A decade ago the buyer was king. Their contacts were guarded even from finance and treasury departments - buyers were judged on margin, cost of funds was low and cashflow and liquidity were good, so engagement with other departments wasn’t necessary.

Meanwhile, payment agreements were inconsistent. Bread could be on seven-day and red wine on three-month payment terms. Suppliers would offer incentives to secure better terms, but supply chain finance - where businesses use uncommitted banking facilities to advance up to the total value of approved invoices to suppliers - was experimental and difficult to implement given the disconnect between business functions.

Fast forward to today and it’s very different scenario. For supermarkets, the cost of borrowing has increased and there’s an imperative to better know suppliers following the horsemeat scandal. Poor cashflow is stretching suppliers’ ability to meet orders, with input costs and competition increasing and margins falling.

SCF reached tipping point in 2011 and now has real momentum among supermarkets. Suppliers on SCF programmes can access cash via automated, bank-led systems, allowing them to invest to meet demand and retailers to guarantee supply.

Finance, treasury and buying are more aligned because the cost of funds has increased and working capital is tightly controlled, while IT and banking partners are linking in during supplier discussions. Retailers are also consolidating their suppliers, which can use SCF to fund orders simultaneously, to realise efficiencies.

SCF has powerful friends. David Cameron is encouraging corporates to use it to help liquidity cascade through the supply chain. Yet barriers remain. Suppliers need to overcome financial and technological mistrust. It’s also the case that some supermarkets prefer to use available finance to fund growth initiatives rather than their suppliers’.

We expect these issues to be overcome in the next few years with increased adoption. SCF users become its advocates - we haven’t yet seen a supplier opt out of a programme.

Keith Richardson is MD for Retail at Lloyds Bank Commercial Banking.

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