryan Polakoff, president of Nexterus, a supply chain engineering company based in New Freedom, Pennsylvania, advises shippers to ascertain their carrier’s imbalance level and find out what type of freight they need.

“Companies have to learn how inflation impacts their network,” he says. “Having a transparent conversation helps everybody work on a mutually beneficial strategy to overcome rising prices.”

Inflection Point

Inflation may have hit an inflection point in the second half of 2022. After peaking at nearly 9% in June, price growth eased in the second half of the year. By November, the consumer price index slowed to 7.1% annual growth, finds the Bureau of Labor Statistics.

Transportation rates headed back toward normal territory at the end of 2022 as well. Average truckload spot rates, which began the year at $3.16 per week, approached $2.50 by August, according to DAT. The Cass Inferred Freight Rate, which measures expenditures divided by shipments, slowed nearly every month in 2022.

The declines aren’t exclusive to trucking, either. The average cost to ship a container from Asia to the U.S. West Coast in September 2021 exceeded $20,000. One year later, the price hovered around $5,000.

Logistics costs don’t always correlate with consumer prices. A cooling economy and reduced bottlenecks, however, could serve to push both down in the coming year.

That doesn’t mean it’s time to start squeezing pennies out of carrier contracts.

“The shippers that do the best are those who are perceived as being reasonable by their carriers,” says Avery Vise, vice president of trucking at FTR Transportation Intelligence. “Rather than waiting for the market to turn south, or trying to make up for what they went through in 2021, they can get much more stability by creating trust with their carrier base.”

With the right combination of strategy and relationship management, business logistics executives can let some air out of the tires of inflated transportation costs.

Money in the Bank

When costs rise, it benefits companies to amass as much working capital as possible. There’s no shortage of ways to use it in an inflationary environment.

But carrier payment terms might not come to mind as the first source of additional assets. After all, carriers need those funds to keep their own operation running. As of January 2022, trucking firms netted a profit margin of only 1.85%, shows data from the NYU Stern School of Business.

U.S. Bank’s trade finance solution allows shippers to extend their payment terms while paying carriers within the original deadline, explains Jeff Pape, senior vice president and director of product and marketing for transportation at U.S. Bank.

The system audits carrier rates against a shipper’s payment terms. If the terms match, the carrier is paid immediately.

On-time payments can help you become a shipper of choice. “There’s no question of ‘The number of widgets you billed me for isn’t what I received,’ or ‘I overpaid by 10% so I’m going to deduct it from the next invoice.’ All of those discrepancies are resolved within the platform,” Pape explains.

In the United States, inflation is at a 40-year high; the Federal Reserve has hiked its base rate five times this year and is set to continue doing so.  On top of it all, there is consensus among analysts the United States is likely set to move into a recession.

2023 will test the mettle of even the most seasoned finance and logistics professionals. Logistics managers will need to respond quickly to changes in sourcing strategies made to mitigate fulfillment risk to ensure supply. Procurement professionals will be asked to deliver lower unit costs when pricing power has shifted to suppliers, and to extend payment terms to meet critical working capital/DPO targets when suppliers are demanding exactly the opposite. 

Treasury and finance executives will need to balance what the spreadsheets clearly point to as the optimal solution with the real-world constraints and dynamics outlined above. In other words, threading the needle to find credible win-wins has just gotten a lot harder.  

Managing this will take empathy, creativity, and a level of coordination between treasury, procurement, and AP department heads that is often hard to find. The magic will happen when companies get these three functions into a room and write down the specific actions that can achieve results both in the spreadsheet calculations and in real life.  

Here are a few suggestions for how companies can capitalize on what is happening in a challenging macroeconomic backdrop.

1. Attain Transparency

It’s tough to know where you’re going without knowing where you are. In tough times, it’s wise to align across teams on the as-is and to-be state and the WHY of needing to move from one place to another. Get in a room and write it down. Identify and mitigate the risks you can. While much is in fact beyond our control, there are specific moves that can and will mitigate risk.  

When thinking about the future of supply chains, whether you are looking to nearsource to minimize lead times and risk, or offshore to diversify supply and reduce unit costs, with either option visibility is everything. Fortunately, modern technology has made end-to-end visibility and inventory management a reality. Companies should be looking to track inventory both at rest and in motion as it passes through each stage of the supply chain.  This means knowing where each SKU is (whether owned by you or your suppliers) and, for extra credit, being able to dynamically reroute inventory in transit to adjust to changes in demand.  

