How Supply Chain Finance Solutions Benefit Buyers & Vendors

A buyer’s requirement to prolong the terms of its payables and its suppliers’ desire to reduce those terms can be met through supply chain finance (SCF). Both buyers and suppliers can achieve their contrasting cash management goals by working with a SCF lender. Let us delve deep into supply chain finance solutions and how it benefits both buyers and sellers.

Learn How a Supply Chain Finance Transaction Operates

An ordinary SCF transaction involves a buyer buying products from a provider. Without supply chain financing, the seller ships the products and sends a bill to the purchaser, who pays it within 30 days of the invoice’s submission. However, the buyer may work with an SCF lender to make the payment to the supplier at a price below the invoice amount. This happens when the supplier wishes to be paid sooner or the customer wants to pay more slowly than the standard terms.

The seller and the SCF lender work out a discount, and the seller is instantly given the discounted sum. As a result, the buyer can take advantage of the longer terms that the SCF lender has agreed to. At the conclusion of the extended period, the buyer ultimately pays the lender the entire invoice amount.

Supply Chain Financing Advantages

There are various advantages to supply chain finance for both customers and suppliers.

Less dependence on traditional financing

By offering a different source of working capital, SCF eliminates the requirement for conventional bank credit lines.

Improved cash flow management

Suppliers receive quick payment through the SCF lender, decreasing payment delays, while SCF supports the buyer’s flow of cash by increasing payment terms.

Strengthened vendor relationships

Since the supplier is dependent on payments from the SCF lender, the buyer’s trustworthiness is less of a concern, which strengthens the relationship with the vendor.

Payment clarity & predictability

Suppliers receive improved payment clarity and predictability, enabling them to better manage their finances.

Also Read: Supply Chain Finance – A Closer Look at its Operations

Access to working cash for suppliers

Suppliers gain from early payment, improved payment processing visibility, and access to working cash that helps them deal with economic risks and make growth-related investments.

Improved supply chain resilience

SCF gives suppliers access to quick cash, enabling them to continue doing business as usual, even in difficult economic times.

Funding innovation & growth

Suppliers can expand and successfully compete by funding innovations and adapting to unforeseen changes in order volume.

Lower cost of funding

Sub-investment and non-rated grade suppliers may face high funding costs in a traditional loan scenario. SCF provides a more economical financing choice.

Benefits of Supply Chain Financing for Buyers & Suppliers

Effective supply chain management significantly impacts corporate profitability, client happiness, and vendor relationships. Reverse factoring, often known as a supply chain financing solution, can be advantageous for both buyers and suppliers.

Advantages for buyers

• Better working capital – By preventing working capital from becoming caught up in the supply chain, reverse factoring makes it easier to get funding and makes operations run more smoothly.

• Lower risks of supply chain disruptions – By providing suppliers with easy financing, supply chains’ resilience is increased, and the risk of disruptions is lowered.

• Enhanced business growth – Supply chain financing enables companies to adjust to rapid demand spikes and makes accommodating abrupt variations in order quantities easier.

• Simple bookkeeping – An effective SCF solution makes financial record-keeping easier by maintaining the payable on file with the initially hired vendor.

• Good bonding with suppliers – Implementing SCF develops good relationships with suppliers, which can be advantageous during contract negotiations.

Advantages for suppliers

• Early payments – Through SCF, suppliers get paid much more quickly, which improves cash flow and eases financial pressure.

• Optimized cash flow – SCF enables suppliers to keep a steady cash flow without having to put too much pressure on their business operations.

• Better cash flow forecasting – Due to SCF’s increased cash flow insight, suppliers may make wiser business decisions.

• Enhanced working capital – The buyer-organized and financed SCF assists suppliers in enhancing working capital and lowering days’ sales outstanding.

• Lower interest rate – Compared to other financing, SCF provides decreased interest rates, lowering suppliers’ financing costs and allowing for better investment.

Wrap up

Supply chain finance has significant advantages for both suppliers and buyers. It improves working capital management, fortifies bonds, gives accessibility to working capital, and aids in navigating economic uncertainty. Using SCF, businesses can encourage growth and innovation, decrease supply chain interruptions, and streamline their financial operations. Supply chain finance has a favorable effect on business success, which benefits all stakeholders involved. Feel free to contact Triterras, which provides the best trade finance solutions like no other.