The CFO’s role is constantly evolving from that of a keeper of corporate values to enabler of value creation. How are CFOs contributing to businesses in their new profile?
Going by the conventional definition of a CFO, a chief financial officer (CFO) is a corporate officer, primarily responsible for managing the financial risks of the corporation. However, this typical role of a CFO has undergone a change of sorts over the recent years. From being keepers of corporate value, the CFOs today are enabling value creation. This transition has happened in the context of partnerships, contracting, merger and acquisition, corporate finance etc. CFOs today are responsible for helping organisations so that they can create value and tap the opportunities that the business ecosystem provides. Today’s CFOs are also responsible for increasing the capacity of the supply chain. Companies increasingly depend on the CFO to shape, refine, and implement their strategic endeavours.
Augmenting the supply chain capacity
Most large enterprises interact or deal with several small businesses or MSMEs, either as suppliers, distributors or plain customers. Such types of association have in turn helped small businesses rise up the growth gradient. However, the only limiting factor that they continue to face even today is the paucity of capital and requisite investments that they need, in order to sustain the growth. Enterprises, on the other hand, cannot tap into the full potential of the supply chain, due to this very limitation faced by small businesses – which they depend on. Traditionally, large companies had been handholding these small businesses, not only in their business operations but also with financing. This is where the CFO’s role becomes paramount. CFOs are now responsible for financially enabling these distributors and supply chain partners, without being capital providers themselves.
There are several financially established supply chains that exist today in the business ecosystem. The automobile sector is one classic example of this. Many companies today are actively contributing to supply chain financing. Besides the veritable business advantage, this has earned the big organisations – unwavering loyalty from suppliers, vendors and distributors.
Talking of the evolving roles of a CFO, a global trend has been observed, where large companies have been instrumental in enhancing their supply chain’s financial capacity and have unravelled a whole new world of fiscal support with incremental value. CFOs of such companies have fashioned a way around, which does not interfere with the provider company’s cash flow, nor are they required to take additional risks. They offer credit intelligence data of their supplier and distributors, to financiers that help them make the right decisions and investments.
Additionally, taking the segment a notch higher, technological innovation in the enhancement of credit availability segment has been prevalent for the past few years. There are various examples like Market Invoice, a company that allows suppliers to sell their invoices on an institutional trading platform. Likewise, C2FO is another recent company that has tweaked the business model and allows large enterprise customers to discount their own invoices for the purpose of treasury management.
Credit intelligence – the new buzzword
The reason why small business financing is difficult in India is because secondary data is largely unavailable. Primary data, on the other hand, is difficult to collect and most of those are frauds.
The solution is to make available business data for credit purposes. CFOs are well-equipped to contribute to this credit intelligence in relation to their supply chain partners. This would also help partners get access to financial support, in turn enhancing their capacity to serve the principal.
The solution is to make available business data for credit purposes. CFOs are well-equipped to contribute to this credit intelligence in relation to their supply chain partners...to help partners get financial support...
In India, various companies are innovating in the supply chain financing domain, armed with shared credit intelligence, and some offer products meant for financing customers for large travel consolidators. The consolidators provide the whole range of transactions that happens between the consolidator and its customers, in a verifiable manner and such companies analyse this data for trends and integrity and then connects that data with the financial data, as provided by distributors. By this arrangement, lenders can gauge the creditworthiness of those customers. As a corollary, the consolidators generate more business and loyalty from existing distribution agents. All parties involved win by accessing data that was locked inside enterprise financial infrastructure before. Such innovation-driven techniques are being applied in other sectors as well, including traditional supply chains as well as businesses – from retail and automobile to travel and e-commerce.
Large companies today understand that – to grow their own business, they need to streamline the businesses that they depend on, for various business needs. These small businesses are often large businesses’ distributors and customers. CFOs have been focusing on this segment of stakeholders for long and they have the power to unleash the potential lying with these stakeholders.
Evolution of technology and big data analytics are providing a thriving opportunity for CFOs to build a new level of growth, by exposing the credit intelligence and enhancing the financial capabilities residing in a organisation’s supply chain.
About the Author:
The author is co-founder and CEO of Indifi – a technology and data platform to enhance small business financing. He also serves on boards of Indian Angel Network and The Indus Entrepreneurs in Delhi.