This “control tower” type of technology requires integration, data, and coordination. And once the pipes are connected and data is flowing what is immediately evident is that the quality of the data needs to be improved. But those who whine less and get to the business of cleaning it up will win.  

Smart enterprises will seize the opportunity during the next 12-24 months to get systems and processes in place to better meet customer demands, over-communicate, and over-deliver in a challenging environment. The companies who do this now will win customers from the competition and end up with a larger share of the competitive pie when the dust settles.  

2. Manage your inventory effectively

Inventory management is not just about minimal reorder quantities and minimizing buffer stock. The insights from those watching the inventory can help companies tune their operations and predict problems before they become an issue.   

Longer lead times make it challenging to manage future inventory levels against forecasted demand – especially in a radically uncertain economic environment. Companies that get the systems and processes in place to excel in this area will have a competitive advantage. For example, in an environment where companies are having to squeeze suppliers on price, delivery schedules, and payment terms, forcing them to hold inventory longer (VMI initiatives) can be the proverbial straw that breaks the camel’s back.    Creative solutions that move inventory off of both the buyer and seller’s books (inventory financing) can offer some critical relief if done correctly.  

These solutions are rare, primarily because they require individuals to look beyond their comfort zone.   Warehouse folks need to meet the finance team to look at financing opportunities, finance folks need to meet procurement and listen to why procurement thinks their ideas are not grounded in reality. All three need to go out together, have a drink, and seek out common ground.    

3. Harness the power of data

Recommending the use of data as the bedrock of sensible strategic decision-making is not a novel concept. But it has never been so important at a time of great uncertainty.  You can trust your gut when the environment is constant. But in the coming months, this could be disastrous.  

The speed with which AI tools are being operationalized has never been faster, and the results are no longer hypothetical. So the burden is not on those who argue they are smarter than the data versus vice versa.  

Improved cash flow forecasting solutions allow companies to guess less and predict more. In today’s market, simply extrapolating a trend line from the last six months or comparing year-over-year numbers will not be enough.

Being able to leverage data, AI, and insight to have a better crystal ball than the competition should be top of mind.  Being able to read the crystal ball and anticipate future flows of cash (in and out) based on data from purchase orders, payables, and receivables is now table stakes. Business is largely a working capital game. 

Those who manage it best free up additional capital to deploy in any number of ways and ultimately will WIN. This storyline will be especially true in a high-interest-rate environment where the stakes are higher and access to cash is more expensive. So the companies that take action to improve their toolset in this area will emerge stronger. Having a big bold working capital goal is the first step. Having a comprehensive plan on how to get there, which is more than a pep-talk is where many struggle.  

4. Embrace the potential of early payment solutions

A challenging macro environment will put a premium on every last cent.

Companies are increasingly looking to give their suppliers flexibility and choices. This may be from a desire to be easy to work with (to ensure a supplier continues to serve you versus your competition) or an insight that stronger suppliers mean a healthier supply chain and a stronger, more competitive enterprise.  

Giving suppliers flexibility in what they care most about (getting paid ASAP) has caused an explosion in early payment programs in the market. These programs can allow the buyer to use their own cash to pay early (at a discount) or they can leverage third-party financial institutions to pay early (so the buyer can hold onto their cash longer). 

Most early payment programs are now being coordinated with environmental, social, and governance (ESG) initiatives. Want a preferred rate to access your cash? Just raise your ESG score. Preferred pricing and rates for early payment can be earned by hitting specific ESG metrics managed by third parties to ensure there is no green-washing.

5. Put it all together

In sum, the months ahead will likely separate the corporate wheat from the chaff. There is a massive opportunity for companies to use this environment to their advantage. A key will be making sure functional leads get off Zoom calls and get out to meet their peers in different functions. Specifically, treasury, procurement, and logistics teams would do well to spend more time together writing down the specific moves that will allow them to not only weather the storm but emerge stronger.  

Access to cash and working capital will be paramount for companies and their suppliers in the coming months. The companies that understand this and architect win-win agreements with suppliers will have the capital to invest when their competition is struggling to cut. Clearly, some companies are starting to do this as they lock in their plans for 2023.  While many companies will clearly have to play defense, a smart few are getting ready to go on the attack.  

