Why Supply Chain Finance is a Better Option than Traditional Credit Lending

International trade has shown its resilience to persevere despite a global pandemic. However, for many companies to continue business normally, it is vital for them to take advantage of available funding resources like supply chain finance, also known as reverse factoring.

In today’s sales climate, many customers require 90 to 180 days to pay invoices due to the size of orders and shipment costs. However, vendors or trading companies need to process payments quickly in order to ship products and keep business moving as usual.

Though vendors can turn to traditional credit lending for financial support, often they may not be able to meet the strict requirements necessary to obtain funding. Therefore, companies may consider working with an international trade finance company that offers supply chain financing to secure liquid capital that will move their business forward.

Supply Chain Finance Provides Capital Without a Repayment Schedule

Traditional credit lending means applying for a loan through a bank. The FDIC highly regulates banks and therefore has strict guidelines for lending. These stringent procedures also apply to repayment schedules.

When using a traditional loan, you must agree to make payments towards the interest and principal almost immediately. Whether or not you’ve received payments from your customers yet is not a concern. You must begin making payments on the bank’s payment schedule.

In contrast, supply chain finance focuses on unlocking working capital for your company through the purchase of your accounts receivable. The financial company buying your receivables and arranging your supply chain financing will advance you a majority of the invoice amounts, and then collect the payment in full from your customer at a later date. Unlike a loan, you never have to repay the funding from supply chain finance.

Supply Chain Finance Is Available When You Need Capital

There is a saying in business: “Borrow money when you don’t need it.” The reality is many companies would not borrow money if they already had it in the bank. Traditional lending is almost impossible to obtain when you actually need capital. The lending process requires you to show your income and your ability to repay the loan, making it difficult to secure this form of funding if your company is experiencing a shortage in liquidity.

On the other hand, supply chain financing is available when you need additional cash flow. The financial company buys your invoices and then collects on them so you do not owe back anything.

Supply Chain Finance Is A Replenishable Source of Capital for as Long as You Need It

When you are involved in international trade, consistent cash flow is crucial. With traditional lending, you can receive a large loan. However, once it runs out, it will be difficult to obtain another one. All in all, traditional financing is a one-time injection of money into your business that will help you through a temporary hurdle.

Unlike traditional lending, supply chain finance can serve as a constant stream of capital into your business. Supply chain financing companies can buy your accounts receivable as they become available. As long as you continue to work for clients and bill for your services, the supply chain finance company can continue to purchase your receivables and provide capital for your company.

If you choose to cancel the arrangement, you may do so at any time in accordance with your contract. However, this does not mean you cannot pick up financing in the future when it is needed again. Instead, you may begin selling your receivables at any time. This process makes supply chain financing more fluid and adaptable to your evolving business needs.

Final Thoughts

Supply chain financing can help keep business moving as usual without any interruptions. You do not need to complete a lengthy application process and wait weeks for a response using an international trade finance firm like Tradewind Finance that offers this type of service. The financial support for your business is ongoing until you request it to stop, making it a reliable option for businesses that are in need of continued working capital.