How Supply Chain Finance Can Help You Gain Critical Competitive Advantage

By Brian Medley • Published April 19, 2023 • 5 minute read

Gaining competitive advantage in today’s business climate is no easy task. The characteristics that have historically defined market leaders, such as quality, innovation and price, have become table stakes. Moreover, the business climate has become hyper-competitive and disruption-filled, making it challenging for companies to gain an edge. Then there is the issue of achieving true competitive differentiation. Advances in technology, such as artificial intelligence and automation, have made it easier for companies to replicate each other’s offerings, further eroding the ability to differentiate offerings.  

Another obvious challenge is the economic reality. Market uncertainty, rising labor and logistics costs, and inflationary pressures have put pressure on companies’ cash flows, making it more challenging to invest in growth and innovation initiatives. These factors have contributed to a more cautious spending climate, making it difficult for companies to stand out from their competitors.

Given these circumstances, it’s important for companies to make sure they have all the right tools in their toolbox to gain – and fund – competitive advantage. Those companies that don’t count supply chain finance as a critical tool could be missing out.

A Proven Tool to Increase Competitive Differentiation

Supply chain finance is a tried-and-true strategy for companies seeking to outperform their competition in today’s high-stakes business environment. By unlocking liquidity trapped in the supply chain, companies can significantly improve cash flow and tap into working capital that can fund competitive-oriented initiatives that may otherwise be too risky to pursue. Examples include M&A transactions to expand offering portfolios and market reach, as well as accelerated R&D to increase differentiation.

The power of supply chain finance goes beyond just improving cash flow. Supply chain finance helps companies earn competitive advantage in several other areas, including flexibility in changing economic and trade policy climates without sacrificing strategic initiatives, stronger supplier health and relationships, risk reduction across the supply chain, and improvement across key financial metrics.

With a likely slowdown in corporate growth in the near term, more and more companies are turning to supply chain finance as a countermeasure. By materially improving free cash flow, companies can more easily navigate economic volatility without aggressively holding onto cash. These improvements can be used to fund competitive and growth initiatives that would otherwise go unfunded in periods of sustained volatility.

Unlocking Competitive Advantage for Buyers and Suppliers Alike

Competitiveness is a supply chain-wide endeavor. Buyers need their suppliers to be agile, financially strong, and able to invest in innovation/R&D to support their growth and competitive initiatives. Supply chain finance enables suppliers to get paid early – often within a few days of when an invoice is submitted and approved. This is particularly beneficial to suppliers who are under pressure to grow and respond to the widespread transformations happening across many industries. By accelerating cash flow, suppliers can tap into debt-free liquidity previously trapped within the cash conversion cycle.

The pandemic revealed the fragility of many supply chains and suppliers, and the lessons learned have been profound. Another point of risk within the supply chain is supplier payment terms. Thanks to mounting economic pressures, many companies are being forced to reexamine their payment terms with suppliers and extend them to align with industry benchmarks. Without a way to mitigate the negative impact, many suppliers are pushing back. This has the potential to wreak havoc on supplier relationships as well as weaken the financial health of both buyers and suppliers.

Supply chain finance can help companies solve these issues by giving suppliers a way to get paid early and for the full amount of the invoice due, making it easier for suppliers to accept longer payment terms that will improve the buyer’s cash flow. By having more working capital available to navigate disruption with agility and invest in strategic growth initiatives, companies can increase their competitive strength.

To Increase Competitive Edge, Explore the Benefits of Supply Chain Finance

Supply chain finance presents a clear path to gaining competitive advantage in any economic climate, particularly during periods of uncertainty when companies are most likely to pull back on spending. By unlocking millions (or billions) of debt-free capital trapped in the supply chain, companies can strengthen financial health, fortify supplier relationships, and accomplish strategic initiatives at a time when their competitors aren’t.