The study highlights the top supply chain and technology challenges facing businesses today and shows that respondents are prioritizing agility via integration technology in order to mitigate disruptions.

Here are the key findings from the survey:

Business Threats & Resulting Concerns

• 68% of respondents report the pandemic was the greatest external threat to their business, followed by supply chain disruption (44%). Both groups say these threats were damaging to business partner relationships as well.
• 90% of companies say they replaced or terminated at least one business partner in 2021, citing:
• Supplier problems (60%)
• Manufacturing problems (50%)
• Shipping problems (44%)

• 48% of businesses suspended or terminated two or more lines of business in 2021.

Technology Investments

• 71% of respondents invested $100,000 or more in supply chain technology in 2021; the investments were made largely to combat disruptions and business threats.
• 59% of those surveyed invested in integration technology as their primary method to respond to disruptions threatening their business, while 53% invested in back-office applications such as ERP, CRM, WMS, or TMS solutions.
• Business leaders from one in five companies (19%) state that increased agility resulting from investment in integration technology drove $3 million or more in additional revenue in 2021. 50% report at least $1 million in additional revenue and 73% saw increases of at least $500,000.
• 99% of leaders report increased revenue because of agility-increasing technology investments.

Rethinking Inventory Management

Product shortages are spurring an inventory management shift away from just-in-time(JIT) and toward just-in-case (JIC). Many distributors have abandoned their effort to minimize inventory—by which they reorder products only to replace the ones they’ve already sold—and are instead stockpiling products just in case they need them.

Underlying this shift is the realization that any cost savings and efficiencies achieved through lean inventory would be more than offset by lost sales opportunities due to the unpredictable time it could take to replenish stock amid shipping delays and product scarcity.

We predicted the shift from JIT to JIC in 2021 when shortages began to percolate across supply chains globally. Yet even we have been surprised by the extent of the shift: Not only are products being hoarded, but also warehouse space.

As widely reported, logistics companies are devising new methods of dealing with a dearth of storage by choosing inland locations away from coastal ports—and by building multi-story warehouse facilities.

Inventory is now “in.”

Implications for Working Capital

The strategic decision to pursue JIC and increase buffer stock amid product shortages certainly has benefits, but it can also weigh on a company’s finances.

Apart from the cost of maintaining additional storage capacity, JIC usually entails longer inventory carry (the amount of time inventory is held on the balance sheet), longer inventory turn (the time it takes to clear the shelves through sales) and longer cash-conversion cycles until the items are finally paid for and monetized.

Consequently, many distributors who embrace JIC could find themselves making larger cash outlays to their suppliers while having to wait longer for repayment from the buyers to whom they sell their products. They thereby experience greater pressure on their working capital.

Optimizing Working Capital

With the increase in inventory, distributors will look for levers to pull in order to reduce their cash conversion cycle as much as they can.

One strategy is to match their inventory turn with payables and receivables by trying, through negotiation with their counterparties, to extend the timing of payments they owe their suppliers when the number of inventory days goes up. But suppliers face similar liquidity pressures and may not be willing or able to accommodate later payments.

An alternative for distributors is to enroll in a traditional supply chain finance program—assuming one is available to them—that would allow them to sell their receivables to a program provider (such as a bank) in exchange for immediate cash.

The program provider would then collect payment from the buyer at the later date in accordance with the payment terms established between the buyer and the distributor.

Yet given the high uncertainty surrounding product availability, demand, inventory turn, and the pace at which inventories can be replenished, distributors must contend with variability in cash flow.

Enter Dynamic Discounting

Fortunately, supply chain finance programs have been evolving to include options such as dynamic discounting, which gives a buyer the flexibility to choose when to pay its supplier in exchange for a lower price or discount on the goods purchased. The “dynamic” component refers to the option to provide discounts based on the date of payments.

Uneven supply/demand a benefit

Dynamic discounting can work particularly well for uneven supply/demand patterns, which favor contractual payment terms that are more flexible and may help distributors increase their net income by optimizing their working capital.

Of course, there are also distributors who are resilient enough to withstand product shortages and the supply chain issues they’re causing. But those who are feeling the pinch will need to find solutions for husbanding their capital wisely in anticipation of continued shortages in the foreseeable future.

