For buyers and suppliers looking to increase cash flow and optimize working capital, there are alternative trade finance solutions such as supply chain finance or accounts receivable finance.
Supply chain finance, also known as supplier finance or reverse factoring, is a set of solutions that optimizes cash flow by allowing businesses to lengthen their payment terms to suppliers while providing the option for their suppliers to get paid early. Receivables sold under a supply chain finance program are nominally discounted at a rate tied to the credit cost of the buyer, which in most cases is better than the credit cost a supplier would pay to its own financing providers.
Accounts receivable finance allows companies to receive early payment on their outstanding invoices. A company using accounts receivable financing commits some, or all, of its outstanding invoices to a funder for early payment in return for a small fee. Receivables sold or pledged under an accounts receivables financing program are typically discounted at the supplier’s credit cost – unless the supplier pledges or sells its entire portfolio of receivables.
All of these programs improve cash flow and provide access to large sums of working capital for buyers and suppliers alike. These funds can be used to make large-scale investments in initiatives that increase innovation and productivity, while also positively impacting critical financial metrics.