In an era fuelled by fierce competition, ensuring the survival of a business is a challenging task in itself, let alone maintaining its steady growth. As such, today’s global export businesses are actively investing in modern-day tools powered by technology and automation to stay ahead of the curve, both in local and international markets. It is one of the most effective ways of bringing in the highest standards of efficiency across all business transactions.
This is where solutions like supply chain financing come to the rescue, enabling companies to streamline their processes throughout the supply chain cycle. Let’s take a closer look at how supply chain financing can bring a host of benefits for both buyers and sellers when leveraged expertly.
What Is Supply Chain Financing?
SCF (Supply Chain Finance) is a term describing a set of solutions that are designed to optimise cash-flow, enabling businesses to focus on more revenue-generating or growth-accelerating strategies. It plays a key role in allowing them to shift focus from managing mundane processes and instead dedicating their time, expertise, and capital to investing in innovations.
One of the most impressive benefits of supply chain finance strategies is that they help reduce financing costs and improve efficiency for both buyers and sellers involved in the project. This is achieved by automating business transactions, as well as tracking key documentation like invoice approval, contract agreements, and settlement processes.
How Does It Work?
Supply chain finance is also known as reverse factoring. It is initially set up by the buyer who ensures the supplier is on board. The buyer receives the order from the supplier and approves the invoice. The banks or other financial institutions serve the role of a third-party responsible for providing short-term credit that optimises working capital and provides liquidity to both parties.
While suppliers gain quicker access to money they are to receive for the deliveries made, buyers get more time to pay off the hefty sums they owe to the suppliers. Banks or other lenders offering supply chain finance solutions evaluate the buyer’s credit history instead of the supplier’s.
This proves to be an advantage both for the buyers and the sellers. The sellers do not have to necessarily provide a detailed credit record to benefit from financing solutions. On the other hand, the buyers can negotiate better terms while drafting a final contract with the supplier such as extended payment schedules. This way, supply chain finance also encourages seamless and lasting collaboration between buyers and sellers.
With supply chain financing, both parties can use the capital on hand to accelerate business growth and engage in new opportunities that come their way. Here is a quick summary of the key benefits of reliable supply chain finance solutions:
1. Buyers Can Negotiate Better Terms:
The main benefit that buyers get is improved flexibility in terms of payment clauses in the contract drafted with suppliers. Here, the supplier receives the payment immediately. As such, the buyer can negotiate longer payment cycles or conditions without hurting their suppliers’ cash flow.
2. Buyers Can Ensure Streamlined Payment Processes:
Global buyers work with multiple suppliers coming from different markets. With supply chain financing, a buyer can skip the hassles of managing the payment terms and collections for all suppliers. Instead of paying each supplier individually, he only pays the reverse factoring provider.
3. Buyer-supplier Relationship Thrives:
Long-term buyer-supplier relations are critical to ensuring success for both parties. With supply chain finance, the relationship between buyer and seller remains steady as it introduces an external finance provider that acts as an intermediary to ensure a smooth payment process.
Get Excellent Supply Chain Finance Solutions with Tradewind
With over 20 years of unrivalled industry experience and highly-trained experts on board, Tradewind Finance can best finance your full supply chain. Being one of the leading supply chain financing providers, we use financing and risk mitigation techniques to optimise the management of working capital and liquidity in the supply chain. We provide receivables financing and funding to global suppliers based on their buyers’ creditworthiness and financial strength. We also support off-balance sheet inventory arrangements.