FISCAL Fitness

Here’s a sampling of statistics about the fitness equipment industry, compiled by RunRepeat and other sources, that helps to illustrate its status today.

• The fitness equipment industry is estimated to be worth $11.3 billion as of 2021, up 11% from 2020.
• The fitness equipment industry is projected to be worth anywhere from $14.7 to $21.1 billion by 2028.
• One of the biggest growth markets globally is China, which is expected to have a 16% compound annual growth rate in the industry from 2021 to 2027.
• Consumer fitness equipment sales grew 68.4% from $3.3 billion in 2010 to $5.6 billion in 2020.
• At-home fitness equipment sales shot up 218% in 2021.
• By 2024, cardio equipment such as treadmills, ellipticals, and recumbent bikes will make up 65% of the total fitness market.
• Online fitness is expected to grow by 33% year-on-year, making it a $6-billion slice of the annual fitness industry by 2027, according to Uday Anumalachetty, divisional vice president at FitnessOnDemand.
• Planet Fitness is the largest fitness center (in terms of members) in the world, with more than 2,200 clubs, primarily in the United States, Canada, and Australia.

Pandemic Gives Fitness Field a Workout

Like most industries, the fitness equipment field changed dramatically when the pandemic struck. In particular, sales of fitness gear, gadgets, and apparel soared in 2020 as consumers stuck at home and locked out of gyms invested heavily in new equipment for their homes.

“As soon as the lockdowns took effect, the home-fitness business took off like wildfire,” Matt Powell, vice president and senior industry adviser for the NPD Group told the Washington Post last year.

Health and fitness equipment revenue more than doubled to $2.3 billion, from March to October 2020, according to NPD data. Some manufacturers, in fact, struggled to keep up with demand, particularly as sales of stationary bikes tripled and sales of treadmills jumped 135%, according to the Post. Dumbbells also saw a sharp sales spike.

The trend also extended beyond exercise-style equipment, leading to increases in the purchases of products such as bicycles, kayaks, and cross-country skis.

Meanwhile, gyms suffered major initial losses and operational challenges amid widespread shutdowns that particularly put pressure on those already struggling. Gold’s Gym, 24 Hour Fitness, and Town Sports International, the owner of the New York Sports Clubs and Lucille Roberts chains, all filed for bankruptcy protection in 2020. More than 9,000 gyms, clubs, and studios closed for good as a result of the pandemic, estimates Mark Williamson, co-founder of ClubIntel.

As vaccinations became available and gym doors reopened, fitness center numbers began to rebound. The home gym will never replace retail gyms, which will always offer the advantage of a social environment and a wide assortment of sophisticated equipment, notes Joanna Zeng O’Brien, a Moody’s analyst who covers the fitness industry.

For most equipment manufacturers, serving both home and retail gym markets is nothing new. But many gyms extended their presence into the home market as a result of the pandemic with apps that help members work out away from the facility.

“There is the convenience of working out from home, but people also want to go to physical locations. People miss that,” O’Brien says. “Fitness companies that want to stay around and not become obsolete have to do both.”

Peloton Pedals it Back

Perhaps no home product will be more associated with the pandemic than the stationary bike, particularly the one made by Peloton. The company’s fortunes have fallen since demand exploded in the first year of the pandemic, and it has faced an array of challenges.

In one of the latest legal efforts surrounding the competing home-fitness equipment companies, NordicTrack’s maker iFit Health & Fitness has filed a U.S. trade complaint seeking to block imports of Peloton Interactive’s stationary bikes

The case centers on the Peloton Bike+ stationary bikes that alternate between bicycling and weight lifting. In May 2021, iFit was issued a patent for an invention involving stationary bikes that have free-weight cradles. The company uses the invention in several studio bike models. In its complaint, filed with the U.S. International Trade Commission, iFit says, “The unauthorized use of patented inventions by Peloton is pervasive,” reports the American Journal of Transportation (AJT).

Peloton and iFit already have a legal case over patents in federal court, but AJT notes that the U.S. International Trade Commission tends to work faster than district courts and has the authority to stop products from crossing the U.S. border, which could create a major headache for Peloton. The company’s Taiwan-based manufacturers, Tonic Fitness and Rexon Industrial Corp., are also named in the complaint.

The case is not the only one before the trade commission involving Peloton and iFit. Both are accused, along with Mirror owner Lululemon Athletica, of infringing patents for streaming video over the internet by Dish Network Corp. and its Sling TV.

