Supply Chain Finance FAQ
The solution offers suppliers increased visibility and control over their cash flow while giving buyers more time to pay invoices.
The solution offers suppliers increased visibility and control over their cash flow while giving buyers more time to pay invoices.
What is supply chain finance?
Supply chain finance, also referred to as reverse factoring or approved payables finance, is a set of solutions that improves cash flow by allowing businesses to optimize supplier payment terms. Simultaneously, it provides the option for suppliers to receive early payment as soon as invoices are approved in return for a nominal finance charge. This frees up cash that would otherwise be trapped in the supply chain, enabling both buyers and suppliers to survive economic volatility, invest in growth and outperform competitors.
In addition to receiving early payment, suppliers have more visibility into invoice approval and payments. That means fewer surprises and errors in the payment cycle and improved cash flow forecasting.
All of this occurs without negatively impacting the company’s or its suppliers’ balance sheets.
How does it work?
PrimeRevenue provides a cloud-enabled platform that creates a digital ecosystem between buyers, suppliers and funders. It facilitates the exchange of information about receivables and the flow of funding.
What are the mechanics of how invoices and payments flow?
Here is a snapshot of how the process and platform operate:
What are the accounting implications?
When executed properly, supply chain finance does not count as additional debt for the buyer or supplier. PrimeRevenue’s programs have been scrutinized by global accounting firms. For buyers, trade payables stay as they are – trade payables. For suppliers, there is no effect on outstanding debt covenants or balance sheets.
How will supply chain finance benefit our company?
Both buyers and suppliers benefit from supply chain finance. PrimeRevenue’s customers improve working capital by an average of more than $200M. Buyers and suppliers can use this cash flow improvement to drive growth, reduce debt and diversify liquidity alternatives. Suppliers participating in buyer programs are able to improve cash flow and gain greater visibility into invoice approvals and payments. Supply chain finance is effective in any business climate.
What negative impacts can supply chain finance have on our company?
When executed properly, supply chain finance should have only positive impacts. There should be no effect on your trade payables accounting and no disadvantage to your suppliers. However, if executed poorly by less experienced and less technologically advanced partners, there can be negative accounting, communications and supplier ramifications.
How often do suppliers participate in a supply chain finance program?
When properly communicated, most suppliers understand the importance of supporting a buyer’s drive to optimize its working capital position. Suppliers also value how supply chain finance offers visibility and the opportunity to improve their own working capital position by taking advantage of early payments offered at a favorable rate.
As such, PrimeRevenue has seen a 70 percent supplier participation success rate in our programs during the last three years.
How does this impact our IT infrastructure?
PrimeRevenue is a cloud-enable platform that integrates easily with most major ERP systems. There is very little impact on your IT infrastructure or team.
Our bank offers supply chain finance. Why should I work with PrimeRevenue?
Single-funder supply chain finance programs are risky. This is because funding in these programs is typically uncommitted. Due to economic conditions and/or regulatory pressures, banks’ strategies can change suddenly and prompt them to reduce their financing of supply chain programs, increase pricing, exit a specific market or even stop funding programs altogether.
PrimeRevenue’s multi-funder structure mitigates these risks. Our global network of 100+ funders ensures your supply chain finance program is always funded. PrimeRevenue also has an extensive track record supporting long-term supply chain finance programs that extend deep into the supply chain. Banks typically only penetrate the top 30 percent of the supply chain, while PrimeRevenue targets 100 percent.
As a result, PrimeRevenue-led supply chain finance programs deliver bigger cash flow improvements while extending the benefits of supply chain finance to a larger number of suppliers.
What are the benefits of a multi-funder structure?
There are multiple benefits. A multi-funder structure secures more attractive rates due to its competitive nature, resulting in consistently lower pricing than that of other supply chain finance providers. PrimeRevenue maintains relationships with funding sources across multiple geographies, enabling buyers to support suppliers across the globe. Multi-funder structures also mitigate the risks of a single funder reducing its commitments to a program, as described above.
How long does it take to get a supply chain finance program up and running?
On average, it takes 30-60 days for companies to implement a program. However, this varies depending on the alignment and resources of the buyer implementing the program. PrimeRevenue provides buyers with a detailed implementation plan that clearly outlines tasks, timeframes, team members, milestones and critical success factors.
Who in our organization will need to be involved and trained?
It is critical that your procurement team has incentives that align to the goals of the program. The treasury, finance and procurement teams should set agreed-upon objectives prior to execution. Part of this alignment involves assuring the procurement team is properly trained and equipped to be successful. PrimeRevenue has an extensive training and support program and provides tools to assure success for both organizations.
Who is responsible for supply chain finance customer service and support?
PrimeRevenue provides ongoing customer service and support for your program.
How will PrimeRevenue help us get started?
Implementing a supply chain finance solution doesn’t have to be daunting. A competent partner like PrimeRevenue can streamline and simplify the process, identify and communicate working capital improvement potential to internal stakeholders, and help you clearly articulate the mutual benefit with suppliers.
In addition, we provide:
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.
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.
Contact us to speak to a Working Capital Solutions Specialist