What is supply chain finance?
As global supply chains stretch across the globe with multinational buyers on one side and a diverse group of suppliers in numerous countries on the other, corporations are under pressure to unlock the working capital trapped in their supply chains. 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 their suppliers while providing the option for their large and SME suppliers to get paid early. This results in a win-win situation for the buyer and supplier. The buyer optimizes working capital, and the supplier generates additional operating cash flow, thus minimizing risk across the supply chain.
What you should know about supply chain finance
- It is not a loan – Supplier finance or reverse factoring is an extension of the buyer’s accounts payable and is not considered financial debt. For the suppler, it represents a true sale of their receivables.
- It does not need to be tied to a single bank – Supply chain finance with SCiSupplier provides multibank capability by providing availability to more than 50 financial institutions worldwide.
- It is not factoring – With our solutions, 100 percent of each invoice-minus a very small transaction fee-is paid to the supplier, and there is no recourse burden on the supplier once the invoice is paid.
- Supply chain finance is not just for large companies – It provides value for firms of all sizes and credit ratings, including SME suppliers.
- It does not require a bank – Our programs can be self-funded by the buyer, established without the participation of a bank for funding, or composed of a mixed program where financing is shared by the buyer, capital markets, and financial institutions.
With the OpenSCi product suite, the implementation and ongoing management of a supplier finance program is made easier and faster than with any other solution in the market. Contact us now to learn how we are helping large multinational and midmarket organizations unlock cash trapped in the supply chain.
How does supply chain finance work?
- The supplier sends their invoices to the buyer using the current policy and methodology.
- The buyer approves the invoices and uploads the approved invoice data (its payables as well as any applicable payment offsets such as credit/debit memos) to the SCiSupplier platform.
- At any time, the supplier is able to log on the supply chain finance platform via web browser to see all the approved invoices. The supplier may do nothing and funds will settle directly in the supplier’s bank account on the original maturity date, or the supplier may sell or ‘trade’ his receivables to a funder on the SCiSupplier platform in return for advance payment.
- If traded before maturity, 100 percent of the invoice—less a small financing fee or discount—is transferred electronically to the supplier’s bank account. In most cases, the supplier is paid on the next business day. Since funds from the financial institution are advanced based on the buyer’s promise to pay on the original maturity date, financing rates are based only on the buyer’s risk, not the supplier’s. Therefore, financing rates are very attractive—about 10 times lower than factoring or other traditional financing solutions.
- At maturity, the buyer pays the full invoice amount to the supplier or respective funder on the SCiSupplier platform.
How much does supply chain finance cost?
The main benefit of supply chain finance is that the buyer does not pay any fee to extend its payment terms and the supplier only pays a small discount if he wants to get paid early. If you want to learn more, please view our infographics on supply chain finance.
Who benefits from supply chain finance?
Supplier finance works for companies in a variety of sectors, including automotive, electronics, manufacturing, retail, and many others. It works for companies on both sides of the supply chain. Buying organizations can extend their payment terms, and suppliers can get paid earlier. Supply chain finance is a true win-win solution for both trading partners. The PrimeRevenue team works closely with buyers and suppliers to craft a supply chain finance plan that fits the evolving needs of both parties. Contact us today to find out how we can serve your needs.