What is Supply Chain Finance?

Supply chain finance is a finance solution that enables companies to offer early payment options to their suppliers. With supply chain finance, suppliers can receive early payment for their approved invoices from a bank or finance provider, while the buyer sends payment to the financial institution on the invoice’s maturity date. This type of finance not only reduces the risk of supply chain disruption but also strengthens supplier relationships while improving the buyer’s working capital.

Supply chain finance is also known as supply chain finance, although the term ‘supply chain finance’ encompasses a range of supplier financing solutions. In contrast to traditional factoring, supply chain finance is initiated by the purchasing company rather than the suppliers, to finance their accounts receivable. This approach to finance can lead to numerous benefits for both the company and its suppliers.

How does it work?

  1. The buyer purchases goods or services from the supplier.
  2. The supplier uploads the invoice to the supply chain finance platform with a due date for payment.
  3. The buyer approves the invoice.
  4. The supplier requests early payment for the invoice.
  5. The supplier receives early payment, at a discount
  6. The buyer pays the finance provider on the maturity date.

Benefits of Supply Chain Finance

Supply chain finance provides numerous benefits to both buyers and suppliers. The introduction of technology-powered supply chain finance platforms has made it easier for buyers to offer supply chain finance to their suppliers, including smaller suppliers with limited access to affordable funding. With streamlined onboarding processes and a focus on user-friendly experience, these platforms simplify the supply chain finance process and increase the likelihood of a high adoption rate among suppliers. This results in stronger supplier relationships, reduced risk of supply chain disruption, and improved working capital management for buyers.

Benefits of supply chain finance for suppliers
The main benefit of supply chain finance for suppliers is improved cash flow through quicker payment processing. They can secure lower-cost funding, which is comparatively lower than other financing options, enhance their working capital, minimize the risk of delayed payments, and increase stability and security. By partnering with a financial institution to handle payments, both the supplier and buyer can improve their working relationship and foster increased trust and communication.

Benefits of supply chain finance for buyers
The benefits of supply chain finance for buyers include improved liquidity and cash flow management, timely payments, and enhanced profitability.
Buyers also benefit from supply chain finance as they are relieved from requests for early payment, which reduces the risk of damaging their relationship with the supplier due to late payments.

Additionally, offering supply chain finance as a payment option enhances their reputation as a desirable business partner, as suppliers prefer to work with buyers who provide faster payment terms.

Who is Using Supply Chain Finance?

Supply chain finance can benefit companies across various industries, as long as the financial institution assesses the ordering party as low risk and trusts their relationship with the supplier. Industries that frequently adopt supply chain finance include

  • Retail
  • Transportation
  • Electronics
  • Automotive
  • Pharmaceutical
  • Aerospace

However, it is not limited to these industries and can be used by any company that has a large volume of accounts receivable and cash flow challenges.

Streamline Your Daily Operations with Liquiditas’ Supply Chain Finance Solution

If you are unable to grant your suppliers’ requests for early payment due to extended payment terms, Liquiditas is available to assist you.

At Liquiditas, our goal is to enhance your liquidity management and strengthen buyer-supplier relationships through our innovative solutions. With years of expertise in the field, we provide a secure and predictable source of liquidity, empowering suppliers to seize new opportunities. The Liquiditas platform is designed to be a beneficial solution for both buyers and suppliers in the supply chain finance process. Our software is user-friendly and easy to navigate, making it simple for you to enjoy the advantages of supply chain finance. By fostering lasting relationships we ensure financial stability and consistency in your operations. And, as a vital component of your financial management strategy, our solution optimizes your working capital, propelling your business towards success.

Final Thoughts

In conclusion, supply chain finance is a powerful solution for improving working capital and reducing supply chain disruption. With the benefits it provides to both buyers and suppliers, it is an excellent option for companies looking to improve their financial health and supplier relationships.