In March 2022, CNBC reported on Peloton’s efforts to overcome the struggles it has faced since the surge in the pandemic’s early days, including declining demand for at-home workout products and heightened supply chain expenses. The company’s stock shares dropped 80% over 12 months and it replaced its CEO early in 2022.

Treadmill Market Not Standing Still

Among the oldest exercise equipment categories is the treadmill market, and they remain a popular choice in fitness-minded homes and the health clubs where rows of the machines have long been such a familiar sight, finds a report from Allied Market Research.

The report shows that the global treadmill market was valued at $3.2 billion in 2020 and is forecast to climb to $5.9 billion by 2030, enjoying a compound annual growth rate of 5.1%. Treadmills represent the highest-selling exercise equipment category in the fitness industry, “well ahead of others,” according to the Sports & Fitness Industry Association. The treadmill industry now includes hundreds of manufacturers globally, estimates Allied Market Research.

Although the category encompasses both manual and electronic treadmills, the treadmill industry is dominated by the electronic-based products. Users have come to expect treadmills that provide sophisticated measurements and guidance, helping them understand the nuances of their workouts and the effort they are putting into them.

Treadmills were among the fitness categories to see increased demand when the pandemic arrived and pushed many consumers to seek personal pieces of fitness equipment for their homes. Still, the commercial segment of the global treadmill market remains much larger than the residential segment, according to Allied Market Research.

The specialty store segment reigns over franchise and online stores among distribution channels. Allied Market Research points to that segment’s advantages in providing consumers with more detailed expert guidance. However, online stores are expected to be the fastest-growing segment through 2030 as e-commerce becomes increasingly popular and simple for customers to use.

Tools to Boost Working Capital
Roadblock to Blockchain
5 Trends to Watch in 2022

The adage “cash is king” remains as true as ever. Profitable companies can still run into trouble if they lack cash to pay their bills. This fact can give rise to tension with suppliers, who often need to receive payments more quickly than their customers—most of whom are trying to hold on to cash—prefer to pay.

Supply chain finance (SCF), sometimes referred to as “reverse factoring,” is a working capital tool that can help both parties. “SCF enables a buyer to optimize working capital by extending payment terms to its suppliers, who in turn gain access to efficient financing via a bank or other third party,” says Maureen Sullivan, head of supply chain at Mitsubishi UFJ Financial Group (MUFG).

Using SCF to successfully manage cash flow enables companies to cut debt and boost profitability, says Joerg Obermueller, senior vice president for supply chain finance with CIT. Conversely, failing to manage cash flow can lead to breached loan covenants, delayed shipments, and unnecessary debt.

SCF market growth

SCF offers several benefits over other working capital tools. It’s often less expensive and more efficient. It also provides suppliers visibility to upcoming payments.

These qualities have helped drive growth in the SCF market. Global volume jumped by 35% between 2019 and 2020, to top $1.3 billion, according to the World Supply Chain Finance Report 2021.

Growing awareness of SCF among leaders at mid-market companies has also contributed to its growth. Initially, SCF was deployed primarily by corporations with at least several billion dollars in revenue, says Nathan Feather, chief financial officer with PrimeRevenue, a provider of working capital solutions. Now, some companies with several hundred million in revenue are using it.

Similarly, SCF funders previously tended to be large global banks. Over the past five years or so, the universe of funders has expanded to include local and regional banks, as well as non-bank funders.

While the term “supply chain finance” sometimes is used as a catch-all to describe different working capital solutions, it’s increasingly used when referring to a defined task, says Thomas Dunn, chair of Orbian, which provides working capital management solutions. That task is the financing of receivables that the buyer has approved and confirmed.

SCF starts with the buyer in a business-to-business transaction. The buyer lets the financial organization know it’s committed to paying a specific amount on a set date, to a specific supplier.

The buyer within an SCF program often is a large investment grade corporate, says John Monaghan, managing director with Citigroup. This is key, as the discount rate applied to the early payments is predicated on the buyer’s credit rating, which typically is stronger than the supplier’s, helping to rein in the cost of this financing tool.

For example, a smaller business looking to borrow from a bank or finance provider might be charged between 6 and 10% interest or more annually, Monaghan says. Financing through an SCF program runs a fraction of that, while offering faster access to funds.

