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Supply chain finance is short-term credit for buyers and sellers of products used for business operation. The process enables buyers to get suppliers paid quickly without having to immediately spend working capital. Also known as supplier finance or reverse factoring, supply chain finance optimizes cash flow for buyers and sellers.
Supply chain finance allows businesses seeking product a way to lengthen payment terms. Product suppliers sell their invoices or receivables to the buyer’s financial services provider. When doing this, the supplier accepts a discount in exchange for early payment. This gives the supplier quicker access to money owed and the buyer gets more time to pay.
Increasing globalization of the supply chain has made traditional payment from buyer to supplier especially slow. Without supply chain finance, substantial amounts of cash can become trapped in the supply chain for extended periods of time. The process of supply chain finance frees up working capital for both parties.
Industries apt to use supply chain finance include retail and manufacturing.
Supply chain finance optimizes cash flow for suppliers and buyers, creating a win-win situation for all involved. The supplier gets paid earlier than would occur without supply chain finance. The buyer frees up operating cash flow. This minimizes risk across the supply chain and helps ensure that the process remains a healthy one.
Business efficiency is improved with supply chain finance. Suppliers paid in a timely manner are more likely to readily provide additional products. This creates a stronger, more stable buyer-supplier relationship. At the same time, the buyer is able to use the increased cash flow to invest in other aspects of growing a business, such as operations, marketing and research and development.
For best results when choosing a supply chain finance provider, consider the following.
Supply chain finance is an ideal way to improve cash flow for companies involved in buying and selling products. This win-win financial move is another way for today’s businesses to remain competitive.