Is Supply Chain Financing Part of Your Growth Plan?

Businesses often look internally at funding their operation. For example, they consider the likes of equipment loans, factoring invoices, and even floor plan financing. However, it could be that supply chain financing is the solution you really need.

Supply chain financing can help streamline the supply chain of inventory and raw materials, creating better cash flow for boosting operations to meet a big order or expand the business.

What is supply chain financing?

Supply chain finance is also known as reverse factoring or supplier finance. This is a set of solutions that will optimize your cash flow by enabling you to lengthen your payment terms to your suppliers while providing the option for SME and large suppliers to get paid earlier.

This creates a win-win situation for both the buyer and the supplying company. The buyer is able to optimize their working capital. The supplier creates added operating cash flow, therefore, reducing risk across the supply chain.

It is vital to understand that supply chain finance is not a type of loan. This is an extension of the accounts payable on behalf of the buyer, and therefore, it is not deemed a monetary debt. For the supplier, it is a representation of the actual sale of their receivables.

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The benefits of supply chain financing

There are several benefits associated with supply chain finance. So, let’s take a look at them.

Weather difficult economic periods

The first is that it makes it easier for economic turbulence or global events such as the Coronavirus Pandemic to be weathered, and is especially important during the recovery of global events. Instead of waiting on big customers to pay your invoices, suppliers can submit their invoices to funders for earlier payment, continuing operations and maintaining the ability to take new orders.

This means they will get immediate access to liquidity that can enable them to keep operating as usual, ensuring they do not miss out on opportunities to grow their business.

Cheaper than loans or factoring

This is also a solution that supplies funding at a much lower expense. The interest rate you are going to pay for factoring or a loan is going to be considerably higher when compared with supply chain finance. This is tied to the credit rating of the customer, rather than the credit rating of the supplier.

Fund growth and innovation

Finally, supply chain financing funds innovation and growth. Working capital needs to be available so that supplies can respond to demand increases for their offerings and make investments in innovations that will give them a competitive edge.

This may seem counterintuitive at the present time, but this is also the perfect opportunity for businesses to hunker down and put together a competitive strategy so that they can grow in a rapidly changing market.

Contact us today for more information on supply chain finance

If you are interested in supply chain financing, please do not hesitate to call us today for more information. Our working capital professionals will be able to advise you on managing your cash flow effectively through growth. We look forward to hearing from you.