The financial institution pays the supplier, usually before it collects from the customer, and less the discount. Often, payments are made days after invoice approval. The financial firm then collects from the customer on the originally scheduled terms, such as 90 days.

Benefits abound

Supply chain finance funding is cost-effective, short-term, and uncommitted, Sullivan says. And by helping suppliers manage excessive exposure to a single or small concentration of buyers, SCF also helps mitigate risk.

SCF also offers transparency, says Donna McNamara, director with Citi. Suppliers gain visibility to the invoice approval process and payment time frame, and they can monitor invoices as they move through these functions.

Buyers benefit as well, Dunn notes. They can use SCF to strengthen relationships with suppliers. And by helping buyers gain quicker access to financing, they strengthen their supply chains.

In the past few years, SCF has also helped fund some buyers’ environmental, social and governance initiatives, Obermueller says. Buyers can use supply chain financing to support diverse suppliers, offering faster payment at attractive rates.

In addition, the improved payment terms and liquidity SCF makes can allow some suppliers to invest in, for instance, more efficient equipment.

Who Uses SCF?

Historically, SCF programs tended to be concentrated in consumer goods and industrial companies, both of which purchase in large volumes from a range of suppliers. That has changed as SCF has gained adoption across many industries.

SCF programs have also been more prevalent in sectors with lower margins, where companies might struggle if they must wait to be paid, yet for whom the cost of traditional financing can eat into margins, Monaghan says.

Large logistics companies, like companies in other sectors, often establish SCF programs for their suppliers, Dunn says. In addition, some develop SCF arrangements that their clients can offer their own suppliers.

One example: Each month a logistics firm ships $1 million worth of pet food on behalf of its retail client from that company’s suppliers. The logistics firm might sponsor an SCF program the retailer can offer its suppliers.

how to launch an SCF Program

While each SCF program is different, a common starting point for the funding firm is to identify the suppliers for which the program likely will be a solid fit, Feather says. Typically, not all suppliers are.

Historically, suppliers with lower annual spend would be better suited for a purchasing or virtual card. However, this is changing as the supply chain finance landscape and technology evolves, with some SCF providers offering solutions geared to these suppliers, Feather says. Among the suppliers invited into a well-structured SCF program, between 70 and 80% usually join.

Suppliers joining SCF programs need to be able to handle the documentation requirements, Feather says. While not difficult, they have to provide information, like their articles of incorporation, that allow the financing firm to comply with know-your-customer and other regulations.

The buyer handles the technical implementation of the SCF platform, Dunn says. Suppliers access the program online.

Once suppliers join an SCF program, they generally often can receive payment as soon as an invoice is approved, although they also can decide to wait. “The supplier gets control of its cash flow,” Feather says.

Many buyers launch one segment of their supply chain, address any challenges, and then add other business units, Dunn says. Successfully starting an SCF program generally requires the involvement of multiple departments within the buyer’s organization, including finance, treasury, and information technology.

The procurement department is also critical to success. “If they’re not on board driving the solution, it’s typically not successful,” Dunn says.

When bringing suppliers onto the platform, education is key, Feather says. One common area of focus is helping suppliers weigh the cost of the transaction fee against the benefit of improved cash flow. Another focus is the flexibility and control over cash flow they’ll gain, especially when many are facing ongoing disruption and inflation.

An SCF Roku

SCF programs have come in for some criticism. Over the past year or so, the market had to navigate the collapse of Greensill Capital, which fell under the broad umbrella of a working capital provider. However, Greensill was “narrowly focused on lending to a small number of very high-risk companies,” Dunn says.

A more minor complaint is the lack of a single dashboard for all SCF arrangements—essentially, “a Roku for SCF,” Dunn says, referring to the device that aggregates content from multiple streaming services. Currently, if a supplier has some customers on one SCF program and other customers on another solution, it has to access each program separately.

Given the growth in SCF, its benefits appear to more than compensate for any shortcomings. As a just-in-time approach to inventory management has shifted to just-in-case, both buyers and sellers face pressure to acquire or sell more goods, Monaghan says. SCF helps companies on both sides of the equation.

Over the past 15 years, organizations have had to navigate the financial crisis and pandemic, among other shifts in the business world. “What stands out for both buyers and suppliers is that needs change over time,” Feather says.

