Supply chain finance solutions are growing in popularity as they offers more functionality and flexibility than traditional banking methods. Modern technology has enabled companies to centralize invoicing on a single platform and disperse their resources in any country and currency.
The flexibility of SCF allows small and medium businesses (SMBs) to use early payments to finance their supply chains. This includes working capital, inventory purchases, and receivables from customers.
The unique structure of supply chain financing makes it an attractive choice for companies looking for cash flow relief to streamline cost-cutting, meet production schedules, manage future business plans and mitigate risks. Although large producers most often use it, all sizes of business can benefit from using it.
Supply chain finance solutions
There are a variety of supply chain finance solutions that can help you fund your company’s growth. Here are some of the types you may find:
Factoring involves selling your accounts receivable to a financial institution at a discount in exchange for immediate cash. It’s an excellent way to improve cash flow quickly, though it does entail receiving less money than the total amount owed. On the plus side, if a customer fails to pay their invoice on time, you are relieved of any responsibility for covering the losses incurred in settling with the factoring company.
Supply chain financing (SCF), often referred to as supplier finance or reverse factoring, is a financial solution that streamlines working capital and provides liquidity for suppliers within a supply chain process.
This method allows businesses to optimize their cash flow by leveraging their relationships with suppliers and buyers. In reverse factoring, the buyer arranges financing for their suppliers through a financial intermediary—often a bank or financial institution—, ensuring that suppliers receive early payments.
The suppliers can choose to receive their outstanding invoices ahead of the scheduled payment date, improving their cash flow. The buyer then settles the invoices with the financial intermediary on the originally agreed-upon terms. In essence, it’s a win-win solution that benefits all parties involved and strengthens the entire supply chain.
It’s a financial transaction in international trade where an exporter sells its medium to long-term receivables to a forfaiter at a discount. This provides the exporter with immediate cash flow while transferring the risk of non-payment to the forfaiter—typically a bank or a financial firm that focuses on export financing. Forfaiting is often used to mitigate risk, secure financing, and simplify cash flow management in cross-border trade.
Invoice finance is a financing method where businesses use their unpaid invoices as collateral to access immediate cash. Instead of waiting for customers to settle their invoices, companies can sell these outstanding invoices to a financial institution or a specialized lender at a discount. This practice allows businesses to bridge cash flow gaps and maintain a steady flow of working capital to fund operations, growth, and other financial needs.
Early payment discount / Dynamic discounting
It’s a financial strategy that incentivizes prompt payment by offering buyers a discount for settling their invoices ahead of the scheduled due date. This mutually beneficial arrangement helps suppliers improve cash flow by receiving payments sooner, while buyers can take advantage of cost savings through discounted invoice settlements. Ultimately, it helps buyers avoid late fees or finance charges due to overdue payments.
Dynamic discounting is a flexible variation of this practice, allowing buyers to choose when to pay, typically within a specified window, and receive varying discounts based on their payment timing. You can offer discounts to encourage customers who usually pay late to start paying earlier to receive the discount. When applied correctly, early payment discounts can help reduce your outstanding balances and increase cash flow in your business.
With Bancoli’s Global Business Account, you can automate invoices, payment reminders, and early payment access to ensure timely payments. Furthermore, Bancoli’s invoicing enables offering discounts for early payments. This comprehensive solution empowers efficient cash flow management.
8 Supply chain finance benefits
Some benefits of using supply chain finance include:
Supply chain finance benefits for suppliers:
1. Cash flow management
Your business can ensure that you have adequate cash flow by taking advantage of supply chain finance. This cash flow can help you meet your bank debt, mortgage, payroll, buy inventory, new equipment, and other expenses.
2. Optimize working capital and liquidity
This type of financing gives you access to working capital quickly and easily without waiting for months for a bank loan approval process or going through an intense underwriting process with an investor or private equity firm. Bancoli provides a unique, international business ecosystem built for immediate liquidity.
3. Reduced cash flow volatility
You can use supply chain finance data to make more accurate forecasts about future revenues, which will help you better manage your cash flow and budget accordingly.
4. Automate your accounts receivable (AR) process
Automating your invoicing process can help you avoid errors and disputes with your buyers, speeding up the payment process. Make it easy for your clients to allocate instantly to your invoices with Bancoli in one click.
5. Build resilience and agility
Supply chain finance is a great way to help you prepare for the future and increase your adaptability as a business in a fast-evolving environment.
Supply chain finance benefits for buyers:
6. Know Your Supplier/Know Your Vendor
Using a supply chain finance platform that includes a verification process can help you keep track of your trading partners and avoid supply chain risks.
7. Optimize working capital
With Bancoli, you can approve invoices as early as possible to increase rewards and discounts on every invoice.
8. Build stronger relationships with suppliers
Supply chain finance solutions can make all the difference in maintaining a healthy cash flow for your business. It is a flexible and innovative financing option available to SMBs to access a less expensive form of credit.
Many companies that don’t have enough collateral to be approved for loans benefit from it to grow and thrive. It is also beneficial for mature companies with collateral and experience but may need additional capital to expand. Both types of companies can benefit from the flexibility of supply chain financing over traditional bank loans or credit lines.
If your business is experiencing cash flow problems, or are looking for other ways to optimize cash flow, you may consider complementing your debt structure using technology. Bancoli is an international payment and banking platform that optimizes supply-chain efficiencies across many businesses and industries. Avoid over-reliance on third parties, get paid faster, access flexible cash options, and make better-informed decisions.
Contact us today for more information about how Bancoli can help you boost your cash flow and strengthen your supply chain.