Today’s supply chains stretch across the globe. Multinational organizations often rely on diverse groups of suppliers based in numerous countries. But many of these organizations are finding the efficiency gains achieved through outsourcing and low-cost country sourcing are being undercut by the tremendous amounts of working capital trapped within the very supply chains necessary to do business. For this reason, supply chain finance (SCF) has become one of the most important solutions to unlock working capital and improve financial stability, thus improving competitiveness and generating billions of dollars in free cash flow for companies and suppliers alike.
The way it works is simple: SCF allows a buying organization to optimize its payment terms to suppliers and improve working capital. At the same time it gives the option to its suppliers to receive early payment based on attractive financing rates. The funding rate is based on the buyer’s credit worthiness or rating rather than on the supplier’s.
The popularity of supply chain finance has grown, in part, on the heels of the European financial crisis. After seeing first-hand the financial destruction that can result following a break in the supply chain, many organizations started looking for ways to better control their supply chains and ensure the liquidity necessary to keep operations stable. Supply chain finance was viewed as one way in which companies could support cash-strapped suppliers and prevent catastrophic disruptions.
In Europe in particular, supply chain finance gained significant importance due to the European Union’s directive to limit the time corporates have to make payments in commercial transactions. While this directive brought relief to some suppliers, in particular middle market companies, some buying organizations complained of higher debt and lower liquidity. Overall however, supply chain finance was proven to be an effective way to manage working capital efficiently under the EU late payments directive, freeing up cash flow and keeping supply chains operating smoothly.
There are several options for organizations looking to participate in supply chain finance solutions. For example, buyer-managed platforms allow companies such as large retailers to manage their own finance programs for suppliers, and some large commercial banks offer their own supply chain finance services and funding. Multi-funder supply chain finance platforms, like the one offered by PrimeRevenue, are the most effective. Multi-funder supply chain finance offerings have grown much more rapidly than other supply chain finance structures in recent years due to the separation between the management of the financial platform and the funding partners providing liquidity and taking credit risks. This separation allows optimized flexibility in funding with more options in terms of currencies, jurisdictions and pricing.
Looking forward, as the leading global provider of multi-funder supply chain finance technology and services, PrimeRevenue is poised to meet any new challenges that may arise from the recent Brexit decision. Research gathered from WSJ, Information Age and BBC.com differ in their opinion on severity, though each warn that the possible ramifications on supply chains and global volatility cannot be ignored. While the UK entered into a two-year period of negotiation on the exit terms, there will need to be clear visibility of the supply chain to correct assess any risks as well as determine the best plan of action to mitigate any negative fallout. It is still uncertain whether new trading arrangements will lean toward favored nation status, bilateral accords, World Trade Organization regulations, or even if the UK plans to sever its membership in the European Economic Area. Whatever the arrangements, PrimeRevenue will continue with cautious clarity, commitment to customer excellence and industry-leading technology, qualities that have enabled the company to maintain a leadership position within the supply chain industry and secure over 20,000 clients, across 70+ countries, in multiple languages and currencies.