While working capital might not be a high priority for some businesses at some points in time, that can quickly shift. Early in 2020, the pandemic generated massive uncertainty, and SCF activity jumped.

Feather notes: “Having access to supply chain finance gives a buffer against a changing business climate.”

Tools to Boost Working Capital

In addition to supply chain finance and traditional bank financing, several other tools can help companies boost working capital. They include:

Dynamic Discounting: With a dynamic discounting program, vendors decide when they’d like to get paid in exchange for a reduction in the price of the goods or services their customers purchased. Typically, the earlier the payment, the greater the discount. Dynamic discounting tends to be done on an invoice-by-invoice basis. Buyers use their own cash to make the payment.

Factoring or Receivables Financing: In factoring, a firm sells its accounts receivables at a discount to a third party—the factor—which assumes the credit risk of the buyers. The factor generally pays between about 75 to 80% of the receivables value upfront, and then the remainder, less a discount, when the customer submits payment. Factoring can make sense when companies are growing quickly.

Purchasing Cards: A purchasing card or P-card is a commercial card that allows organizations to use the existing credit card infrastructure to make business-to-business (B2B) electronic payments. For buyers, P-cards can streamline the procure-to-pay process, particularly for purchases of inexpensive items. Many also offer flexibility in billing cycles, allowing payment days or even weeks after a transaction, so buyers can hold on to their cash, even as their suppliers are paid more quickly.

Roadblock to Blockchain

To date, blockchain hasn’t played a big role in supply chain finance. “The lack of regulation and scalability, as well as security concerns, has a negative impact on the adoption rate of blockchain technology in SCF,” says Joerg Obermueller, senior vice president for supply chain finance with CIT. These challenges need to be addressed to ensure blockchain can play a meaningful role going forward.

Blockchain could play a potential role in smart contracts, which would lower costs and boost efficiency, says Nathan Feather, chief financial officer with PrimeRevenue, a provider of working capital solutions. He also expects blockchain to be used to delineate ownership of assets, making the onboarding of suppliers more efficient. “We’re a long way from that, however,” he adds.

5 Trends to Watch in 2022

Over the years, supply chain finance has emerged as a bridge for buyers and suppliers, proving a range of finance and risk mitigation solutions to optimize the supply chain. As the global economy is currently undergoing turbulent times, supply chain financing will become all the more important. As we enter a new year, there are certain trends that we can expect to shape supply chain finance.

1. Healthy collaboration between advanced technologies and human capabilities. While technology is automating payment exchange and history, documentation, data analysis, and other processes, a workforce intervention with capabilities such as critical thinking, logical implementation, and client relations is a prerequisite for the success of the business. The biggest performance improvements happen only when machines and humans work in harmony, improving each other’s strengths.

2. Enhanced risk management solutions. The pandemic highlighted the risks to global supply chains as organizations struggled with disruptions. In the coming year, businesses will take this into account and work toward creating a holistic ecosystem with better risk management and risk mitigation solutions.

An “always-on, always-ready” solution will become a needed asset to provide timely action when disruptions and changes gain momentum across the globe. It enables organizations to get an extended view to continuously monitor and reach new supplier tiers and gain higher visibility to the supply base. Furthermore, technologies such as machine learning and artificial intelligence help assess credit risk and predict frauds and threats in real time.

3. Larger supplier pools. Accelerated digitization and collaboration will create a wide network with alternate suppliers, stakeholders, and facilitators. 2022 will bring a massive shift toward a “multiple-choice quotient” with expanded reach and many players providing higher value, improved financing, and better working capital.

4. Changing needs. The past two years have led to new habits, needs, and demands among companies across sectors. With such close-knit networks of suppliers and buyers, it is imperative for businesses to take the time to understand the evolving needs of buyers. COVID lockdowns and subsequent economic breakdowns, disruptions, and irregularities have been a driving factor in the changing behavior across supply chains and it falls to supply chain financing to ensure that these new capacities can be developed.

5. Regulating and optimizing compliance concerns. The past few years saw organizations implement automation strategies before evaluating compliance needs. The new era calls for the reverse. With government mandates and regulations changing constantly across geographies, global invoicing and tax compliance are becoming increasingly complex and fragmented. 2022 will see a transformation in business strategies where global organizations prioritize compliance resolutions in their automation approach.

—Kunal Ahirwar, CEO and Co-Founder, Earnvestt Technologies